G’day, and welcome back. This week I look into Venezuela’s economy, and what’s behind some major shifts towards privatising the nation’s oil industry and liberalising their economy. Is this a short term tactical shift from the Maduro regime, or a long term transition to a Chinese style political economic model of “authoritarian capitalism”?
Last week I was in Bogotá, Colombia, where neighbouring Venezuela’s prolonged crisis is evident almost anywhere you look – from people selling trinkets on the streets, to daily coverage in the local press. Their music fills the air on Sundays when I run the ciclovía, as I pass my favourite group of buskers by Parque El Virrey.
Approximate reading time: 4 minutes.
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Venezuelan Oil Matures? El Petróleo Madurando, o el Petróleo de Maduro?
Last week Venezuela’s President Nicolás Maduro proclaimed an “energy emergency”, announcing a commission to restructure the country’s oil industry, potentially leading to private sector participation. The statement followed new sanctions from the United States government on a subsidiary of Russia’s state-owned oil firm Rosneft. Rosneft has played a key role in Venezuelan oil exports, acting as an intermediary to sell over half of the country’s oil exports. These exports provide a vital source of foreign currency for Venezuela’s dwindling foreign reserves, depleted by financial isolation from US sanctions. Heavily reliant on foreign imports, a lack of foreign currency reverberates throughout the Venezuelan economy with businesses unable to import vital components for their goods, and chronic shortages for household staples such as toilet paper.
This follows recent reports that the oil industry was already undergoing “stealth privatisation” amidst slumping output. Despite having the largest known reserves in the world, sclerotic state control, corruption, mismanagement, and sliding oil prices have seen Venezuela’s oil production slow to a trickle in recent years.
Venezuela’s Crude Oil Production – '000s Barrels per day
Venezuela goes Chinese?
The move comes in conjunction with a recent détente between the Maduro regime and some of the country’s major businesses, a reduction in import tariffs, and a loosening of capital controls. This has stabilised high inflation and increased the availability of previously scarce imported goods.
Together these shifts amount to a substantial break from the regime’s socialist ideology, prompting to Wall Street Journal to write of the country’s shift away from socialism to a Chinese style “authoritarian capitalism”. Whether this is a temporary aberration or a historic shift is too early to say, however the move underscores Maduro’s desperation to remain in power, even at the expense of ideology. Should he lose power, Maduro no doubt fears an unruly exit, and thus remains incentivised to retain power at all cost. After the Andean nation came to the brink of crisis in 2019 with extended power outages, hyperinflation, civil unrest, and an international diplomatic effort to support opposition leader Juan Guaidó, Maduro knows that a minimum economic security is necessary to maintain a viable level of political support for his regime.
Get your share of rum
The recent share offering by local rum company Ron Santa Teresa on Venezuela’s local stock exchange was the first in 10 years. Some analysts view this as a sign of confidence in Maduro’s turn to capitalism, a view promoted by Ron Santa Teresa and other executives of “Optimists Anonymous”, an informal group that has lobbied the Maduro regime to be more business friendly.
However, there’s a dimmer view – that the business leaders of Optimists Anonymous don’t see the Maduro regime losing power in the medium term, nor a relaxation of the accompanying state-focused US sanctions that have made foreign businesses hesitant to transact with private Venezuelan companies. With local banks unwilling to lend due to increased reserve requirements, Ron Santa Teresa turned to the local stock market, choosing the least bad option to meet their capital needs.
Venezuela's woes impact the region
Make no mistake, Venezuela’s economy remains dire, with the IMF predicting a 10% contraction this year. But compared to 2019 when GDP shrank an estimated 35%, this is a comparative improvement. The relative stabilisation of Venezuela’s economy will be most acute in Caracas where the Maduro regime’s economic control is greatest, particularly for wealthier and middle-class importers with access to US dollars and the greater purchasing power that accompanies it.
It will be interesting to see how this impacts the cascade of migration across the region, most acutely felt in neighbouring Colombia, where at least 1.6 million Venezuelans live – a figure that’s growing by around 3,000 per day. The FT notes that five million Venezuelans have fled since 2015, with another one million projected to leave this year. This constitutes a refugee emergency greater than Syria.
Venezuela’s deteriorating economy has shifted the profile of Venezuelan migration in recent years from wealthy and middle-class citizens to the poorest. Most of these migrants have fled to neighbouring Colombia. I suspect the recent economic changes in Venezuela will continue to drive an exodus of Venezuela's poorest to its surrounding countries. In a very crude analysis, this could be what Maduro wants - to lessen their burden on the Maduro regime, while providing a sliver of economic optimism for the country's more politically powerful business class.
Venezuelan musicians in Bogotá. Credit: Manuel Rueda/The World
Colombia has a complex relationship with Venezuela. In the 2000s it was Colombians migrating Venezuela, fleeing political violence at home. Now the flow has reversed. And while the Colombian government’s efforts to welcome Venezuelan migrants have been admirable to-date, recent polls show public perception is darkening against a backdrop of high unemployment throughout Colombia. The influx of Venezuelan migrants is causing headaches for Colombia’s embattled President Iván Duque, whose approval rating sunk to a low of 24% late last year.
Further listening from NPR
NPR’s “Throughline” compares and contrasts the life of Latin American liberator Simón Bolívar with Hugo Chavez.
NPR’s “The Indicator” discusses some of the recent changes to Venezuela’s economy.
Please feel free to send through your own thoughts and articles to me. Forward this along to others who might find this an interesting read.
Have a great weekend,
Mitch