Abstract
The ongoing contraction in investment in Venezuela and slowdown in private
consumption support
BMI’s view that the country’s economy will
now contract by 5.6% in 2009 and 1.7% in 2010. The
economy is beginning to
slow owing to declining oil production, growing structural problems,
declining
private investment and of course the global economic crisis. The
local business environment is now
deteriorating rapidly, and the recent
success of President Hugo Chávez' s constitutional amendment
referendum bid looks likely to further exacerbate the alienation of private
enterprise.
Indeed, in US dollar terms, per capita consumption of food is
now expected to contract by 6.6% this year,
by 22.6% in 2010and by 4.4% in
2011, before starting to grow again in 2012, reaching US$522.2 in 2013,
only then reaching a level seen back in 2006.
Chávez has recently
made nationalisation of food production a priority. The government has
already
nationalised a rice processing mill belonging to US food giant
Cargill and seized control of a plant
belonging to Empresas Polar,
accusing private producers of ' mocking' the Venezuelan people by
hoarding
rice to evade government-imposed price caps, which caused food shortages.
Polar has called for
talks with the government after Chávez
threatened to take over the firm, on charges the company was not
producing
enough grain at government-regulated prices. In response to the threat, Polar
issued the
following statement: ‘We have maintained that the best
way to increase Venezuela' s food (production) is
through dialogue and
close collaboration between the government, agricultural
producers — and
consumers.’ This was followed by an
order to seize control of 1,500 hectares (3,700 acres) of land owned
by
Ireland-based packaging giant Smurfit Kappa Group, with the government
insisting that the plot
should be used to produce food rather than
paper.
In mid-March, Chávez gave Coca-Cola Femsa two weeks to vacate
a plot of land which the government
wishes to use for social housing. The
plot is in Western Caracas and is currently used by the firm as a
parking
lot from which it delivers products to around 9,000 customers. The Coca-Cola
bottler has said it
is willing to negotiate over relocation, but will be
worried that the move could set a precedent at a time
when the Venezuelan
president is stepping up his drive to nationalise the country' s system of
food
production. Mexico-based Femsa will be particularly concerned by the
latest development, as the firm has
had a strained relationship with the
Venezuelan administration ever since it entered the market. Several
National Assembly legislators have previously suggested that the government
should confiscate Femsa' s
Venezuelan bottling plants and produce
' Venezuelan soft drinks' if the company does not comply with
worker
demands. With food nationalisation a government priority, and anti-US
sentiment as strong as
ever, the prospect cannot be completely
discounted.
Given that this sort of assault on private enterprise looks
likely to continue, a much sharper decline in
investment spending in
Venezuela cannot be ruled out. The uncertain inflation outlook for the
country
will also undermine long-term investment projects.
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