Economy of Venezuela
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| Economy of Venezuela | |
| Currency | Bolívar fuerte (VEF) |
|---|---|
| Fiscal year | calendar |
| Trade organisations | WTO, OPEC, Unasur, MERCOSUR |
| Statistics | |
| GDP (PPP) | $226.9 billion (2007 est.) (52nd) |
| GDP growth | 8.3% (2007 est.) |
| GDP per capita | $12,800 (2007 est.) |
| GDP by sector | agriculture: 4%, industry: 41.9%, services: 54.1% (2005 est.) |
| Inflation (CPI) | 21.9% (Central bank report for January 2008)[1] |
| Population below poverty line |
12.3% (2007 est.) [2] |
| Labour force | 12.31 million (2005 est.) |
| Labour force by occupation |
agriculture: 13%, industry: 23%, services: 64% (1997 est.) |
| Unemployment | 6.2% (Dec. 2007 est.) |
| Main industries | petroleum, construction materials, food processing, textiles and apparrel; toys, iron ore mining, steel, aluminum; motor vehicle assembly, aircraft, real state, tourism and ecotourism |
| External | |
| Exports | $65.94 billion f.o.b. (2007 est.) |
| Export goods | petroleum, bauxite and aluminum, steel, chemicals, agricultural products, basic manufactures |
| Main export partners | US 46.2%, Netherlands Antilles 13.5%, China 3.2% (2006) |
| Imports | $44.38 billion f.o.b. (2007 est.) |
| Import goods | raw materials, machinery and equipment, transport equipment, construction material |
| Main import partners | US 30.6%, Colombia 10.2%, Brazil 10.1%, Mexico 5.9%, China 4.9%, Panama 4.8% (2006) |
| Public finances | |
| Public debt | $45.44 billion (31 December 2007 est.) |
| Revenues | $39.63 billion |
| Expenses | $41.27 billion; including capital expenditures of $2.6 billion (2005 est.) |
| Economic aid | $74 million (2000) |
| Main data source: CIA World Factbook All values, unless otherwise stated, are in US dollars |
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The economy of Venezuela is based on oil, although efforts have been made to develop heavy industry, e.g. steel and aluminium, and revive the agricultural sector. From the 1950s to the beginning of the 1980s the Venezuelan economy was the strongest in South America. The continuous growth during that period attracted many immigrants. With the collapse of oil prices during the 1980s the economy contracted. As oil prices have increased in recent years, Venezuela's economy has strengthened, with GDP growing by about 10 percent a year.
In the 1950s, during Jimenez' dictatorship, Venezuela enjoyed remarkably high GDP growth, so that in the late 1950s Venezuela's real GDP per capita was close to West Germany's. However, the democracy established in 1958 has not brought First World status from an economic point of view: on the contrary, in some years GDP contracted.
In the view of the libertarian Russian economist Andrei Illarionov, Venezuela's policy of state capitalism (successive governments carried out wide-ranging nationalisations from 1958 on) was a debacle: The “patriotically motivated” economic policy proved devastating as Venezuela slid into its deepest economic crisis. By 2004 its per capita GDP was 37 percent lower than half a century before that. The degrading impact of state command in the economy spread beyond government institutions – it caused the degeneration of Venezuelan society, affecting two generations of people who grew up during state capitalism. Today, Venezuela has no political forces capable of leading it out of the historical deadlock. [3]
The last sentence of the above quotation is more than a little controversial, given the differing views on President Chavez' programme. Certainly, there is widespread disillusionment among Venezuelans concerning the use of Venezuela's oil wealth in recent decades; and political instability has not helped the search for a solution to the country's economic woes.
Venezuelan officials estimated the economy contracted 7.2% in 1999. A steep downturn in international oil prices during the first half of the year fueled the recession, and spurred the administration to abide by OPEC-led production cuts in an effort to raise world oil prices. (The petroleum sector dominates the economy, accounting for roughly a third of GDP, around 80% of export earnings, and more than half of government operating revenues). Higher oil prices during the second half of 1999 took pressure off the budget and currency. With the president's economic cabinet attempting to reconcile a wide range of views, the country's economic reform program had largely stalled. The reforms were mainly in microeconomics such as the reduction or abolition of education and hospital fees. The government sought international assistance to finance reconstruction after massive flooding and landslides in December 1999 caused an estimated US$15 billion to $20 billion in damage.
There was a sharp drop in investment and a general recession during 2002 and 2003. Total GDP decreased 18.5% during the first semester of 2003 compared with the same period in 2002. This is the steepest decline in Venezuelan history. The hardest hit sectors were construction (-55.9%), petroleum (-26.5%), commerce (-23.6%) and manufacturing (-22.5%).
In 2002, the Venezuelan economy, as measured by Gross domestic product (GDP), contracted by 8.9% compared to 2001. The petroleum sector, which contracted by 12.6% in 2002 as compared to 2001, was adversely affected by a decrease in exports of petroleum products resulting from adherence to an OPEC quota established in 2002 and the virtual cessation of exports as a result of a national strike by forces intent on removing Chavez from power,The non petroleum sector of the economy contracted by 6.5% compared to 2001. This situation was accompanied by a significant devaluation of the bolívar during 2002, which resulted in an accelerated inflation rate. The inflation rate, as measured by the CPI, was 31.2% in 2002 compared to 12.3% in 2001.
In an attempt to support the bolivar and bolster the government's declining level of international reserves, as well as to mitigate the adverse impact from the oil industry work stoppage on the financial system, the Ministry of Finance and the central bank suspended foreign exchange trading on January 23, 2003. On February 6, 2003, the government created CADIVI, a currency control board charged with handling foreign exchange procedures. The new exchange control regime fixed the U.S. dollar exchange rate at Bs. 1,596 = U.S. $1.00 for purchase operations, and Bs. 1,600 = U.S. $1.00 for sale operations, and established the compulsory purchase and sale of foreign currency through the central bank. The current exchange rate for purchase operations is Bs. 2,150 = U.S. $1.00. In the other hand, the "black market" exchange rate has raised since 2003, specially in the last year. In March 2007, the unofficial exchange rate reached the Bs. 4,000 per U.S. dollar for sale operations and has continued growing. In October 2007 it reached Bs. 7,000 per U.S. dollar.[4].
The Venezuelan government announced on March 7, 2007 that the Venezuelan bolívar will be redenominated at a ratio of 1 to 1000 on January 1, 2008 and renamed the bolívar fuerte (ISO 4217 code: VEF), in an effort to facilitate the ease of transaction and accounting. [5]
The economy grew by a remarkable 16.8% in 2004 when compared to 2003, led mostly by non-petroleum sectors - the oil industry directly provides only a small percentage of employment in the country. International reserves grew to US$27 billion. Polling firm Datanalysis noted that real income in the poorest sectors of society grew by 33% in real growth in 2004.[citation needed]
While Macroeconomic Stabilization Fund (FIEM) decreased from U.S.$2.59 billion in January 2003 to U.S.$700 million in October, central bank-held international reserves actually increased from U.S.$11.31 billion in January to U.S.$19.67 billion in October 2003. Despite the slowdown in PDVSA output and resulting royalty payments to the central bank, reserves are currently 31.1% above their levels one year ago, as foreign exchange transactions remain suppressed.
There is considerable income inequality. According to official sources, the percentage of poor and extremely poor among the Venezuelan population increased from 39.4% in 1995 to 48.1% in 2002, but then in 2005 decreased to 34%[citation needed] and to 12.3 in 2007[6].
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[edit] Petroleum and other resources
- See also: Energy policy of Venezuela
When oil was discovered at the Maracaibo strike in 1922, Venezuela's dictator, Juan Vicente Gómez, allowed Americans to write Venezuela's petroleum law (Daniel Yergin, The Prize: The Epic Quest for Oil, Money, and Power [Simon and Schuster, 1990], pp. 233-36; 432). But oil history was made in 1943 when Standard Oil of New Jersey accepted a new agreement in Venezuela based on the 50-50 principle, "a landmark event" (ibid., p. 435). Terms even more favorable to Venezuela were negotiated in 1945, after a coup brought to power a left-leaning government that included Juan Pablo Pérez Alfonso. In 1958 a new government again included Pérez Alfonso, who devised a plan for the international oil cartel that would become OPEC (ibid., pp. 510-13). In 1973 Venezuela voted to nationalize its oil industry outright, effective Jan. 1, 1976, with Petróleos de Venezuela (PDVSA) taking over and presiding over a number of holding companies; in subsequent years, Venezuela built a vast refining and marketing system in the U.S. and Europe (ibid., p. 767).
Economic prospects remain highly dependent on oil prices and the export of petroleum. A founding member of the Organization of Petroleum Exporting Countries (OPEC), Venezuela reasserted its leadership within the organization during its year as OPEC's president, hosting the organization's Second Leadership Conference in 40 years, as well as having its former Minister of Energy, Alvaro Silva Calderon, appointed as Secretary General. The collapse of oil prices in 1997-98 prompted the Rodriguez administration to expand OPEC-inspired production cuts in an effort to raise world oil prices. In 2002, this sector accounted for roughly a quarter of GDP, 73% of export earnings, and about half of central government's operating revenues. Venezuela is the fourth-leading supplier of imported crude and refined petroleum products to the United States.
The Government of Venezuela has opened up much of the hydrocarbon sector to foreign investment, promoting multi-billion dollar investment in heavy oil production, reactivation of old fields, and investment in several petrochemical joint ventures. Almost 60 foreign companies representing 14 different countries participate in one or more aspects of Venezuela's oil sector. The Venezuelan national oil company Petroleos de Venezuela, S.A. (PDVSA) and foreign oil companies have signed 33 operating contracts for marginal fields in three bidding rounds. New legislation dealing with natural gas and petrochemicals is further opening the sector. A new domestic retail competition law, however, disappointed investors who had been promised market-determined prices.
On November 13, 2001, under the enabling law authorized by the National Assembly, President Chávez enacted the new Hydrocarbons Law, which came into effect in January 2002. This law replaced the Hydrocarbons Law of 1943 and the Nationalization Law of 1975. Among other things, the new law provided that all oil production and distribution activities were to be the domain of the Venezuelan state, with the exception of joint ventures targeting extra-heavy crude oil production. Under the new Hydrocarbons Law, private investors can own up to 49% of the capital stock in joint ventures involved in upstream activities. The new law also provides that private investors may own up to 100% of the capital stock in ventures concerning downstream activities, in addition to the 100% already allowed for private investors with respect to gas production ventures, as previously promulgated by the National Assembly.
During the December 2002-February 2003 lock-out where managers and skilled highly-paid technicians of PDVSA locked out PDVSA and sabotaged the industry, petroleum production and refining by PDVSA almost ceased. This oil sabotage was politically motivated; at the same time, many business owners across Venezuela closed down their stores in order to create instabilitiy within Venezuela. Despite the lock-out, these activities eventually were substantially restarted when the rank-and-file oil workers restarted PDVSA without the managers. Out of a total of 45,000 PDVSA management and workers, 19,000 were subsequently dismissed; many of which are managers and highly paid technicians.
A range of other natural resources, including iron ore, coal, bauxite, gold, nickel, and diamonds are in various stages of development and production. In April 2000, Venezuela's President decreed a new mining law, and regulations were adopted to encourage greater private sector participation in mineral extraction.
Venezuela utilizes vast hydropower resources to supply power to the nation's industries. The national electricity law is designed to provide a legal framework and to encourage competition and new investment in the sector. After a 2-year delay, the government is proceeding with plans to privatize the various state-owned electricity systems under a different scheme than previously envisioned.
[edit] Manufacturing, agriculture, and trade
Manufacturing contributed 17% of GDP in 2006. The manufacturing sector continues to increase dramatically in spite of private under-investment. Venezuela manufactures and exports steel, aluminium, transport equipment, textiles, apparel, beverages, and foodstuffs. It produces cement, tires, paper, fertilizer, and assembles cars both for domestic and export markets.
Agriculture accounts for approximately 3% of GDP, 10% of the labor force, and at least one-fourth of Venezuela's land area. Venezuela exports rice, corns, fish, tropical fruits, coffee, beef, and pork. The country is not self-sufficient in most areas of agriculture. Venezuela imports about two-thirds of its food needs. In 2002, U.S. firms exported $347 million worth of agricultural products, including wheat, corn, soybeans, soybean meal, cotton, animal fats, vegetable oils, and other items to make Venezuela one of the top two U.S. markets in South America. The United States supplies more than one-third of Venezuela's food imports.
Thanks to petroleum exports, Venezuela usually posts a trade surplus. In recent years, nontraditional (i.e., nonpetroleum) exports have been growing rapidly but still constitute only about one-fourth of total exports. The United States is Venezuela's leading trade partner. During 2002, the United States exported $4.4 billion in goods to Venezuela, making it the 25th-largest market for the U.S. Including petroleum products, Venezuela exported $15.1 billion in goods to the U.S., making it its 14th-largest source of goods. Venezuela has taken a very cautious approach toward the proposed Free Trade Agreement of the Americas.
[edit] Labor and infrastructure
Venezuela has a labor force of about 12.1 million, and in June 2007, official unemployment was 8%. In May 2007, 55.9 percent of Venezuelan workers are included in the formal sector, with 44.1 percent in the informal sector.
Venezuela has an extensive road system. With the exception of air service, transportation has failed to keep pace with the country's needs. Much of the infrastructure suffers from inadequate maintenance. Caracas has a modern subway system over 31.6 mi (51 km) long. Maracaibo and Valencia (second and third largest cities) have recently inaugurated metro systems. Rail transport in Venezuela has been practically non-existent since the 1950s (with only one line operating), but the IAFE is currently working on several lines, hopefully connecting most of Venezuela via railway by 2020, which, if achieved, would lead to a significant improvement in the countries' transport infrastructure.
[edit] Miscellaneous data
Industrial production growth rate: 0.5% (1995 est.)
Electricity - production: 70,390 GWh (1998)
Electricity - production by source:
fossil fuel: 25.46%
hydro: 74.54%
nuclear: 0%
other: 0% (1998)
Electricity - consumption: 65,463 GWh (1998)
Electricity - exports: 0 kWh (1998)
Electricity - imports: 0 kWh (1998)
Agriculture - products: maize, sorghum, sugar cane, rice, bananas, vegetables, coffee; beef, pork, milk, eggs; fish
Currency: 1 bolívar fuerte (Bs.F.) = 100 centimos (Currency code: VEF)
Exchange rates:
bolívares fuertes (Bs. F) per US$1: 2,15 (January 2008)
bolívares (Bs) per US$1: 2150 (January 2006), 1440 (September 2002), 652,33 (January 2000), 605,71 (1999), 547,55 (1998), 488,63 (1997), 417,33 (1996), 176,84 (1995)
[edit] See also
- Banco Central de Venezuela
- List of Venezuelan Companies
- List of Venezuelan Cooperatives
- Banks of Venezuela
[edit] References
- ^ "Venezuela's IPC. February, 20007 - January, 2008", Banco Central de Venezuela, 2007-02-01. Retrieved on 2008-01-15.
- ^ [PEN-L] ECLAC: Venezuela's poverty & extreme poverty 2002-2006: down 18
- ^ Former advisor to Russian president warns of 'Venezuela disease'.
- ^ Venezuela to Give Currency New Name and Numbers by Simon Romero of The New York Times.
- ^ REFILE-Venezuela cuts three zeros off bolivar currency | Markets | Bonds News | Reuters
- ^ [PEN-L] ECLAC: Venezuela's poverty & extreme poverty 2002-2006: down 18
[edit] External links
- Venezuela's Annual Inflation Rate Highest Since 2004 (Update2)
- Venezuela to Give Currency New Name and Numbers
- Banco Central de Venezuela
- Update: The Venezuelan Economy in the Chávez Years from the Center for Economic and Policy Research, February 2008
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