Venezuela Business Overview

Business and Economic Overview

Since the beginning of his presidency, Maduro’s inadequate macro and microeconomic policies have drastically and negatively affected the Venezuelan economy. The problem has been exacerbated by Venezuela’s heavy reliance on mineral products and especially petroleum products; these form over 90% of Venezuela’s imports, 25% of GDP and roughly 50% of the central government’s operating revenue.[1]

As such, poor economic planning and the crash in oil prices has left the Venezuelan economy in turmoil. GDP is forecast to further contract and Venezuela faces major stagflation: inflation is currently almost unpredictable with some reports of over 13000%.

Furthermore, the Bolivar’s value has plummeted: the government set exchange rates and price control do not represent the true worth of the Bolivar.

Venezuela ranks 188 of 190 in the World Bank’s Ease of Doing Business Index, and 190 of 190 in the World Bank’s Ease of Starting a Business index. Indeed, the World Bank estimates that it takes an average on 230 days to register a business, a process consisting of twenty steps and a number of payments.[2] A number of obstacles face firms wishing to establish in Venezuela.

Government controlled foreign currency exchange makes it difficult to access currency for imports; there are many domestic price controls; there are high corruption and crime rates; the labour force is largely unskilled and there are strong, protective labour regulations.

Short term prospects in most sectors are bleak, but in niche sectors or for investors with a high tolerance of risk and long-term outlook there are opportunities.

Venezuela has the world’s largest proven oil reserves, totalling 300 billion barrels, and it is the hydrocarbon sector that provides the greatest opportunity to foreign investment. Venezuela’s oil infrastructure could be modernised in numerous aspects and there are aspirations for increased production, particularly in the Orinoco Belt.

All natural resources are state owned however and any foreign involvement in the hydrocarbon industry must be through a joint venture with the state oil company, PDVSA, which must have an equity share of at least 50% in any venture. Further opportunities may exist in electricity infrastructure, the mining sector and technical education schemes.[3]

Given the heavy state interference in the economy, the safest forms of market entry are deemed to be through joint ventures, or working with local agents and distributors.

Security Situation

Venezuela is the most unstable nation in Latin America. There is a high risk of political violence and violent crime. There have been large scale political and economic demonstrations in a number of cities, many of which have turned violent. The state security forces often result to force to disperse protests and lethal force has been used on a number of occasions; between April and August 2017, 6729 demonstrations were recorded alongside 163 deaths resulting from paramilitary and security forces.[4]

Violent crime is common across the country and can occur at any place, any time: victims who resist have frequently been killed. The threat of kidnapping is also high, particularly along the Colombian-Venezuelan border where a number of drug traffickers and armed groups are active.

There have also been occurrences of piracy and armed robbery in Venezuelan waters. Owing to the crime rate, close protection services are standard for business and official visitors whilst the use is armoured vehicles is common.

References

[1] https://atlas.media.mit.edu/en/profile/country/ven/; http://www.bti-project.org/en/reports/country-reports/detail/itc/VEN.

[2] http://www.doingbusiness.org/data/exploreeconomies/venezuela#paying-taxes.

[3] https://www.gov.uk/government/publications/exporting-to-venezuela/exporting-to-venezuela#business-behaviour-in-venezuela; https://www.export.gov/apex/article2?id=Venezuela-Market-Opportunities.

[4] https://www.observatoriodeconflictos.org.ve/destacado/venezuela-6-729-protestas-y-157-fallecidos-desde-el-1-de-abril-de-2017.