The Ever Present Niño

Someone needs to tell Basic Industries Minister Juan Arias that the reasons for our recession have nothing to do with El Niño and everything to do with communism.

The Minister for Basic, Strategic and Socialist Industries, Juan Arias, claims there will be an industrial growth rate close to 30% in 2017, compared to the poor results of 2016, a year marked by water and electricity shortages due to El Niño.

Crazily enough, el Niño is not one of the main reasons why the national industry accumulates close to four years of recession. According to the Encuesta Cualitativa de Coyuntura Industrial (“Qualitative Survey of Industrial Situation”) carried out by Conindustria in the first quarter of 2017, over 80% of companies surveyed consider that the main factors restricting local production are political and institutional uncertainty, low national demand, unavailability of foreign currency and difficulties finding raw material suppliers. This last factor is critical.

A study published by Obuchi, Lira and Raguá in 2016, in which high executives and trade union representatives from different sectors were interviewed, concludes that:

“The most burdensome problems of this policy are related to the fact that some of the affected companies are the suppliers of key inputs for other economic activities. In the hands of the state, companies in industries such as steel, cement, petrochemicals, or agricultural inputs are failing to meet demand, and they end up disrupting or restricting the economic activities in other areas such as construction or manufacturing. The most mentioned case was a steel company, Sidor. There were also mentions of Agropatria (agrochemicals), Sidetur (steel), “Lácteos Los Andes” (dairy products), and the cement plants that used to be Holcim, Cemex and Cementos La Vega, that are at best working at minimum.”

Arias also considers that the figure provided by the International Monetary Fund of a 12% drop in GDP está abultada; its been jacked up. 

We beg to differ.

According to the Conindustria Survey mentioned before, local private industries are using only 32.4% of their installed capacities, a decrease of 3.9% from last year, and a decrease of 16.4% since the beginning of recession in 2014 (the number has remained below the 50% mark ever since). Also, when crossed with official data (available up until 2015), the levels of used installed capacities show a correlation of 91.3% with Venezuela’s y/y growth rate of real GDP.

So if the used installed capacities keep on falling, the GDP is bound to drop a lot and there’s just so much you can blame on that poor Niño.