Original art by @modográfico

It was in the 11th year of the Revolution that president Chávez went on an expropriation spree; sudden, voracious and unpredictable. The list of victims is long, and includes not just the big emblematic cases, but also small companies you may never have heard of: Vivex, Owens Illinois and Fábrica de Vidrios Los Andes, in glass production; Fundidora de Chatarra Antímano, Sidetur, Acerías Iberovenezolanas and Aluminios de Venezuela, in metal production; Silka in textile manufacturing; Beneficiadora de Aragua, Friosa and Monaca, as food processors;  Alentuy and Cartonajes Gráficos, in container manufacturers; Industrias Venoco and Fertinitro, in chemicals…

All of these companies saw their output fall immediately after the takeover — most have stopped production completely as of 2017. The message sent was unmistakable: the government will not respect property rights or “the rule of law.”

It’s not that the economy was doing badly in 2010; it wasn’t. After the small blip of the 2008-2009 world financial crisis, oil prices had continued to climb, and with them, Venezuela’s national income. GDP had grown to $390 billion, with per capita GDP at $11,500. $35 billion worth of goods came into our country as imports, much over the historical norm. Oil prices were climbing, from $45 to $72 in the Venezuelan basket, giving us $62 billion in oil income. International reserves were brought to the $30 billion level (down from the $42 billion reached before 2008, but still a solid sum).

And yet, even if the macroeconomic fundamentals looked relatively okay, the destruction of local industry was advancing by leaps. The consumption boom only masked the deeper trend towards collapse.

The message sent was unmistakable: the government will not respect property rights or “the rule of law.”

All you had to do was scratch beneath the surface: foreign debt had increased almost threefold, showing that the surplus in the trade balance was being mismanaged. The country was producing less and less locally. Steel production was down to 2.2 million metric tons, down from 5 million MT when SIDOR was privately owned. Thermoplastics production by state-owned Pequiven wasn’t even enough to satisfy local demand, and the fixed price (far below cost) was badly undermining the company’s balance sheet. Even electricity generation was running a deficit: demand stood at 16,700 MW versus a generation of 16,200 MW in a country that, a few years earlier, had achieved a surplus of 4,014 MW. Car assembly had decreased from 170,000 vehicles to 104,000.

And while expropriations were the most menacing factor, even companies that weren’t seized outright were subjected to increasing draconian controls: In order to import, certificates issued by the Ministry of Industry were required by Cadivi, the agency in charge of exchange controls. Price controls forced whole industries to sell at a loss and distribution authorizations (the infamous guías) were required to ship groceries from point to point. Quotas for rationing raw material were established and certificates for moving them within industries were created. All the while, Cadivi delayed the approval of payments from companies to suppliers and a commercial debt, which kept increasing, had discouraged international suppliers from selling directly to Venezuelan companies.

Industrial production in Venezuela was never easy, and in 2010 it was harder by the month. Labor laws had been changed, prohibiting firing workers even under justified causes; this sole factor decreased productivity when workers understood that they were going to be paid even if they didn’t work. The principle of working in order not just to keep jobs, but to advance professionally had been broken.   

Price controls forced whole industries to sell at a loss.

The Chávez government created direct government subsidies (Misiones), aimed at handing money to those who registered as political allies. Funds were distributed freely, without accountability or audit, and Chavez himself harassed and insulted investors and businessmen, calling them exploiters and thieves, by public broadcast.

School curricula were changed to ideologically predispose children. Institutionally, the separation of powers was disregarded, state checks and balances were stopped and institutional counterweights to the executive branch were eliminated. The fabric of a civilized society was being destroyed while everyone enjoyed their Cadivi party. That was the year 2010.

I was then chairman of Asoquim, the Chemical Industry chamber. In our discussions, from our workplace, we clearly understood the destruction that taking place at every level; and we watched helplessly as the country’s economy was being devastated, knowing that the end-result would be nothing short of tragic. Countries go through cycles and many learn their lessons –we pondered– we will have yet to see the very worst of this cycle and be ready to build a new country at some point, and start producing again.

Venezuela once had 12,700 manufacturing companies. In 2017, fewer than 4,000 remain. Whatever manufacturing remains does so knowing full well that only a political change can usher in a new beginning.  

But hyperinflation sets a time limit to how long they’re able to sustain themselves. The Venezuelan government has gone from abusive to outright authoritarian, creating a de facto Constituent Assembly with unlimited powers. The clock is ticking against Venezuelan industries and against us, Venezuelan people in our quest for building a better life.

5 COMMENTS

  1. Even electricity generation was running a deficit: demand stood at 16,700 MW versus a generation of 16,200 MW in a country that, a few years earlier, had achieved a surplus of 4,014 MW.

    2010 was also the year where Guri water levels fell to alarming levels- fortunately alleviated by rains in the springtime. The Chavista/PSF spin on the shortages was that 1) goodness gracious we have an unprecedented drought! and 2) shortages are an indication of increased consumption and a booming economy. CC and other blogs did an excellent job of pointing out that 1) droughts are periodic and there have been worse droughts in the past; 2)El Finado had not followed staff recommendations for expanding capacity.

    It is of note that from 1998-2010, Venezuela had the second lowest increase in per capita electricity consumption in Latin America, yet Venezuela was the country with the biggest electricity shortages.

    Electric power consumption (kWh per capita), % increase 1998-2010
    Guatemala 72%
    Peru 70%
    Ecuador 66%
    Uruguay 55%
    Chile 52%
    El Salvador 50%
    Nicaragua 49%
    Bolivia 48%
    Panama 48%
    Argentina 45%
    Costa Rica 43%
    Honduras 41%
    Paraguay 40%
    Brazil 31%
    Dominican Republic 25%
    Cuba 24%
    Colombia 23%
    Mexico 23%
    Venezuela, RB 19%

    World Bank: Electric power consumption (kWh per capita)

    • Interesting. And somewhat surprising, considering the air conditioners and other electricity consuming goodies that seemed to flow with the china loans!

      • The difference is that the AC and other electric consuming goodies were financed with oil revenue- an import which benefited from a big price increase- whereas actual electricity consumption was dependent on electricity production, which I believe was entirely domestically produced. As El Finadao had turned down most of the proposed investments in increasing hydroelectric production, this result was expected.

        The per capita electricity consumption increase in Venezuela parallels the increase in per capita income: 19% versus 15.1% for per capita income. (Latin America’s increase in per capita electricity consumption from 1998-2013: 41.5% versus Venezuela’s 19%.)

        GDP per capita, PPP (constant 2011 international $), increase from 1998-2013
        East Asia & Pacific (excluding high income) 191.8%
        South Asia 103.7%
        World 44.3%
        Latin America & Caribbean 29.9%
        Venezuela, RB 15.0%

        The oil revenue boom masked an anemic economy.
        World Bank: GDP per capita, PPP (constant 2011 international $)

  2. But hyperinflation sets a time limit to how long they’re able to sustain themselves.
    —————

    Not being an economist, I’ve kept asking myself – and wearing people out on this list – this exact question, and moreover, WHAT, exactly, could possibly keep the Chavistas in power when the little food runs out, there is no money to pay the military, and no options for anything?

    Aside from a plan to muscle and harass the opposition to side with them per getting sanctions lifted, what possible strategy can the Chavistas have for political survival, and without a strategy, what do these people think will follow, as night follows day?

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