Venezuela Economic Landscape

Economic Landscape
ECONOMIC LANDSCAPE
Summary
Venezuela is one of the largest crude oil exporters in the world. Crude oil exports to the US alone amount to 1 million
barrels a day. According to PDVSA, the country exported 2.57 million barrels per day of crude oil and byproducts in
2012. However, an overdependence on exports of "black gold" has proven to be an Achilles heel for the economy as a
whole. Economic performance during the 1990s was erratic, with significant fluctuations in export and growth
performance due to fluctuations in oil prices. The economy contracted by around 5.97% in 1999 as the authorities
attempted to rein in a ballooning fiscal deficit through a series of austerity measures. The country grew at an average
rate of 4.17% during 200006. Due to increasing oil revenues, the countrys GDP grew by 8.15% in 2007. The global
economic slowdown and low oil prices brought down the countrys GDP growth to 5.28% in 2008, and the economy
contracted by 3.20% and 1.49% in 2009 and 2010, respectively. In 2011, the countrys GDP growth rate was 4.18% and
in 2012, it was 5.63%. The economy is likely to show slow growth of 2.53% in 2013 according to MarketLine forecasts.
Evolution
The evolution of the Venezuelan economy is described below.
Petroleum has been the core economic activity of the country since the 1920s, and accounts for
one-quarter of GDP, around 80% of export earnings, and as much as half of the central
governments operating revenue. Economically, the country performed fairly well between the 1950s
and 1980s, but failed to develop strong infrastructure and remained closed to foreign investment.
Although inequality is still not as severe as in some other Latin American countries, poverty and
inequality were on the rise throughout the 1990s.
Unemployment also grew as a succession of macroeconomic crises hit the country. Real wages
were hit hard, falling by an average of 23% over 199099.
Upon his election, Chavez inherited an economy in disarray. Real GDP growth was just under 6.4%
in 1997, which fell sharply to close to zero in 1998, as the external current account swung sharply
into deficit on the back of declining oil revenues. Although the current account returned to surplus in
1999, GDP growth declined further. The economy is estimated to have contracted by 5.97% during
1999, as the new administrations austerity program cut domestic demand.
During 2000 and 2001, the economy moved towards moderate growth of around 3.69% and 3.39%
respectively, which is impressive for a country recovering from recession and experiencing relatively
high rates of population and labor force growth.
Overall, Venezuelas economic performance has been extremely weak in recent years, with the
economy growing at a compound annual growth rate (CAGR) of only 2.2% over 19902005.
In 2009, the economy contracted by 3.20%, and further contracted by 1.49% in 2010 as global
financial meltdown affected the price as well as the demand for oil.
The bolivar was devalued twice in 2010 and it led to a reduction in the pretax earnings of
multinationals; Mead Johnson Nutrition Company for instance took a $24m hit.
PESTLE Country Analysis Report: Venezuela

MarketLine. This report is a licensed product and is not to be photocopied
OHCP0170/Published 05/2013
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Economic Landscape
According to the oil minister of Venezuela, Rafael Ramirez, the country as of August 2012 has been
selling 640,000 barrels of oil per day to China. Increasing oil exports to China is a part of the strategy
to reduce dependence on the US as the market for majority of its oil exports.
Figure 5:
Historical GDP growth rate of Venezuela, 19922012
20.00
15.00
Growth rate (%)
10.00
5.00
0.00
1992
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
-5.00
-10.00
-15.00
Year
Source: Country Statistics, MarketLine
MARKETLINE
Structure and policies

Financial system
Financial authorities and regulators
Banco Central de Venezuela is the central authority of the country's financial system. It was established in 1939, based
on the Central Bank Law. The bank is an official body subject to public law and has full autonomy. It has the
independence to devise and execute policies on its own. The fundamental objectives of the bank are to achieve and
maintain price stability in the country and sustain the internal and external value of the currency in order to ensure the
healthy growth of the economy.
Stock markets
The Caracas Stock Exchange (Bolsa de Valores de Caracas [BVC]) is the only securities exchange in Venezuela. The
exchange was established in 1947. It is a classified exchange, providing services for the purchase and authorized sale of
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Economic Landscape
securities according to the Capital Marketing Laws of Venezuela. It is also a member of the Executive Committee of the
Latin American Federation of Stock markets. At the BVC, corporate businesses make available instruments of fixed
income and securities with the purpose of securing capital from public investors. The BVC is also used as a location for
trading in bonds and other debt instruments. According to the World Bank, the market capitalization amounted to $25.30
billion as of December 2012.
Insurance
The Venezuelan insurance market comprises health and automobile insurance, which constitutes around 80% of market
premiums. The various other products offered as part of insurance include personal accident and property/casualty
insurance coverage for small- and medium-sized enterprises (SMEs). Indeed, the focus of insurance companies has
been to develop and retain SME insurance coverage. The government is moving into the insurance sector. The creation
of a state-run insurance and reinsurance company to be called Bolivariana de Seguros y Reaseguros in early 2010, has
reorganized the insurance sector. The government begun its intervention in La Previsora, an insurance company
connected to recently seized banks, during early 2010. The company is considered financially solid and is ranked fourth
in the market with 7.9% of net premiums. La Previsora, like Seguros Premier, was also nationalized. In 2009, insurance
companies in Venezuela were required to pay a special contribution of 0.3% of their total net premiums to the state.
Key policies
Chavezs economic reform policies have been at the center of establishment resistance to his controversial presidency.
The context behind his reforms was a background of profound income inequality, limited social mobility, and
macroeconomic volatility. The underlying cause of most of these ills is the economys overdependence on oil and, to a
lesser extent, other mineral commodity exports. The administration of late President Chavez used oil profit windfalls to
increase outlays for a host of state projects, which in turn have made the public sector the driving force of economic
growth.
The bolivar was devalued twice in 2010 and in February 2013, the bolivar was devalued once again in order to meet the
burgeoning deficit. The government of Venezuela had approved a $69.2 billion budget for 2012, however, as of
September 2012, new liabilities compelled the Executive Office to approve additional funds that increased the budget by
36% to $94.4 billion. The Venezuelan National Assembly approved an additional amount of $25.1 billion in January 2012
and in September 2012, the legislature authorized another $1.9 billion. The increased budgetary allocation were made to
meet the expenditure on salary adjustments, liabilities due to social programs and increase in expenditure in sectors
such as roads, housing, industry and science.
The Venezuelan government has presented the 2013 budget in October 2012 amounting to $92.2 billion; 33.09% more
compared to 2012. The budget forecast oil prices to be around $55 per barrel and predicted economic growth to be 6%.
On March 19, 2013, the government announced the introduction of the new system for buying foreign currency called the
Complimentary System of Foreign Currency Acquirement (Sicad) in order to prevent the sale of bolivar in the black
market.
Performance
GDP and growth rate
Overview
According to MarketLine estimates, the Venezuelan economy grew at 3.39% during 2001. The GDP growth rate
contracted during 2002 and 2003 by 8.86% and 7.75%, respectively, due to increasing political instability. Then the
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Economic Landscape
economy grew at an average rate of 12.91% during 200406. Moreover, due to increasing oil revenues, the countrys
GDP grew by 8.15% in 2007. The global economic slowdown and low oil prices brought the countrys GDP down to
5.28% in 2008, and in 2009 the economy contracted by 3.20% due to the global economic crisis. The economy
contracted by 1.49% in 2010. In 2011, the economy grew at 4.18% and in 2012 it grew by 5.63% driven by the
construction and service sectors. Growth in these sectors accelerated due to increased government spending funded by
high oil prices and increased public borrowing. According to MarketLine forecasts, the economy is likely to grow at 2.53%
in 2013.
Figure 6:
GDP and GDP growth rate of Venezuela, 200616
250.00
12.00
10.00
200.00
8.00
$ bn
4.00
100.00
2.00
Growth rate (%)
6.00
150.00
0.00
50.00
-2.00
0.00
-4.00
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
GDP
Real GDP growth rate
MARKETLINE
GDP composition by sector

According to MarketLine estimates, the services sector contributed 57.21% of GDP in Venezuela in 2012. The industrial
sector followed, with a 39.05% contribution, while agriculture added 3.73%.

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Economic Landscape
Figure 7:
Sector specific GDP in Venezuela, 2012

Agriculture, 3.73%
Industry, 39.05%
Services, 57.21%
MARKETLINE
Agriculture
While agriculture constituted only around 3.73% of GDP in 2012, it continues to play a significant role in rural areas.
According to MarketLine estimates, 9.51% of the population was involved in agricultural activities in 2012. Key
agricultural products in the country include corn, sorghum, sugarcane, rice, bananas, vegetables, coffee, beef, pork, milk,
and eggs. During 2010, agricultural output increased by 45.95%, and in 2011 it increased by 24.93%. In 2012,
agricultural output amounted to VEF58.71 billion ($9.32 billion).

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Economic Landscape
Figure 8:
Agricultural output in Venezuela, 200712
70.00
50.00
45.00
60.00
40.00
35.00
30.00
40.00
25.00
30.00
20.00
15.00
20.00
Growth rate (%)
VEFbn
50.00
10.00
10.00
5.00
0.00
0.00
2007
2008
2009
2010
2011
2012
Year
Agriculture output
Growth rate
Note: the sectoral breakdown is given in local currency due to foreign exchange fluctuations and their impact on the growth figures.
MARKETLINE
Industry
The country's key industries are petroleum, construction materials, food processing, textiles, iron ore mining, steel,
aluminum, and motor vehicle assembly. According to MarketLine estimates, almost 22.97% of the population is
employed in the industrial sector in 2012. The oil industry accounts for around 70% of national income, and the country is
one of the largest oil exporters in the world. Total industrial output grew by 41.75% in 2010. In 2011, growth in industrial
output declined and recorded a growth of 32.26%. In 2012, industrial output amounted to VEF614.07 billion ($97.47
billion).

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Economic Landscape
Figure 9:
Industrial output in Venezuela, 200712
700.00
45.00
40.00
600.00
35.00
500.00
400.00
25.00
300.00
20.00
15.00
Growth rate (%)
VEFbn
30.00
200.00
10.00
100.00
5.00
0.00
0.00
2007
2008
2009
2010
2011
2012
Year
Industry output
Growth rate
MARKETLINE
Services
According to MarketLine, the services sector accounts for 57.21% of the country's GDP, and accounted for 67.52% of
employment in 2012; finance and trade produce are responsible for around one-sixth of GDP apiece. Tourism is a
growing component of Venezuelas economy, and is largely focused on the countrys cultural sites, beaches, and natural
parks, such as the tepuis of the Guiana Highlands and the world famous Angel Falls. Services sector output increased by
45.69% and 28.28% in 2010 and 2011, respectively. In 2012, service output amounted to VEF899.61 billion ($142.79
billion).

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Economic Landscape
1,000.00
50.00
900.00
45.00
800.00
40.00
700.00
35.00
600.00
30.00
500.00
25.00
400.00
20.00
300.00
15.00
200.00
10.00
100.00
5.00
0.00
Growth rate (%)
VEFbn
Figure 10: Services output in Venezuela, 200712
0.00
2007
2008
2009
2010
2011
2012
Year
Services output
Growth rate
MARKETLINE
Fiscal situation
Overview
Venezuelas fiscal policy is geared towards gradual and sustainable use of petroleum revenues.
Fiscal deficit/surplus situation
The sharp decline in oil revenue increased the fiscal deficit to 8.11% of GDP in 2009, from around 2.84% of GDP in
2008. Venezuela posted a fiscal deficit of 5.90% in 2010 and it amounted to $17.35 billion. According to MarketLine
estimates, the fiscal deficit in 2011 was $36.51 billion, which constituted 11.56% of GDP. The huge expenditure incurred
by the government ahead of the October presidential elections further widened the fiscal deficit. According to CIA The
World Factbook, the budget deficit in 2012 was 17.5% of GDP.
Current account
The Venezuelan economy maintained a strong surplus during 200010. According to the World Bank, the country had a
current account surplus of $32.22 billion in 2008. In 2009 with the global financial meltdown, the surplus came down but
did not result in a deficit. The current account surplus was $2.33 billion in 2009, which rose to $8.88 billion in 2010. With
soaring oil prices and an increase in oil exports, the current account balance at the end of 2011 was $24.44 billion.
According CIA The World Factbook, the countrys current account surplus reached $20.6 billion in 2012. The current
account surplus is mainly due to higher oil prices and regulations curbing imports.
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Economic Landscape
Foreign trade
Venezuelas economy suffers from an overwhelming dependence on oil exports. The country is the worlds fifth largest oil
exporter behind Saudi Arabia, Russia, Norway and Iran, and its oil reserves are among the top 10 in the world. Oil
typically generates 80% of the countrys total export revenues, while almost the entirety of the countrys $34 billion
foreign investment is channeled to the sector. Prior to the 200203 oil strike, Venezuelan crude oil exports to the US
amounted to almost 1 million barrels per day. According to CIA The World Factbook, oil exports to the US make the
country Venezuelas leading export market by a significant margin, as the US accounts for 40.2% of Venezuelan exports.
Other key export partners are China, which accounts for 10.5%, India at 5.5%, and Cuba at 4% in 2011. Venezuela
increased petroleum shipments to China by 39% between January and June 2012, and China may soon surpass the US
as the number one destination for Venezuelan oil exports. On the import side, the US again dominates, accounting for
some 28.60% of total imports. China and Brazil are Venezuela's other most important trading partners, accounting for
15.10% and 10.60% respectively in 2011. Exports increased from $94.34 billion in 2011 to reach $107.76 billion in 2012,
while imports increased from $59.47 billion to $65.85 billion over the same period.
Figure 11: Venezuelas external trade position, 200812

200.00
180.00
173.61
158.15
160.00
140.00
153.81
61.12
$ bn
120.00
100.00
117.52
110.55
97.03
80.00
65.85
107.76
50.15
50.92
59.47
94.34
67.37
59.63
60.00
40.00
20.00
0.00
2008
2009
2010
2011
2012
Year
Exports
Imports
Total trade
MARKETLINE
External debt
According to the data from the Central Bank of Venezuela (BCV), the external debt of the country was $94.6 billion in the
third quarter of 2011 and it has increased by 21% compared to the same period in 2010 when it was at $78.5 billion.
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Economic Landscape
International investment position
Foreign investments
Foreign investment has averaged $450m a year since 1992. In 2000, FDI amounted to around $4.7 billion, but declined
to $3.7 billion in 2001 and plummeted to $0.8 billion in 2002. The decrease in foreign investment during 200203 was
mainly due to political and financial instability. Since 1998, investment has been waning in most non-oil sectors, with the
exception of telecommunications. In 2007, the total stock of FDI in the country was around $43 billion. However,
Venezuelas 2001 Hydrocarbons Law, which became effective in January 2002, has discouraged FDI in the Venezuelan
oil industry by raising royalties paid by private companies to between 20% and 30%, compared with the previous figure
of 116.7%. At the same time, the law guarantees the state oil company at least a 51% stake in any project regarding
exploration, production, transportation, and initial storage of oil.
The governments investment laws and regulations have discouraged FDI in non-oil sectors. According to UNCTAD, the
countrys inward stock of FDI increased from $3.87 billion in 1990 to $35.48 billion in 2000. Total foreign investment
reached a new high of $9 billion in 2007 before dropping to $3.3 billion in 2008 due to the global economic slowdown. In
2009, the country went through severe recession, and there was increased capital flight from the country. According to
the World Investment Report 2012 by UNCTAD, Venezuelas FDI inflow in 2011 amounted to $5.30 billion.
Credit rating
In August 2012, S&P lowered Venezuelas longterm foreign and local currency sovereign credit ratings to B+ from BB.
In April 2013, the institute affirmed the ratings but downgraded the outlook from stable to negative. The downgrade was
mainly because political uncertainty could deteriorate the economic environment of the country and hinder the execution
of economic policies.
Monetary situation
Overview
The governments main aim is to lower inflation by taking measures such as reducing the limits on credit card interest
rates, and raising the minimum rate on savings deposits and time deposits to encourage saving. The central bank has
also imposed price controls and kept the currency overvalued. However, these measures have proven to be ineffective,
as inflation remains high.
Key monetary indicators
Inflation
Venezuela's monetary policy is geared towards maintaining a low level of inflation. However, inflation has remained high
since 2002, except for in 2006 on a comparative basis. According to MarketLine, the countrys inflation scaled a new high
of around 30.91% in 2008, up from 18.70% in 2007. The country continued to suffer from high inflation of 28.19% and
26.00% in 2010 and 2011, respectively. In 2012, the country recorded inflation of 21.07%. However, the further
devaluation of Bolivar Fuerte in February 2013 is likely to push up the inflation rate. MarketLine forecasts inflation at
29.98% in 2013.

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Economic Landscape
1400.00
35.00
1200.00
30.00
1000.00
25.00
800.00
20.00
600.00
15.00
400.00
10.00
200.00
5.00
0.00
Inflation (%)
Consumer price index
Figure 12: Consumer price index and inflation in Venezuela, 200616
0.00
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Consumer price index
Inflation
MARKETLINE
Banking sector
In early 2010, Chavez announced plans to nationalize all private sector banks, as banks' credit portfolios declined by
6.6% in real terms between December 2009 and April 2010. According to Chavez, banks must embrace the
government's development project and meet the legal requirements to provide credit, or else they will be nationalized
and their owners will be compensated under the government's conditions. However, banks claim that it is very difficult to
meet the government's minimum lending requirements, as industrial production declined and manufacturing companies
are continuing to reduce output. At the beginning of 2012, the assets held by the Central Bank of Venezuela (BCV)
amounted to $29.8 billion. The cash reserve ratio fell to $2.7 billion, which is the lowest since 2007.
Employment
According to MarketLine, employment in the country is largely provided by the services sector, which accounts for
67.52% of labor, followed by the industrial and agricultural sectors, which account for 22.97% and 9.51% respectively in
2012. The employment level increased during 2004 and 2005, with the rate of employment rising by 8% year-on-year.
However, it fell to around 3.60% in 2006 and further declined to around 2.92% in 2011. In 2012, employment growth rate
was 2.86%. Venezuelas unemployment rate fell continuously during 200308, and reached 8.65% in 2010. In 2011, it
dropped to 8.28% and was 8.10% in 2012.

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Economic Landscape
Figure 13: Unemployment in Venezuela, 200616

1.40
10.00
9.00
1.20
1.00
7.00
6.00
0.80
5.00
0.60
4.00
3.00
0.40
Rate of unemployment (%)
Number of unemployed (million)
8.00
2.00
0.20
1.00
0.00
0.00
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Total unemployment
Rate of unemployment (%)
MARKETLINE
Outlook
The global economic slowdown and low oil prices brought down the countrys GDP growth to 5.27% in 2008, and the
economy contracted by 3.20% and 1.49% in 2009 and 2010, respectively. In 2011, the countrys GDP growth rate was
4.18% and in 2012 growth increased slightly to 5.63%. The countrys economic growth is likely to slow down and reach
2.53% in 2013. According to MarketLine estimates, the fiscal deficit in 2011 was $36.51 billion, which constituted 11.56%
of GDP. The huge expenditure accrued by the government ahead of the October 2012 presidential elections further
widened the deficit. According to CIA The World Factbook, the budget deficit in 2012 was 17.5% of GDP. According
CIA The World Factbook, the countrys current account surplus reached $20.6 billion in 2012.The increasing current
account surplus is mainly due to higher oil prices and regulations curbing imports.
In August 2012, S&P lowered Venezuelas longterm foreign and local currency sovereign credit ratings to B+ from BB.
In April 2013, the institute affirmed the ratings but downgraded the outlook from stable to negative. The downgrade was
mainly because political uncertainty could deteriorate the economic environment of the country and hinder the execution
of economic policies.
On March 19, 2013, the government announced the introduction of the new system for buying foreign currency called
the Complimentary System of Foreign Currency Acquirement (Sicad) in order to prevent the sale of bolivar in the black
market.
Page 53
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Economic Landscape

PESTLE Country Analysis Report: Venezuela

Historical GDP growth rate of Venezuela, 19922012

Growth rate (%)

Structure and policies

GDP and GDP growth rate of Venezuela, 200616

Growth rate (%)

Real GDP growth rate

Source: Country Statistics, MarketLine

GDP composition by sector

PESTLE Country Analysis Report: Venezuela

Sector specific GDP in Venezuela, 2012

Source: Country Statistics, MarketLine

PESTLE Country Analysis Report: Venezuela

Agricultural output in Venezuela, 200712

Growth rate (%)

PESTLE Country Analysis Report: Venezuela

Industrial output in Venezuela, 200712

Growth rate (%)

PESTLE Country Analysis Report: Venezuela

Growth rate (%)

Figure 10: Services output in Venezuela, 200712

Figure 11: Venezuelas external trade position, 200812

Source: Country Statistics, MarketLine

PESTLE Country Analysis Report: Venezuela

Consumer price index

Figure 12: Consumer price index and inflation in Venezuela, 200616

Source: Country Statistics, MarketLine

PESTLE Country Analysis Report: Venezuela

Figure 13: Unemployment in Venezuela, 200616

Rate of unemployment (%)

Number of unemployed (million)

Rate of unemployment (%)

Source: Country Statistics, MarketLine

Copyright of Venezuela Country Profile is the property of MarketLine, a Datamonitor

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