Venezuela is rich in natural resources and attracts a number of our clients. In particular, it has huge oil and gas reserves (it has the largest proven oil reserves in the world) and is one of the main suppliers to the US. Venezuela has a long tradition of democracy, although the rise to power of Hugo Chávez in 1998 ushered in a new era of tensions between the government and the private sector. This dynamic which has only been exacerbated under the helm of President Nicolás Maduro, given low economic growth and the government’s heavy-handed approach to stemming political dissent and regulating the private sector.

We keep our clients informed of the latest market moves and political developments as part of our 'top-down' and 'bottom-up' perspective. Clients also benefit from in-depth analysis on 20 of Venezuela’s most important industries. We provide interactive data and forecasting alongside detailed and risk-assessed analysis from our expert research teams. We aim to keep you ahead of the curve, so you can do business with ease in Venezuela.

Country Risk

Venezuela Country Risk

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Core Views

  • Low oil prices, high inflation and a poor business environment will see Venezuela's recession stretch into its second year in 2015 and persist into 2016.

  • The ruling PSUV government will suffer major losses at the polls scheduled for the end of this year, although the policymaking trajectory will remain largely unchanged.

  • Inflation will remain elevated, at the highest level in Latin America, and the operating environment will remain very precarious for foreign multinationals in the country.

Major Forecast Changes

  • Given the persistence of Venezuela's challenges and the likely ramifications of increased political tensions in the lead-up to the country's legislative elections, we believe that the outlook for Venezuela...

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Venezuela Operational Risk Coverage (9)

Venezuela Operational Risk

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BMI View: Venezuela is a high risk investment destination. Potential investors are faced with considerable entry barriers, including restrictions on which sectors can be invested in and substantial red tape when attempting to open a business which causes lengthy start up delays. The risk of government appropriation of assets is high, and both physical property rights and intellectual property rights are weakly enforced. Underlying these risks is the high level of corruption in the country, which affects all aspects of carrying out business. Overall, therefore, Venezuela has a score of 24.6 out of 100 on the BMI Trade and Investment Risk Index which places the country 40th out of 42 countries in the Latin America region, ahead only of Cuba and Haiti, and 190th...

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Venezuela Crime & Security

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BMI View:  Although the terror threat in Venezuela is low, high rates of violent crime and the implications of anti-American foreign policy pose substantial operational risk to investors, undermining its Crime and Security performance. In particular, foreign workers are exposed to kidnapping risks and inadequate protection from the country's police force which often necessitates hiring private protection. Venezuela performs poorly in BMI's overall Crime and Security Index, scoring 24.2 out of 100. The country ranks 154th out of 170 countries globally, and 27 thout of 28 countries in Latin America, marginally ahead of its regional ally, Ecuador.

Crime is endemic in Venezuela and poses a critical threat to foreign operators. The capital Caracas is the third-most dangerous city in the world with an estimated 10 homicides per day. Foreign...

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Venezuela Labour Market

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Venezuela has consistently delivered strong social welfare programmes which have improved public services and the availability of labour. However, the country performs very poorly with regards to labour costs, which significantly increase operational risk to private companies and are a serious concern for investors. These strengths and weaknesses are factored in the BMI Labour Market Risk Index, in which Venezuela scores an overall 52.9 out of 100, ranking it 11th out of 28 countries in Latin America, in between Ecuador and Panama. Meanwhile Chile, which has very liberal labour laws, is a regional outperformer with a score of 64.6.

Labour Availability in Venezuela is good, due to high rates of urbanisation, and strong public spending in health and primary education. As a result, the workforce is located in close proximity to commercial areas, transport hubs, and effective public services. This is good for business...

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Venezuela Logistics

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BMI View: Venezuela presents investors with some considerable risks in terms of the country's transport and utilities networks. Although the road network is relatively extensive, road safety levels are amongst the worst in the world and freight in transit is subject to frequent and lengthy delays. Venezuela does boast amongst the lowest electricity and fuel costs in the world, however these are presented alongside ageing infrastructure which results in costly disruptions to supplies. These issues are compounded by excessive trade bureaucracy which makes importing and exporting goods difficult, time consuming and costly. Altogether, therefore, Venezuela has a score of 39.1 out of 100 on the BMI Logistics Risk Index which places the country 39th out of 42 Latin America states and 142nd out of 201 states globally.

One of...

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Venezuela Trade & Investment

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Poor economic openness, severe government intervention, and weak rule of law present high risks to investors in Venezuela. Overall trade is restricted, while markets are tightly controlled and government owned to a large extent, which distorts the competitive landscape. Furthermore, successful private businesses have been nationalised and compensation is often insufficient or delayed. Given that the legal system is subject to government influence, investors are forced to seek compensation through international organisations which are unable to influence the Venezuelan government. Therefore, the fundamental risks far outweigh the few consolatory advantages available to investors.

As a result, Venezuela scores 26.9 out of 100 for Trade and Investment Risks in our Operational Risk Index. This puts it in 27th place out of 28 countries in Latin America, ahead of last placed Haiti (19.0), while Panama is the regional outperformer scoring 61.4. This...

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Venezuela Industry Coverage (20)

Agribusiness

Venezuela Agribusiness

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BMI View: The operating environment for the agribusiness sector has deteriorated significantly over recent years due to a poor macroeconomic climate, shortage of foreign currency and government mismanagement, resulting in a dearth of agricultural inputs. Venezuela's economy will be under extreme downward pressure in 2015 amidst a drop in international prices. The growing headwinds to the economy will weigh on agriculture production and consumption in the coming year, and we will see most commodities see...

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Autos

Venezuela Autos

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In 2015, sales and production of vehicles in Venezuela will improve slightly but volumes will remain far below their pre-2013 levels. Production will remain stymied by bottlenecks in the supply of imported components owing to the restrictions on currency exchange in the country. These currency restrictions will also hold back sales volumes owing to dealers' inability to address the shortfall in production by ramping up imports.

BMI holds a considerably bearish outlook for vehicle production in Venezuela following the dramatic fall in oil prices in late 2014 which has drastically lowered Venezuela's revenues from oil exports and, as a result, has severely cut the country's supply of hard currency. This has meant the country's multi-tiered exchange rate system has become untenable with widespread capital restrictions and rationing of hard currency now limiting automotive manufacturers...

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Commercial Banking

Venezuela Commercial Banking

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Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Venezuela Consumer Electronics

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BMI View: after the negative impact of exchange rate reforms enacted in February 2015 became clearer in H115 we made a downward revision to the forecast for Venezuela's consumer electronics market. The reforms are effectively a devaluation and will have a negative impact on IT market growth in 2015 by dramatically increasing the cost of imported products, solutions and components. Additional economic challenges in 2015 include inflation forecast at almost 75% and GDP to contract by 3.6% in real terms. Meanwhile, the push by the government to implement the 'fair price' law in H114, which restricted vendor margins to 30%, means vendors face continued political as well as economic risk factors. The law adds to a hostile business environment and exacerbates existing...

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Defence & Security

Venezuela Defence & Security

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BMI View: The Venezuelan defence sector is set to continue to be the largest in Latin America in terms of expenditure, which we project at USD3.5bn in 2015. However, in terms of production Venezuela will remain an insignificant player in the world arms market. Although falling oil prices are set to lead to budget cuts, we believe that military spending will be maintained.

Venezuela relies on oil export receipts to fund government spending, and rapidly falling oil prices in the final months of 2014 heighten the existing risks from economic mismanagement and political instability. While we estimate a decline in GDP growth of 2.5% in 2014, and believe a recessionary environment will prevail in 2015, we do not believe that the government will default in the coming year at least. Moreover, the defence budget will continue to rise despite inevitable budget cuts. We forecast defence spending to reach...

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Food & Drink

Venezuela Food & Drink

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BMI View: In view of the substantial headwinds facing the Venezuelan economy, we have downgraded the country's real GDP to -5.6% in 2015 and -2.9% in 2016. Despite enormous natural resource wealth, the economy's outlook will continue to be dimmed by poor macroeconomic governance, high inflation, low oil prices and significant political uncertainty. Furthermore, we expect household consumption to continue to be constrained by high inflation, which has substantially eroded purchasing power (we forecast headline CPI price growth rising to 78.3% year-on-year (y-o-y) in 2015), as well as government price controls, which create market...

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Freight Transport

Venezuela Freight Transport

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Low Cargo Growth Expected in 2015

BMI envisages very low cargo volume growth in 2015, due to a standstill economy and a number of industry-specific problems. The freight transport sector faces ongoing concerns about the lack of sustainable import demand and slowing oil exports. Chronic mismanagement of the country's port facilities since they were nationalised in 2009 has damaged their international reputation and their profit-making capabilities. We do not expect any significant recouping of lost throughput levels over the medium term. Over a longer period, investments from China could see the facilities begin to regain some lost ground. Regarding other transport modes, airfreight sector remains restricted by currency controls. Venezuela lacks reliable data on its small rail freight and large road haulage volumes, but cargo growth on both will be kept to low single percentage digits.

BMI...

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Information Technology

Venezuela Information Technology

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BMI View: After the negative impact of exchange rate reforms enacted in February 2015 became clearer in H115, we made a downward revision to the forecast for Venezuela's IT market. The reforms are effectively a devaluation and will have a negative impact on IT market growth in 2015 by dramatically increasing the cost of imported products, solutions and components. Additional economic challenges in 2015 include inflation forecast at almost 75% and...

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Infrastructure

Venezuela Infrastructure

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BMI View : Declining global oil prices, high levels of national debt and substantial inflation have all contributed to a further downgrading of our forecasts for Venezuela's ailing construction sector. Few new projects are coming to the pipeline and existing construction projects are often subject to extensive delays and rising debts as costs of key supplies increase. Venezuela continues to present an unattractive foreign investment environment, and there is little scope for future growth unless fundamental economic and political reforms are enacted.

2014 saw Venezuela's construction sector shrink by an estimated 9.1% and our expectations for 2015 are little better, with a contraction of 5.4% forecast due to the narrowing project pipeline and scarcity of funding. We do not expect to see the construction sector exit recession until 2018, at the earliest, when growth will...

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Insurance

Venezuela Insurance

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BMI View: The recession in Venezuela that began in 2014 will deepen in 2015 amid an extremely poor business environment and much lower oil prices. Meanwhile, soaring inflation will weigh heavily on consumer spending as purchasing power continues to be eroded. This poses serious risk to both segments of the insurance sector, as an increasingly severe economic downturn will constrain the purchase of insurance policies and the acquisition of goods requiring insurance.

Venezuela's economy will be under extreme downward pressure over the coming quarters due to a confluence of factors, including a poor business environment, high inflation, and lower oil prices. Private sector productivity has slowed...

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Medical Devices

Venezuela Medical Devices

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BMI Industry View: The Venezuelan medical device market will register a negative CAGR in US dollar terms due to maxi-devaluations of the bolivar, which should bring down per capita consumption. The market is reliant on tightly controlled imports, which have performed negatively since 2011, with import shortages impacting health services provided by the public and private sectors. In spite of the development of Barrio Adentro, the public health system remains under-funded. Niche opportunities exist but, overall, the...

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Mining

Venezuela Mining

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BMI View: Mining sectors across Central America and the Caribbean will see varying growth prospects in 2019. The region has significant untapped mineral potential, yet a range of business environments and operational challenges will lead to uneven growth. Overall, the mining sectors of Colombia and Panama will see the strongest longer-term growth, while Guatemala, and to a lesser extent Honduras, will underperform.

Colombia and Panama will outperform other countries in Central America and the Caribbean in terms...

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Oil & Gas

Venezuela Oil & Gas

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BMI View: We maintain our cautious outlook for Venezuela's oil and gas sector despite vast below-ground potential and ambitious production plans by state-owned PDVSA. We expect Venezuela to continue to underperform given the large scope of operational challenges, including excessive political interference, chronic...

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Petrochemicals

Venezuela Petrochemicals

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BMI View: Progress on the expansion of the Venezuelan petrochemicals industry has been slow and undermined by the government's policy in upstream sectors that provide feedstock and its general indifference to improving the investment climate.

Venezuela will be unable to move towards self-sufficiency under the current business environment in which the government has assumed a high degree of managerial control and intervention in the economy. There were high hopes that strong projected growth in oil and gas output would support investment in the petrochemicals industry, but these have largely been destroyed and expansion programmes are largely limited to fertilisers.

Polymer shortages in recent years have had a detrimental impact on the Venezuelan market. Beset with operational problems and lacking...

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Pharmaceuticals & Healthcare

Venezuela Pharmaceuticals & Healthcare

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BMI View: The Venezuelan governments remaining protection of its domestic pharmaceutical and healthcare industries will hamper investor sentiment as the country remains critically reliant on foreign medicine and foreign aid. Venezuela's diminishing appeal will be compounded by the country's worsening political and economic landscapes, severe drug shortages, and severely limited affordability levels. For now, multinational pharmaceutical companies show no sign of retreat from the market, however, expectations for further deterioration of Venezuela's economy will likely see contracting investments in coming years.

Headline Expenditure Projections

  • Pharmaceuticals: VEB51bn (USD8bn) in 2014 to VEB63bn (USD3bn) in 2015; +23.8% in local currency terms and -66.2% in US dollar terms. Forecast has been...

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Power

Venezuela Power

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BMI View: Venezuela's power market will continue to suffer from severe infrastructure inefficiencies and unreliable electricity supply over our 10-year forecast period to 2024, as lower oil export revenues - due to falling oil prices - will constrain public investment in the power sector. Given the high dependence of the market on public spending, a cut in the 2015 budget for Venezuela's power ministry supports our view and increases the risk of power shortages for the country's downstream oil sector. The development of Venezuela's power sector will therefore remain reliant on Chinese financing. Venezuela's constrained government spending ability and unattractive investment climate, coupled with China's interest in Venezuelan hydrocarbon resources, will drive...

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Real Estate

Venezuela Real Estate

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BMI View: Venezuela's hostile business environment and troubled economy has seriously held back growth in the commercial real estate sector. Both tenants and landlords are being negatively affected by the uncertainty that surrounds the market and this is deterring much needed investment in the sector. Despite this the country's economy is still developing and, as such, possesses a number of opportunities that we believe will generate strong growth for the country's real estate sector in the long run.

All three of Venezuela's real estate sub-sectors are suffering from chronic shortages of supply due to a severely limited construction pipeline. There have been few indications that this situation will change significantly over 2015 and 2016, meaning that demand will remain high for the limited space that is available.

Government policies that...

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Retail

Venezuela Retail

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BMI View: As a result of high inflation and a chronic shortage of basic goods in Venezuela the economic outlook remains unstable at the beginning of our period which has seen us forecast negative year-on-year growth rates of total household spending in 2015 and 2016. Moreover, the tough regulatory environment looks set to remain a barrier to entry for international investors within the retail sector until 2019. However, the burgeoning middle-class will stimulate growth in the sector which will see a more positive outlook for retailers by the end of our period.

Low oil prices, high inflation and a poor business environment will see Venezuela's recession stretch into its second year in 2015 and persist into 2016. Following the release of data suggesting that price growth has accelerated, real private consumption growth will be even more subdued...

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Shipping

Venezuela Shipping

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BMI View: We envisage a quite torrid 12 months for Venezuela's shipping industry, with the country's two main ports (Cabello and La Guaira) both set to register contractions across box and tonnage throughput. We continue to believe that the recession that began in 2014 will become even more pronounced in 2015, and negative growth will persist into 2016, with the shipping industry not strong enough to withstand these headwinds.

The country's largest port by some margin is Puerto Cabello, is set to once more see growth reverse, indeed positive year-on-year (y-o-y) growth has not been achieved at the facility since 2012. Similarly, the port of La Guaira will struggle in 2015 with both container and tonnage throughput shrinking by 1% which...

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Telecommunications

Venezuela Telecommunications

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BMI View : Uncertainty regarding the political situation along with the deteriorating economy, which is suffering further due to a decline in oil prices, is also having an impact on Venezuelan consumer habits and as a result the Venezuelan mobile market contracted in 2014. BMI believes that growth will return in the medium-term, however. Despite three companies being awarded LTE spectrum in December, we remain bearish towards its impact on mobile broadband growth. Weak macroeconomic fundamentals have lowered confidence and caused Venezuelans to leave their higher-value subscriptions for more basic ones. However, healthy increase in smartphone usage is an encouraging sign.

Key Data

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