Those evil exporters

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Katy says: Venezuelan President Hugo Chávez announced yesterday that he was nationalizing the cement industry, “no matter the cost.” With no previous warning, he gave the order on national television that factories should be expropriated and that he would foot the bill – with our money, of course.

The reasons he gave are that cement companies are allegedly exporting the country’s cement and therefore making it difficult for his government to build houses. Instead of blaming his abysmal record in housing construction on his highly deficient administrative style, he blames a made-up enemy – in this case, evil cement companies.

As we take a breath and try to make some sense of this latest idiocy, a few facts about the cement industry are in order.

Cement is a perishable product – after thirty days, either you give it away or you throw it away. Cement is also notoriously expensive to transport. It is highly unlikely that a significant portion of Venezuela’s cement production is being exported, because cement markets tend to be regional or local and plants tend to be located close to where demand is.

Furthermore, there have been few reports of cement shortages. The ones I have seen, such as this one and this one, are from early to mid 2007, at the peak of the government’s infrastructure spending boom. Let’s recall that the new Viaducto was not yet finished and the government was in a rush to finish a bunch of new stadiums and subways in time for the election.

I have no doubt that cement companies are exporting cement. Given how Venezuela’s demand for cement is largely driven by the government, and given how government spending on large infrastructure projects has decreased considerably, I’m sure they have a lot of excess inventory. I’m also sure they have the incentive to export their products given how prices inside the country are controlled.

But instead of congratulating them for exporting or finding other ways of dealing with the problem of producers preferring external markets to internal ones – and here, a quick call to his employee Cristinita K would help – the President goes nuts.

Buy off all the plants, nationalize the industry, my way or the highway – that’s his approach. In East Asia, exporters are rewarded. In Venezuela, they are punished. Such is the screwed-up mentality of the chavista military regime.

Furthermore, the government already has a cement factory – it’s a pharaoh-like joint venture with Iran. Last I heard this project was going to have an installed capacity of a million tons and was going to cost Venezuelan taxpayers 250 million dollars. Whatever happend to that?

Venezuela’s cement industry has a long history behind it. The first cement factories were founded by pioneering businessman Eugenio Mendoza, and large multinationals such as Mexico’s Cemex and Switzerland’s Holcim have invested heavily in the local industry. The Mexican government is not amused.

It’s not clear if the President will follow through with this. While he is obviously looking for a scapegoat, he has threatened before to nationalize companies only to back down and get them to do what he wants – the Sidor example comes to mind. But he has also nationalized companies that did not need to be nationalized – the Electricidad de Caracas example comes to mind.

The cement industry has always been entangled with politics. After all, military strongmen and construction go together like cement and water. Here’s hoping the industry survives this latest chapter and that we don’t find ourselves importing cement five years from now because our factories have been sacked or gone bankrupt.

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