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.
Venezuela Country Risk
Low oil prices, high inflation and a poor business environment will see Venezuela's recession stretch into its third year in 2016.
The ruling PSUV government will suffer major losses at the December legislative elections, although the policymaking trajectory will remain largely unchanged due to executive power. Political risk is on the rise due to elevated tensions associated with the polls.
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
We have downgraded our real GDP growth forecasts for 2016 and 2017, due to a further downgrade to our oil price forecasts and our expectations that...
Venezuela Operational Risk Coverage (9)
Venezuela Operational Risk
Venezuela Operational Risk
BMI View: Investors considering Venezuela are presented with a multitude of risks that serve to make the country an unattractive and uncompetitive investment destination, despite its natural resource wealth. Crime rates are soaring with those able to afford it reliant upon private security and parts of the country are considered off-limits. Corruption remains pervasive throughout government and there are few protections in place for private business owners. The logistics network also presents challenges, with crumbling infrastructure and supply chain disruptions offsetting the benefits presented by extremely low utility costs. Due to these considerations, Venezuela has an overall score of 36.9 out of 100 on the BMI Operational Risk Index which places the country 41nd out of 42 Latin...
Venezuela Crime & Security
Venezuela Crime & Security
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...
Venezuela Labour Market
Venezuela Labour Market
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...
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.
Venezuela Trade & Investment
Venezuela Trade & Investment
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...
Venezuela Industry Coverage (20)
BMI View: The operating environment for the agribusiness sector has deteriorated significantly over recent years, due to a poor macroeconomic climate, a shortage of foreign currency and agricultural inputs, and government mismanagement. Venezuela's economy will be under extreme downward pressure in 2015 and 2016 amidst the drop in international oil prices. The growing headwinds to the economy will weigh on agricultural production and consumption in the coming years, and we forecast most of the commodities to see modest if not declining growth out to 2019. Producers of agricultural goods will struggle as rising production costs and controlled prices at the farm level reduce margins.
BMI View: Venezuela's autos sales and production remain at all time low volumes over the 2016 to 2019 forecast period, as extremely scarce access to foreign currencies prevents auto companies from importing both completely built-up vehicles and the necessary components needed for production.
|Passenger Car And Light Commercial Vehicle Sales|
|f = BMI forecast. Source: Cavenez, BMI|
Venezuela Commercial Banking
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Venezuela Consumer Electronics
BMI View: We had downgraded our forecasts for the Venezuelan consumer electronics market in our Q4 2015 report to reflect the nature of the macroeconomic crisis the country. We have left our forecasts for the market unchanged in our Q116 report update. We are now anticipating a modest recovery to take place in the market in 2016 as economic conditions improve. Nevertheless, we are cautious in our forecasts and hold the opinion that if the macroeconomic fundamentals of Venezuela deteriorate over the coming weeks, we will undertake another significant downwards revision of our forecast for our upcoming update.
Our previous downgrade was, however, relatively minor in the context of our pre-existing view for Venezuela to be the underperforming consumer electronics market globally. This view was based on devaluation and the impact on device affordability...
Defence & Security
Venezuela Defence & Security
BMI View: Venezuela's domestic defence sector remains one of the smallest in Latin America in terms of expenditure, which we project at USD5.1bn in 2019. Moreover, in terms of production, Venezuela will remain an insignificant player in the world arms market. Local defence companies are capable of manufacturing a range of equipment - including small arms and ammunitions, simple vessels and aircraft, armoured vehicles and textiles - though their ability to develop more technologically advanced items remains limited. As such, the country continues to rely on foreign suppliers to meet the requirements of its armed forces. Over our forecast period to 2019, we expect security threats associated with conflicts involving neighbouring Colombia, local terrorism from drug trafficking group...
Food & Drink
Venezuela Food & Drink
BMI View: The business environment for foreign Food & Drink companies operating in Venezuela will continue to worsen as shortages are blamed on 'hoarding' and attempts to 'sabotage' the economy. This has already led to closures of plants and arrests of senior managers of foreign companies. Low oil prices, high inflation and an unstable political situation will see Venezuela's recession stretch into its third year in 2016. Household consumption will decline across multiple Food & Drink sub-sectors over the coming year.
Headline Industry Data (US dollar terms):
Per capita food consumption compound annual growth rate (CAGR) forecast...
Venezuela Freight Transport
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.
Venezuela Information Technology
BMI View: We have made downwards revisions in our Q116 IT forecast for Venezuela to take into account the prolonged impacts of the macroeconomic recession in the country. The Venezuelan IT market, like the wider economy, is forecast to be a regional and global underperformer in 2016 - and over the medium term to 2019. The severity of the economic crisis and the weak prospects for recovery - at least in the short to medium term - mean there is also additional downside and potential. Exchange rate reforms enacted in February 2015...
BMI View : Declining global oil prices, high levels of national debt and substantial inflation have all contributed to a very poor outlook 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.
We expect the Venezuelan construction industry's recession to continue until 2018 - contracting by 7.6% and 4.5% respectively in 2016 and 2017...
BMI View: The short term outlook for Venezuela's insurance market remains highly unsettled. Currency movements alongside extreme inflation mean that in the short term we expect to see heavy losses in US dollar terms in conjunction with rampant growth in local currency terms. The strong premium growth we are forecasting in both the life and non life markets is not, therefore, indicative of a healthy expanding market and strong consumer appetite. At present, we do expect some real growth in the industry by the end of our forecast period in 2019 - based primarily on increasing demand for private health insurance - though we caution that...
Venezuela Medical Devices
BMI Industry View: Venezuela will be the only market in the Americas region with a negative 2014-2019 CAGR in US dollar terms. The market will remain reliant on tightly controlled imports, with import shortages impacting health services provided by the public and private sectors. The operating environment will remain very precarious for foreign multinationals due to political risks, macro economic imbalances and foreign exchange uncertainties.
Headline Industry Forecasts
We forecast that the market...
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...
Oil & Gas
Venezuela Oil & Gas
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 above-ground challenges, including excessive...
BMI View: The Venezuelan petrochemicals industry may have benefitted from the impact of lower crude oil costs on naphtha feedstock prices, but the local market is facing severe constraints due to the country's ongoing economic problems and poor business environment. Petrochemicals converters are complaining of a lack of affordable and available polymers to cater for demand with imports severely constrained by a lack of foreign exchange. The opposition win in Venezuela's December 2015 election has, however, raised hopes of reform that could improve the business environment.
In 2015, Venezuela had ethylene capacity of 600,000 tpa, propylene capacity of 400,000 tpa, 450,000 tpa of polyethylene (PE) capacity, 110,000 tpa polypropylene (PP), 70,000 tpa polystyrene (PS) and 130,000 tpa polyvinyl chloride (PVC). These...
Pharmaceuticals & Healthcare
Venezuela Pharmaceuticals & Healthcare
BMI View: Price controls, high inflation, currency devaluation, import and foreign currency controls, as well as other structurally distorting policies in Venezuela will continue to plague the country's pharmaceutical market in 2016.
Headline Expenditure Projections
Pharmaceuticals: VEB51.0bn (USD8.1bn) in 2014 to VEB88.7 bn (USD3.0bn) in 2015; +74.0% in local currency terms and -62.6% in US dollar terms. Forecast has been revised upward from Q415 due to updated macroeconomic considerations.
BMI View: Venezuela's power sector continues to struggle under high demand with extensive outages caused by ageing infrastructure and a lack of sufficient capacity. With oil revenues falling, extensive subsidies and a generally uninspiring economic environment, we do not expect to see any significant investment, either public of private, in power infrastructure in the short- to medium-term. As such our forecasts for growth in generation and capacity remain broadly unchanged this quarter. Over the longer term there is certainly the need for significant investment in generation and transmission infrastructure, and with political change in the pipeline following December 2015's elections, we may see a more positive investment environment down the road with sectors such as hydropower and non-hydropower renewables presenting extensive growth...
Venezuela Real Estate
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...
BMI View: We continue to have a gloomy outlook for the Venezuelan retail sector over the medium term. The country's economic troubles, including a low oil price, high inflation and weak exchange rate, as well as the government's highly interventionist stance, will continue to dampen consumer and investor confidence in the country.
We forecast that total household spending will reach VEF7,342.1bn in 2016, equivalent to USD1978.7bn. By 2019 these figures should be VEF21,576,2bn and USD333.8bn. High inflation is driving the rapid growth in bolivar terms, but is rapidly eroding real wages and curbing consumer confidence. The government's attempts to control prices of basic goods, meanwhile, have led to shortages that have increased the role of the black market in the economy and kept the proportion of spending that goes on essential goods high.
BMI View: Throughput volumes at Venezuela's two largest ports will continue to fall in 2016, although we do forecast an improvement on the larger falls of 2015. The country is facing a further year of recession. The shipping industry will be affected by extremely high inflation, which is reducing consumers' purchasing power, constraints on government spending as a result of falling oil prices, and the poor business environment, which is also acting to deter importers.
We forecast that throughput at the port of Cabello will fall by 1.0% in total tonnage terms and 2.8% in container terms in 2016. The falls at La Guaira are set to be similar in scale, at 1.5% in tonnage terms and 2.5% in box terms. However, this will be an improvement on 2015, and we see both ports returning to growth in 2017. However, risks to our forecasts are to the...
BMI View : The election of a more pro-business government offers hope that Venezuela's stagnant telecoms market can be reinvigorated through the application of external investment. However, the judiciary and civil service are largely manned by socialist sympathisers, and we expect efforts to privatise incumbent CANTV will be resisted. Additionally, economic reforms will be slow to be applied and slower still to bring any tangible benefits, meaning that disposable incomes will remain low.
|Saturation And Falling Incomes Impede Growth|
|Venezuela Mobile Market Forecasts|