Crazy Cadivi subsidizes Colombian smugglers

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Venezuela's most profitable business
Venezuela’s most profitable business

This story from Colombia’s Radio Caracol was an eye-opener. The money quote (translated by me):

“The exchange regime in Venezuela promotes smuggling through that country. It’s an excellent business opportunity to import into that country at an official exchange rate, and then re-export out of it at the free exchange rate, which is 6 or 7 times higher,” said the Director of (Colombian think tank) Fedesarrollo.

Villar said that smugglers are profiting at margins of up to 700% in a single day for “the mere fact of having a license to import into Venezuela and being able to re-export to any other country, and obviously Colombia is the most attractive country for those kinds of operations.”

Just so we’re clear, here is how this works.

Suppose you import $1,000 worth of Colombian underwear. Market price: $1,000. This costs you BsF6,300 at the official, CrazyCadivi rate. You bring in the underwear, and then, surreptitiously, you export it back abroad at the same rate, $1,000. You are basically left with $1,000 in cash, which cost you BsF6,300. You can then sell those $1,000 in the local market at the going price of BsF47,000. In a single swoop, you made BsF40,700.

The key here is “surreptitously.” You have to do this via smuggling, because using the official channels means any money you get from exporting would have to be sold in the official market at BsF6.3.The key is to do it … unoficially. That’s where the money is. Easy pleasy!

Since Cadivi is basically subsidizing smugglers, the opportunities for corruption are rife. Anyone, from the Cadivi official to the National Guardsman at the border who looks the other way while you “export” Colombian underwear that you just brought in without the appropriate permits … is going to want their cut.

Is it any wonder that the military vows to defend the Revolution at all cost? They’re making tons of money off of it, and squandering a once-in-a-generation oil boom in the process.

The money that ended up in the Colombian underwear maker’s pocket is money that could have been spent stocking hospitals, or building roads.

Think about it next time you hear of a patient getting the ruleteated from one ER to the next. Or, perhaps, stare at the screen in wonder while you read my words if, like most people in Venezuela, you have no idea what opportunity cost means.

1 COMMENT

  1. I have no doubt that someone has already figured out a way to import / export from / to Colombia without physically moving any goods into Venezuela, thereby reducing cost and increasing profit and reducing risk of being caught “smuggling”

    • “I have no doubt that someone has already figured out a way to import / export from / to Colombia without physically moving any goods into Venezuela, thereby reducing cost and increasing profit and reducing risk of being caught “smuggling””

      This was done in the 80’s, going the other way, by folks “exporting” Polyethelene (Raw Material) to Colombia, when the stuff never left Venezuelan soil.

      Por alla por Ureña iban esos tiros!!!!

  2. Squandering? It’s already squandered. What was it that we had total Reserves+Fondo Chino+Fonden according to Ramirez? $30B?. Holy Shit.

  3. JC that’s nothing new sadly… and that is why “cleaning” Venezuela from that infectious disease that chavismo is will be extremely difficult. There are scores of “career chavistas” whose way of life and way to do business is founded in this scam. They doesn’t know how to work as people does in the real world, let alone compete.

    • What’s crazy is that Colombian media is actually advertising this as a great business opportunity. I mean, Fedesarrollo is kind of a big deal in Colombia. I can’t believe they talk about this in such a non-chalant way.

      • Why not, Juan?: Those $1000 in underwear go to Colombian workers, businesses and, via taxes, Colombia’s government. That’s a kind of dream-come-true situation: Your neighbor is a sucker that is leaving dollar bills on the open street!!!.

        In a nutshell, the Colombians are getting Venezuelan oil money without needing having oil, oil investments nor the nasty Dutch disease side-effects… and they are doing it legally…

        • good point, is the perfect investment… I think only drug trafficking could equate the atonishing gains these guys make through this scam. At least CADIVI may seem legal in their eyes.

      • Juan,

        If I were Colombia, I would be thinking that there is going to be a golden opportunity to virtually colonize Venezuela economically (perhaps even literally), and thus gain direct access to the Venezuela’s resources to support their growing industrial/manufacturing sector. The more money they extract from Venezuela now, the sooner this opportunity arrives.

  4. It can get crazier when you consider the gas pimpineros. Imagine you could buy gas in Venezuela (so cheap!) at the parallel rate, since you have access to pesos/dollars (even cheaper!), and that you could then sell it in a country where gas prices are higher than in the US. The margins are absolutely enormous. Even when both governments have agreed to decrease the difference in the border areas, it’s still absolutely huge, especially as the parallel rate increases.

  5. Yet, as obviously insane as this is, the Chavistas cannot and will not admit any fundamental error in economic policy. The currency controls and subsidies along with the accompanying scams available to the enchufados are the foundation of the regime’s support base.

  6. You can then sell those $1,000 in the local market at the going price of BsF47,000. In a single swoop, you made BsF40,700.

    Why would you do that? You sell $135 at BsF47.00, which recovers the BsF6,300 you started with, and keep the other $865.

    Crackerjack @October 23, 2013 at 11:05 am:
    Hey Glenn… all you have to do is “import” empty boxes…

    Why bother? Just create the appropriate paperwork. Call it the Ko-Ko method (after the character in Gilbert & Sullivan’s Mikado, which I saw last Sunday). “Why should I kill you when making an affidavit that you’ve been executed will do just as well?” Venezuela has plenty of Pooh-Bahs ready to endorse any fiction if properly “insulted”.

    • See above, you don’t even have to move the goods!

      The perfect way to re-use the underwear without even having to wear them!

      #NoLaundryLaundromat FTW!!!

  7. Cadivi also subsidizes travelers form Colombia, Panama, Peru and many other countries via plane tickets paid in BsF.

    Cadivi is THE SHIT

    • Yes, jau and Cadivi also subsidizes hundreds of thousands of Venezuelan travelers. Do you think that people would be able to travel at all if the free market exchange rate was applied to air tickets or there was no Cadivi cupo at 6.3 but at 50+?

      In stead of insulting Cadivi as the ignoramus you appear to be, you should be thanking it on behalf of Venezuelan travelers.

      The fact that there are loopholes means that the system has to be tightened up and infractors such as the raspacupos hunted down and jailed..

      • Arturo,
        I’d rather give those subsidies to policemen in El Tocuyo or to hospitals in Punto Fijo, Maturín or to research institutes in Boconó, Valencia, Tucupita than to give them to your family for them to take pictures of themselves with Mickey Mouse in Disney.

  8. It seems that a big portion of the young “professional” sector is dedicated heart and soul to the “cadivero” business. It is amazing, sad and embarassing at the same time. 1) The hard truth is that they are right because definitely there is no business, with the exemption of being a narco, that approaches the income returns of being a cadivero. 2) But sadly also, when the country returns to normality (who knows when) these guys will all look like zombies having lost the opportunity to learn a “real” job or profession.

    • Do you think Venezuela will ever be normal again? I’m starting to doubt it. Especially, if we consider that the supposed engine of this shift “back to normality”, the professional middle-class (because the fat cats are the ones truly responsible of the current situation – see link at the bottom of JC post) are more than happy to embrace and actually defend the chavista business ethic which basically consist in find ways to make lots of money without ever producing any goods or providing any services. An elite that defends subsidies as outrageous as give free petrol instead of founding a decent health system, it is very unlikely to promote the return of Venezuela to the league of the “normal” countries.

      PS: We need to start blaming the right people for what is happening right now in Venezuela. It is not fault of a bunch of “tukis, monos, marginales, etc” as somo people happily say; it is mainly fault of the very guys who were running the country and a complacent middle class who actively promoted this nightmare back in 98’ (please note the use of present tense)

      • Yes, I do think Venezuela will become “normal” again. We just don’t know when and how this will happen. Countries and societies go through these convulsions but somehow manage to come back to normalcy. Venezuela has dug a hole, climbed into it and is presently digging deeper. Nevertheless, it serves no practical purpose to think and act as if the country will never climb out of the hole. Think of other examples of situations or endeavours that at some moment could have been seen as hopeless: the jewish people and the creation of their nation Israel, Gandhi and the independence of India, Martin Luther King and racism in the USA. There are many more examples. If all these leaders thought their fights and lives to be hopeless they would never had done what they in fact did.

  9. The profit is more than 700%. This is total arbitrage. If you don’t have to pay the Guards the profit is almost infinite because you can buy the product and return it and make money out of it.
    Maybe the transaction costs for traveling and moving but still this is pure arbitrage…

  10. Your argument is simply facile. Not only are these operations ilegal in Venezuela but it is the same as saying that the US demand for drugs “sibsidizes” Colombian coacine production. I suppose every country has its weak points though…especially when it comes down to narcotics consumption in the US and Europe.

    What amazes me is that there is no hint of criticism in your post. By the same tojen this means that you do not have any criticism of drug smuggling either or laundering the procedes by US Banks either. It’s just “business” as Don Corleone or Al Capone would say. Gotcha!

  11. Panties are not illegal, so drugs and money laundering are a bad analogy. Any economic system where exporting leads to economic loss is bound to collapse.

    Panama lives off of re-exporting stuff and most of Latin American governements bend over backwards to promote exports and negotiate deals to get new markets.

    In Venezuela? CADIVI makes exports a terrible business proposal (what’s a business going to do with Bsf. 6,30/USD for a finished product if the raw materials cost bsf 45/USD? And then the law criminalizes the export of corn meal, rice, sugar, coffee, gas, imports, etc.

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