learns to diversify after turbulent political times

Introduction - Infrastructure - Tourism - Diversification - Reforms and deregulation -
The states - Technology - The information age - Business - Outlook

Business as usual
despite a decade of turmovil

Business chambers admit that the last decade has been tough for Venezuela in the face of a biting recession, social unrest and low oil prices. Their leaders like to add however, that with the correct conditions, growth and opportunities await the long-term investor.

Shell Venezuela is one company that has benefited from its long-term vision through its commitment to the country's petroleum sector.

Operating in Venezuela since 1914, Shell currently pumps 45,000 barrels a day at its Urdaneta Oeste field; it is one of the country's largest manufacturers of lubricants ; its distribution network is made of 200 service stations throughout the country.

After investing a total of $1 billion in Venezuela, Shell continues to look for challenging opportunities and is currently studying a likely involvement in the liquefied natural gas Cristobal Colon project. Venezuela has the seventh largest gas reserves in the world.

"We are strategically placed to provide liquid gas to the region", enthuses Joaquin Moreno Uribe, President of Shell Venezuela.

Despite being a relative new kid on the block, the five-star Four Seasons chain has just opened South America´s newest luxury hotel in the east of the city perfecting the art of top class service by training its bilingual staff to meet its world class standards.

"A beckoning Caracas continues to grow."

"We offer here exactly what the four seasons offers all over the world," Yves Giacometti, the General Manager says. "Fortunately Venezuela has the stability to make us a success here."

Business leaders say that in developing countries such as Venezuela, investments with a long-term commitment bear greater fruit.

As a member of global accounting firm Ernst and Young, Carlos Baez Paredes, Managing Partner at Baez, Dasilva & Asociados says that despite almost a decade of political and social upheaval the company had come out on top thanks to its dedication to consistently high levels of service.

Baez, Dasilva & Asociados offers premium class accounting, auditing, outsourcing and legal advisory services to local and international clients including large oil and communications companies as well as government agencies. "We have a saying here: 'the Venezuelan is as great as the challenge he is given'; that is how I would sum up our operation," says Baez.Despite exchange controls in the mid-nineties, a coup in 1992 and tense presidential elections, the company has continuously been praised by its multinational clients for calm in the face of crisis and a steadfast attitude."Venezuela has had problems but with the right government decisions, this will be a successful country," he says.

CBRichard Ellis, one of the biggest real estate companies in the world would agree.

Founded in 1999, the Venezuelan office headed by Ms Beatriz Yilo proved that despite difficult conditions, the company has been growing at a fast pace. The company offers a full range of services for both retail and business clients including broking, property management and services as well as project management. Among its biggest clients are 3M and food giant Cargill.

"We provide the full package: a one stop shop that is the most important thing," says Yilo.

Fiscal incentives pave way for industry to recover

"We have a country with a population of around 24 million people, we do not have enough internal consumption or demand to have large industrial projects, but we could develop them for export," says Vicente Brito, President of Venezuela's largest business chamber, Fedecameras .
"For the next three to five years we should target thirty billion dollars in investment. That will generate over a million and a half-new jobs in the country."

Throughout the 1990s Venezuela's industrial base suffered a serious pounding as the effects of an over-valued currency, exchange controls, high inflation and investor wariness took its toll.

Manufacturing in 1995 employed 500,000 people. In 2000 it barely scraped 200,000.

Aware that Venezuela needs to diversify its economy away from pure petrodollars, the current administration is encouraging investments in certain industrial sectors by giving tax breaks to business and reworking the legal framework to ensure greater investor security.

In September 2000, the government decreed that small and medium-sized industries in economically depressed areas of Venezuela would be exempt from paying full income tax for the next eight and a half years.

Businesses with a turnover of less than $1.6 million a year and emploing less than 50 workers are included in the exemption list. From 2003 these companies will enter into a sliding scale of tax payments handing over only 10% of the real figure.

Not included in the new law are the petroleum, mining and banking sectors.

Reenergizing dormant industry through state-financed industrial parks and an emphasis on local production has been one of the government's main economic platforms.

The outlying and under-populated states of Amazonas, Apure, Delta Amacuro, Sucre and Trujillo will see small and medium-sized industries exempted from income tax while 36 industrial parks across the country will also benefit from the measure.

In 2000 the government-funded small loans institute Foncrei arranged for a $125 million credit line to small businesses.

"That oil, gas, aluminium, and iron are fine, but we have to take the competitive advantages that Venezuela has in these areas into more downstream manufacturing operations. We should not produce iron to export and then import an entire car, the transmissions or parts that could be made here in Venezuela. We should look to develop industry not only for the local market but multinational market," says Juan Calvo President of Conindustria. Business leaders admit that small business has been sometimes slow to react to the demands of a globalized world. Cutting costs to the bone to compete with more savvy foreign operators and overcoming an innate disposition for imported goods has been a major challenge for many.

Ron Santa Teresa, the nation's leading rum producers faced just such a problem as bankruptcy loomed in the mid-nineties due to a bloated pay roll and soaring interest rates.

Through a restructuring program and slashing the pay roll by 50%, the company is now back on its feet and making a profit, according to its President Alberto Vollmer.

"When everything is becoming so global, controlled by multinationals, it is appealing to be an independent company," Vollmer says.

Concentrating on a niche market in these times of the brand conscious consumer is definitely the way forward for Venezuela's national products.

"For exports, Venezuela should pick several products in different categories and focus on them. We want to concentrate on the high value markets, where the rum is at growth. With a strong base you can become strong internationally," Vollmer says.

Agriculture is one area where Venezuela hopes to boost production by focusing on certain crops.

Currently agriculture makes up just 3% of GDP with Venezuela importing around 80% of its alimentary needs.

President Chavez has earmarked cocoa, rice, soft fruits and coffee as so-called 'flagship' crops. Producers of these crops are set to receive extra funding from central government as well as technical support.

"We have all the necessary prerequisites for agriculture," says Ronald Blanco, the Governor of Tachira state, one of the largest coffee-producing states in Venezuela. "We have great agricultural possibilities with coffee and that is now set to continue."

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© World INvestment NEws, 2002.
This is the electronic edition of the special country report on Venezuela published in Forbes Global Magazine.
April 2002 Issue.
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