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, and persist until 2018.
Major political gains on the part of the opposition in December's legislative elections will result in a gradual turn towards more orthodox economic policy, although the pace of change will be substantially hampered by the institutional strength of the PSUV and the power of the executive branch.
Political risk will remain elevated due to deteriorating living standards and lack of confidence in leadership to competently govern.
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.
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: Investors face a high degree of threat from Venezuela's crime environment, which reflects both elevated crime rates and a largely inept police force entangled in corruption. As foreigners, investors may be targeted for criminal activities - particularly in Caracas - from which businesses have limited protection due to the lack of an effective police force. A growing security threat stems from the re-emergence of political violence and instability, which may spread throughout the country and potentially disrupt business operations. Risks are compounded by poor relations with neighbouring states, which heighten interstate conflict risks. Consequently, Venezuela receives a score of 27.0 out of 100 for Crime and Security Risk, placing 40th out of 42...
Venezuela Labour Market
Venezuela Labour Market
BMI View: Investors considering Venezuela are presented with both benefits and risks in terms of the country's labour market. On the one hand, the country has a large and youthful working age population, which has benefited from extensive education reforms and offers a high level of basic skills. On the other hand, labour market regulations are extremely restrictive and make it difficult for firms to hire foreign workers as well as adjust the size and composition of their workforce in response to economic shifts. As the minimum wage continues to rise in line with rampant inflation, firms in labour-intensive industries face a rapidly rising wage burden and the deteriorating health care system poses risks to productivity and population...
BMI View: Venezuela's inadequate logistics network is a major deterrent for investors and a key factor contributing to the country's economic woes. The entire network is suffering from mismanagement and a lack of investment by state-owned companies. The most pertinent risk is persistent power outages and the imposition of energy rationing during periods of drought, which severely restricts productivity and adds to operational costs. In addition, the road network offers substantial risks including congestion, accidents, border closures and freight theft, which are difficult to avoid given the lack of suitable alternative supply chain options. Finally, deteriorating international connections and stifling bureaucracy have hamstrung much business activity. There is little prospect of a significant improvement in the logistics network over the medium term, even following a change in...
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 Venezuela's agribusiness sector has deteriorated significantly over recent years due to the poor macroeconomic climate, a shortage of foreign currency for input purchases and general government mismanagement. Venezuela's economy will continue to be under extreme downward pressure in 2016 amidst low international oil prices. The growing headwinds to the economy will weigh on agricultural production and consumption in the coming years, and we forecast most commodities to stagnate out to 2020. Producers of agricultural goods will struggle as rising production costs and controlled prices at the farm...
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
|Date||Total assets||Client loans||Bond portfolio||Other||Liabilities and capital||Capital||Client deposits...|
Venezuela Consumer Electronics
BMI View: Economic activity in Venezuela virtually ground to a halt in 2016, with out of control inflation and product shortages meaning local consumers faced a dramatic reduction of affordability and product shortages, even for basic goods. Consumer electronics device spending has collapsed in the midst of the crisis, with even local production unable to insulate the market due to price increases for components far outstripping wage growth. There should be a modest recovery in device spending in the later years of the forecast as the economic environment stabilises but even this is subject to significant uncertainty due to the economic and political unsustainability of existing conditions.
Latest Updates & Developments
Computer hardware: contraction from USD148mn in 2016 to...
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: We hold a bleak outlook for Venezuela's food and drink industry throughout our forecast period, on the back of severe basic good shortages and high inflation. Consumption patterns in the country will largely be dictated by availability and, as a result, we expect staple goods to perform relatively well over the coming quarters. The mass grocery retail sector will increasingly come under pressure from the informal sector as informal retail will remain more profitable and stock a comprehensive portfolio of basic goods.
|Food and Drink Spending|
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: Venezuela's IT market has contracted sharply in US dollar terms as a result of the severity of the economic crisis - with the new exchange rate regime and spiralling inflation contributing to product shortages and price rises far in excess of local wage growth. With economic activity losing even more momentum in 2016 and households hit by shortages of even basic goods there will be no short term resumption of IT spending growth in USD terms. The nominal growth rate will however be sustained by domestic inflation, where we forecast an IT spending CAGR of 64.6% over 2016-2020.
Computer Hardware Sales: From VEF12.0bn in 2016 to VEF83.4bn in 2020, at a CAGR of...
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: Venezuela's insurance market will be severely affected by the ongoing economic crisis caused by the slump in oil prices, which has created hyper-inflation and high interest rates, and an increasingly chaotic policy environment. Health insurance will be the main victim of these trends, particularly following President Maduro's decision to give substantial control to the insurance regulator to tax insurance companies to bolster public healthcare. While growth is impressive in local currency terms due to depreciation, the market experienced a sharp contraction in USD terms in 2015 and it will take much of the next five years for a recovery in premiums.
In an apparent hostile attack on the insurance sector, President Maduro issued a Law-Decree in December 2015 amending several provisions of the Insurance Activity Act of 2010. This repeals the entire...
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 2020. The region has significant untapped mineral potential, yet a range of business environments and operational challenges will lead to uneven growth.
Oil & Gas
Venezuela Oil & Gas
BMI View: We maintain our downbeat 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 underperform, given the large scope of above-ground challenges,...
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: The outlook for Venezuela's beleaguered power sector has not improved this quarter, with widespread power outages, a consequence of a prolonged drought and heavy losses from ageing infrastructure, crippling the country and contributing to further social unrest and political uncertainty. While some hydropower output is reportedly coming back online over the coming months as water levels at the key Guri dam improve, overall we expect to see a sharp decrease in total electricity generation in 2016. Several new power plants are under development in the country, enhancing capacity over the medium term. However...
Venezuela Real Estate
BMI View : Years of economic mismanagement and the fall in the price of oil have plunged Venezuela into an economic crisis. Private sector investment has shrunk and consumer purchasing power has been eroded due to hyper-inflation. The worsening economic conditions have impacted negatively on all three sectors of the commercial property market and we do not expect this to change in the short term.
Venezuela's economy has continued to deteriorate since our last report. Diminished oil production and dwindling revenues are raising concerns over the country's ability to meet its debt obligations. The exchange rate has depreciated and crime and violence has become more prevalent amid widespread scarcity of goods. The country's short term growth prospects are bleak. Runaway inflation and structural imbalances are likely to keep the...
BMI View: In the long term, the outlook for the Venezuelan retail sector is favourable, with the country's urbanised population and growing middle class set to drive demand for non-essential items. However, in the short term, retailers face significant challenges. The government's highly interventionist stance, as well as low oil prices, high inflation, difficulties in getting foreign currency and shortages of basic goods, make operating in Venezuela challenging.
|Headline Household Spending|
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 : Venezuela's telecoms sector continues to underperform on the back of socialist driven policies limiting operators' profitability. The country's macroeconomic crisis has constrained the ability of players to offer services in the market, while reducing customer purchasing power on retail and enterprise fronts. We believe that a large number of inactive SIMs in the market indicate an underlying opportunity for organic subscriber growth, particularly in the mobile data market. However, other than the incumbent, operators will be increasingly reluctant to aggressively pursue the opportunity over and above the 4G...