Conindustria is known as the most representative organization of the industrial sector. For our readers, can you briefly describe the activity of your organization, its philosophy and what it has enabled you to achieve since its creation?
Conindustria is a business service organization that represents the largest corporations in the industrial sector in Venezuela, as well as small and medium sized companies, probably more than eighty percent of the manufacturing sector, and more than ninety percent of the non-traditional exports of the country. We have an indirect membership; we have forty-seven trade associations that are members of Conindustria representing close to thirty-nine hundred companies in the small, medium, and large manufacturing sector. We have thirty individual members of Conindustria, special associates that are made up of the largest private corporations of the country both Venezuelan and international. We vary from Polar and Sivensa to Coca-Cola's Panamco and Procter and Gamble de Venezuela.
Conindustria's objective is to develop the manufacturing sector to be strongly competitive and oriented to the global market. This way we can be part of the international effort that Venezuela has been making within the world market. We are trying to increase trade with Mexico, integrate into MERCOSUR. We are part of the global business community through the oil industry and other multinational companies. What we are trying to achieve now, is to change from a rental economy into a productive oriented economy. An organization that tries to reflect that we believe in non-traditional manufacturing sectors. The manufacturing sector needs to develop jobs and economic development in the country. One of the problems with the oil industry is its independence to these strategies, but oil is a commodity in which Venezuela depends for in a lot of areas. If we diversify industry then we have the advantage of exporting not only a commodity like oil but exporting jobs through the products made with Venezuelan raw materials and energy. We have a lot of competitive advantages like iron ores reserves, aluminum, and energy. We must develop these resources in order to make Venezuela significantly important as a manufacturing country. This is our vision and certainly it is our mission to support our non-oil manufacturing industry and help communicating with the government; not only central but regional governments as well.
We are interested not only in the executive branch but also in the legislative branch, trying to assist as an intermediary, and help with the changes that come from the new constitution and the entire new legal structure of the country. We aim to support that effort by assisting the industrial sectors in the development of new laws and regulations working closely with the official organizations. We try to present as a whole what we think is best for results. The Inter-American Development bank is signing an agreement with us, supporting us for the next eighteen months and offering professional support so that we can present these ideas to the new elected congress. There are many laws that need to be changed, laws in the labor area, social structure, pension funds, and there is the entire issue of tax laws that will need to be modified under the new constitution. The new support that we are receiving from the Inter-American Development bank is based on previous support we have received for ongoing projects that we had with the IDB in the area of small business sectors. Since 1997 we signed an agreement with the bank supporting a technical assistance program for the small and medium size business sector. The program entailed mostly training, consulting expertise, and development of new business plans. We also provided help to convert the business plans into financial proposals that could be given to financial companies for further analysis and eventually deciding what had to be done. We realized that there was insufficient adequate training so we began filling the gap two years ago. We have been very successful at this. The new project that I was referring to supporting this effort is a two million dollar project. We have received the back up from many other institutions like Corporacion Andina de Fomento, C.A.F., and the Ministry of Production and Planning; we work very close with the government in all activities related to new commercial treaties, like Mercosur discussions. We develop strategies, proposals for these treaties and we try to take into account the Venezuelan needs in a specific sector. The government has recognized that effort by inviting our staff to be part of these discussions. This recognition has been achieved through our continuing effort in a non-political but technical professional effort, trying to service our affiliate companies and maintain a link with the government to understand what they want, and try to meet both needs with a common objective.
The manufacturing industry is said to hardly reach 50% of its production potential, Venezuela is said to have one of the lowest productivity rates in the region, how is Conindustria addressing this fact?
The possibility of exporting our goods and services is an alternative. We have been discussing with the government for the past three years, the need to address the downturn in consumption since late 1997 and beginning 1998 as a result of the low oil prices and the uncertainty the country lived, because of the political factor that surrounded it in 1998. There was a lack of confidence in the future of the country and the people repelled investment and any new expansion programs. When Chavez came into power he implemented a very drastic control of inflation by an exchange rate that had a very small rate of devaluation and also by a restriction in government spending. All of this brought about a significant reduction in the consumption of more than twenty percent in 1999. What we have requested from the government is to use the government spending capability to develop additional consumption needs; we feel we have a problem because of lack of inner consumption. The government itself has been importing more than eighty-five percent of the goods they use. A huge potential is being lost. This does not have to do with military equipment, but small things like the uniforms that they use, which are manufactured here just as well as the ones from abroad. We also have high unemployment in the industrial sector, 15%. In the textile sectors we have the chance of developing forty to fifty thousands jobs in the area, and this way we can meet the new employment objective. The capability, the expertise is here but the market has been lacking and the fact that our currency has been over valued has made us less competitive in front of other markets.
To your opinion, what should the government do in order to accelerate your sector and its export level?
We feel that the government policy being used since the beginning of this new government has been very effective. In a graph based on figures from 1991 to 1999, the accumulated inflation and devaluation in these past years is shown. This graph shows a currency overvalued by more than 30%. Since January of 1999 we see that the inflation is about seven percent higher than the devaluation, but the inflation in the U.S in the past eighteen months was about three percent a year. The difference between inflation and devaluation has been minimal. The problem is that the Caldera administration tried to fix the exchange rate in order to control inflation and they could not control government spending, so the inflation and interest rates went rampage and devaluation did not. Mr. Giordani inherited this huge gap, he has not increased it but he has not curtailed it either. In the exchange rate we work on graphs with four different bands that are used in comparison of one another, the superior parity, the central parity, the market price current, and the inferior parity. We do not mind if the government keeps the present policy as long as they try to place themselves in the superior parity instead of the inferior parity. That nine and ten point difference from each band will benefit the Venezuelan manufacturer that wants to export without that much additional income. It will also work as an additional shield for the Venezuelan manufacturer selling in the country competing with the imports. Today the average amount of import duties is not more than ten percent. We do not have much protection with import duties and if we have an over valued currency our competitiveness exporting is inadequate. We do not want devaluation only to promote exports; we want a currency adjustment to protect our local market from unfair competition. It is cheaper to import goods than to make them here. If we are importing most of our raw materials and only assembling in Venezuela products so we can say that we are manufacturers, then the over valued currency is right. Many industries have become assemblers of products rather than real manufacturers because of this tendency-taking place in the last four years. We need a flexible exchange rate policy. Our manufacturing industry peaked in 1995 when we had half a million workers. Today we have less than two hundred thousand workers. The government recently reported how the unemployment in the manufacturing sector increased 3,8 percent in a month, this is certainly alarming. Venezuela is an excellent area to invest in the traditional sectors that are energy dependent because that is an abundant resource, certainly hydroelectricity, gas and oil. The aluminum sector is supported by low cost energy, same with the steel mills, the cement industry. We have to develop other alternatives in the manufacturing sector; to go from primary raw materials and convert these into more manufactured goods. This is how more jobs are developed, here is where one gets more capability, and you switch from selling raw materials into selling more manufactured goods with added value. In the end that is where manufacturing should head for. Venezuela has the capability, its people are well prepared. This is a country where the foreign investment is well placed. There are a lot of transnational companies here. Labor costs in Venezuela are at par with Colombia and Brazil, but it depends on the area we might be discussing. | We recently interviewed Mr. Brito who gave a great emphasis onto the decentralization as a key solution to improve the development of the industry, do you share his vision, and which states would you see as the best investment opportunities and what are your actions towards the regions?
It depends what kind of industry one is interested in. If it is the oil sector the eastern state of Anzuategui and Monagas are the ones with new refineries and petrochemical plants. In these two states and Sucre are centralized the new oil, gas and oil related investments. For traditional manufacturing there is Carabobo that has the automotive industry and other light manufacturing industries. Aragua and Lara are medium industry states. Zulia is a traditional oil industry as well, and cattle breeding. If one is looking for the heavy industry like steel and aluminum Bolivar state is the one with the access to the Guri Dam where there is a source of hydroelectric energy, which is very cheap, and the iron mines are close by too.
The privatization process is one of the current main issues in Venezuela. To your opinion, are there companies in the industrial sector that would require to be privatized?
I think the important part is that the aluminum sector needs additional investment. It needs several billion dollars to modernize their existing plant and equipment and the government certainly does not have that capability. They need technology to develop new production lines in order to be competitive with worldwide demands and be effective competitors within their own industry. Instead of privatization in the traditional sense of selling the assets, I think they are looking into joint ventures where they will lease the plant. The problem is that these plants need technology, new investment, run with private business orientation. The government is not used to provide this kind of professional staffs for the simple reason that there is no reward or penalty to underachievers in the public sector. I would say that in the aluminum sector there is space for strategic investment or associations. The government has been very creative in making these. The other sector that needs a huge investment is the electrical sector. CADAFE just made a statement that they need somewhere between five to ten billion dollars in the next ten years of new investment, and the government does not have that money. Even in the oil sector the government plan that was presented in March or April of this year called for fifty eight billion dollars of new investment over the next ten years. The government was planning to put twenty billion. They are not looking for the privatization of PDVSA but strategic associations. Over the next few years there is going to be more strategic investment where the foreign investor will be more welcomed, not only because it brings new capital but because it brings the technology and expertise behind it that will benefit Venezuela. Conindustria just does not want foreign investors coming in with all the equipment and materials, to bring in their technology, but try to get Venezuelans involved as much as possible. We have capable people, and most local companies can put together the much of the equipment. This is all going to take time, but the growth of Venezuela should come from the potential of the country. When transnational companies like Exxon, Mobil, go abroad they bring their engineers and other professionals along with them. When PDVSA does its joint ventures in other countries it should bring along its Venezuelan staff that is prepared for this, as well as many Venezuelan engineering and manufactured goods. This allows Venezuela to export its creative talent.
In the medium run, how do you foresee the level of competitiveness of Venezuela as compared to the neighboring countries?
I think Venezuela has been very competitive in most areas that it has decided to enter. I started working in the information field in information systems. I worked in IBM coming straight out of MIT some years ago. We had in the country the most recent technology outside of the U.S in the world. The reason was we had the oil companies as customers, and whenever Exxon in New Jersey or Shell in London or Den Haag saw IBM equipment announced in New York, they wanted the same equipment here in Venezuela, because they had the use for it. Venezuela had for many years a technological advantage over Mexico, Argentina, and Brazil because they were not as far advanced in the information system. When the oil industry was in private hands it was like an airplane carrier that took any other plane wherever it went. That spread to other areas. In commercial banking systems, the information systems that we had in Venezuela in the late sixties and early seventies were better than those in New York, California, or Chicago. These were Venezuelan developed on line banking systems. I was in IBM during those years. Then I was an information professor in the Universidad Simon Bolivar for nine years; I kept in touch with the filed for many years even when I became involved with the manufacturing sector. It just goes to show that Venezuela can develop talent in many areas, the first computer controlled system that was installed outside the U.S was in Venezuela in Shell Oil's Punta Cardon refinery in 1968. We brought experts from all over the world. Venezuela is filled with talents since many years ago and that talent is still here today. Many have left forgetting the existing talents. For many years we were growing a very successful manufacturing industry and then you speak to textiles manufactures like Mr. Esteban Zarikian, he can tell you how modern, and competitive his textiles mills are in Aragua state, the problem is he does not have a market, and the conditions he is under are not the best to go abroad. Certainly we can be as competitive as any other country in developing our manufacturing sector.
On a personal level. You are President of Conindustria but also first vice chairman of Venepal. Are those two positions a necessary complement to your front into the business community?
I could not have become President of Conindustria if I had not been involved in the manufacturing sector for many years. I started working in this sector in 1977 in Venepal, also involved in other companies. It is very difficult to represent the manufacturers of a country if you are not a manufacturer yourself. I began in a small company making molded pulp containers for the poultry industry. I then came to Venepal as general manager and I had the opportunity to help the company grow both in local sales and developing our foreign markets. Our only foreign customer back then was Jamaica, and it had been cut because in 1983 the currency in Venezuela was so overvalued that the only reason that they bought from us in the first place was because we where the only ones that offered them a line of credit. We were able to export again in 1989, when we had the restructuring of our economy. We opened our frontiers, lowered tariffs and we had a more competitive exchange rate and the organization of the government was focused on raising resources through non-oil manufacturing sector. In 1989 and 1990, we started a good trade relationship with Colombia. We had to change from being an exclusive industrial products company to one that also sold consumer products.
Forbes always portrays success stories and great challenges. As President of Conindustria, what would be your greatest personal challenge over the coming months?
I only have one more year left as President of Conindustria. I want to interface with the government and make them understand that the development of the economy and the generation of new jobs will come from the development of the non-traditional manufacturing sector. That oil, gas, aluminum, 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. Our market should be international, so should our quality. In Venepal in the eighties we use to built quality A for export, and quality B for locals. We learned that there should only be one quality for all markets: the best. That would reduce operating cost and increase efficiency. When we have one quality accepted everywhere the customers will be more satisfied and that is a benefit of being in a global market. One learns to do things better.
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