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VENEZUELA
COUNTRY REPORT
VENEZUELA
Economic Research and Public Affairs
Valentina Cariani [email protected]
Capital city: Caracas
Population (2010): 29 million
Nominal GDP (PPP, 2010): USD 291 billion
EXECUTIVE SUMMARY
Political risk. President Chavez has gradually adopted a more rigid stance since the opposition took up seats in the Venezuelan parliament in early 2011. The President is pursuing
his policy of centralising power and implementing radical measures (expropriation). President’s health status poses some concerns on his candidacy for the December 2012 presidential election.
Economic risk. The economy depends heavily on the hydrocarbons sector, which accounts for 80% of all exports and more than 50% of fiscal revenues. Reduced oil production, the fall in foreign investments and the government’s handling of public finances are
causing the country’s economic performance to deteriorate.
Financial and operational risk. Cumbersome bureaucracy and widespread corruption
continue to hamper investments in Venezuela. The government exerts heavy control over
the banking system, undermining profit margins.
Real GDP (% change)
Consumer prices (% change. average)
Central government balance/GDP (%)
Balance of payments
Exports ($ bln)
Imports ($ bln)
Trade balance ($ bln)
Current account balance ($ bln)
Current account balance/GDP (%)
Total external debt ($ bln)
Total external debt/GDP (%)
Debt service ratio (%)
Reserves ($ bln)
Reserves (months of imports)
Exchange rate VEB/USD (average)
2008
2009
2010
2011
2012
4.8
30.4
-1.1
-5.0
30.3
-5.3
-5.4
32.6
-5.7
-2.6
41.8
-6.1
-1.7
36.7
-6.9
93.5
-48.1
45.4
39.2
12.3
47.3
14.8
6.8
33.1
9.0
2.1
58
-41
17
9.0
2.6
50
15.6
15.2
26
9.2
2.5
62
32
30
21
7.6
51
24
11.6
30.0
7.9
4.3
59
33
26
17
7.7
57
25.7
12.9
29.1
9.0
5.3
63
34
29
20
6.5
63
21.0
8
30.0
8.8
5.4
Source: EIU, 2010
SELECTED ECONOMIC INDICATORS
RATING
Standard and Poor’s
BBMoody’s
B
Fitch
B+
Agreements and Treaties
Convention of Washington
Convention of New York
Bilateral agreement on the promotion and protection of investments
SACE TERMS OF
COVER
OECD Category: 7/7
Sovereign risk
Bank risk:
Private risk:
1 SACE
Current
172/183
174/183
162/178
Business Climate Indicators
Doing Business 2011
Index of Economic Freedom 2010
Corruption Perceptions Index 2009
without conditions
without conditions
without conditions
Previous
170/183
148/183
158/180
In force
In force
In force
SACE GUARANTEES
31 MARCH 2011
Venezuela
Committed (€ mln)
Outstanding (€ mln)
- of which issued (€ mln)
171
140
118
VENEZUELA
POLITICAL RISK
Domestic affairs. The Socialist Party, which supports President Hugo Chavez, won the
general election in September. Despite this, the President’s party fell short of the majority
it would need to pass laws immediately, as was the case after the last election (which the
opposition boycotted). President Chavez continues to pursue his radical policies, despite
the opposition’s presence in parliament. However news about his cancer treatment in
Cuba and powers’ delegation to vice president in July raised some concerns o n
C h a v e z candidacy for the December 2012 presidential election. Political risk remains
high, particularly as regards the expropriation and nationalisation of assets.
International relations. Relations with the US worsened recently after Congress imposed
sanctions against the PDVSA oil company due to its business relations with Iran. However,
Venezuela continues to be one of the main suppliers of oil to the US. Venezuela and the
main Latin American countries (especially Brazil and Argentina) have moderately unstrained relations. Chavez’s attempt to create an alternative axis of power that does not
include America, by financing certain countries (Cuba, Bolivia), has fuelled tensions.
ECONOMIC RISK
Economic activities. The economy is highly dependent on the country’s hydrocarbon
industry. While offering good potential for growth, production and quality are heavily
regulated and the operational problems involved discourage many foreign investors.
Various sectors, such as construction, services and infrastructure, are sustained by state
investments. Others, such as household appliances, cars and textiles, which reflect household spending, are in sharp decline.
Public finances and inflation. Prior to the crisis, high oil revenues (which account for
almost 50% of public finance income) enabled the government to adopt a highly expansionary fiscal policy, marked by a substantial increase in public spending and a relatively
limited deficit. However, these measures, which lack transparency and were introduced
for purely political reasons, are not deemed sustainable in the long term given the structural constraints of the hydrocarbons sector. Inflation has gradually risen since 2006 despite controls on prices of consumer staples.
Balance of payments. Substantial oil exports have generated a trade balance surplus
which is, however, forecast to narrow in the short term. The positive balance on the current account is expected to follow a similar trend, reflecting a gradual decline in FDIs.
Foreign debt and international reserves. Venezuela has a low level of foreign debt (less
than 25% of GDP), albeit rising slightly in terms of absolute value. Currency reserves are
falling due to the need for hard currency by the national oil company (PDVSA) and the
national development fund (FONDEN). The shortage of hard currencies is gradually leading to the introduction of restrictions on circulation of capital and conversion of currencies.
Exchange rate. Venezuela introduced a two-tier exchange rate between the bolivar and
the US dollar in 2010 to curb mounting pressure on the currency and reduce tensions on
the exchange market. The exchange rate for priority transactions is VEB 2.60 per US$,
whereas for non-essential goods (such as profits and repatriated capital) it is 4.30. The
medium-term forecast is for gradual devaluation. The CADIVI, the government body
which administers currency exchange, has accumulated a huge backlog of permit requests resulting in long delays.
2 SACE
VENEZUELA
GDP growth and inflation
Foreign debt
70
30
50
60
25
40
20
30
15
20
50
%
30
%
mld US$
40
10
10
10
5
0
0
0
-10
20
2008
2009
Gross foreign debt
2010
2011
2008
2009
2010
2011
2012
2012
Gross foreign debt / GDP
Real GDP growth
Inflation
FINANCIAL RISK
System structure. The Venezuelan banking system consists of 55 banks, 10 of which are
state owned. The five biggest banks are: Banco Mercantil, Banesco, Banco de Venezuela,
Banco Provincial and Banco Occidental del Descuento. These manage more than 50% of
assets in the sector and some 60% of the total credit portfolio. According to data provided by Venezuela’s central bank, non-performing loans account for less than 2% of the
total. Despite developments in recent years, the number of banks operating in the sector
appears to far exceed the country’s actual credit brokerage requirements: many banks
have tiny market shares (frequently less than 1%) and are not competitive.
Performance. The system as a whole is characterised by lack of efficiency and a high degree of government interference. Some banks, including giants like Santander and BBVA,
have faced expropriation and been threatened with nationalisation in attempts by the
government to control the mortgage market.
Stock market. Performance on the Venezuelan stock market depends directly on the
policies of President Chavez. After two years of growth, the stock market index slumped in
2007. Stocks of a number of nationalised companies were repeatedly suspended after
losing up to 20-30% of their value. The nationalisation campaign has also accentuated
investors’ risk perception and CDS spreads have widened considerably.
OPERATIONAL RISK
Legal system. The system is hampered by cumbersome bureaucracy, corruption and
government interference. The legal system is highly politicised and regarded as biased.
Attitude towards foreign investors. In recent years the government has taken an aggressive stance towards foreign investors. As companies have been nationalised many
foreign operators have found themselves ousted from the country.
Infrastructure, safety and natural disasters. Much of Venezuela’s infrastructure is inadequate and the government has approved an ambitious plan to expand the rail network. The country has one of the highest crime rates in Latin America.
3 SACE
VENEZUELA
RELATIONS WITH IFIs
International Monetary Fund. Venezuela has no loan agreements with the IMF. Relations
between the two parties are limited to periodical consultations.
World Bank. At the moment there are 3 World Bank projects in the country, worth a total
of US$ 30 million. These regard the health sector and environmental protection.
BUSINESS RELATIONS WITH ITALY
Trade. The United States is Venezuela’s biggest trade partner. In 2010 Italian exports to
Venezuela amounted to € 616 million, slightly less than in 2009. The main sectors are mechanical engineering, which accounts for 43% of the total, electronics (10%) and metals
(11%). Italy imported Venezuelan goods worth € 253, which was also slightly less than the
previous year. Mined and quarried products and refined energy products make up the
majority of imports.
Italian exports to Venezuela (2010, %)
other means of transport
3%
furniture and other manufacturing
2%
Italy - Venezuela trade balance (2001-2010, mln €)
other
11%
900
800
700
600
food
5%
500
400
automotive
5%
300
mechanical engineering
43%
chemicals
10%
200
100
0
-100
electronics
10%
4 SACE
metals
11%
2001
2002
2003
export
2004
2005
2006
import
2007
2008
2009
2010
balance
Last update: April 2011