BMI's Executive Summary

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In 2007 President Hugo Chávez continued to concentrate power and influence in Venezuela, and to a lesser degree in Latin America, pursuing a nationalist and anti-US policy. At home his position looked secure, based on popular support from Venezuela's poor, an overwhelming majority in Congress (the opposition boycotted the December 2006 elections), and wide-ranging executive powers. That said, a number of analysts note that the President's leadership style is based on provoking conflict and permanently casting himself in the role of rebel against Venezuela's perceived enemies, ranging from the US to the old ruling elite and 'traitors' to his cause. This style has not served him badly in the first eight years of his rule; but some would say it potentially carries within it the seed of his own destruction.

Venezuela's armed forces are amongst the smallest in the region, but were traditionally technologically superior to many of its regional counterparts. However, this superiority is becoming increasingly insignificant. Venezuela plays little part in the world arms market. It imports nearly all its weapons, and in fact has almost no indigenous defence production capability. Venezuela's marked dependence on weapons imports has traditionally been somewhat offset by the diverse suppliers from which the country purchases its arms.

Modernisation and upgrades under the new procurement programme are likely to be externally directed, with European and Middle Eastern countries expected to make up most of the suppliers. However, the overall increase in procurement could prove beneficial for the defence industry if co-operative or domestic bids are chosen for later contracts. Defence spending will increase over the forecast period as a result of high oil prices that have enabled the government to go on an arms procurement spending spree. However, in May 2006, the US imposed a ban on arms exports to Venezuela, having tried to stop the sale of military aircraft from Spain and Brazil that use US manufactured components.

BMI believes that Hugo Chávez is here for a while yet. Chávez has dominated Venezuelan politics since his election in 1998. The anti-Chávez opposition movement has been deeply divided since the failed coup in 2002 and the subsequent failure to make a recall referendum stick. Venezuela is not likely to develop a competitive defence industry in the foreseeable future and will remain import-dependent for its weapons purchases and diverse in the sources it relies on for those purchases.

Contents

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Chapter 1 - Executive Summary

SWOT Analysis

Venezuela Political SWOT

Venezuela Security SWOT

Venezuela Defence Industry SWOT

Venezuela Economic SWOT

Venezuela Business Environment SWOT

Chapter 2 - Political Overview

Domestic Politics

Still On Track

Opposition To Unify?

Oil Sector In Chávez' Sights

Agribusiness And Mining Also Suffer

External Political Outlook

Rocky Road Ahead

Chapter 3 - Security Risk Analysis

BMI’s Security Ratings

Risk Ratings

Table: Regional Risk Ratings

Table: State Terrorism Vulnerability Index

Regional Security: Latin America

US-Latin America Relations

Regional Arms Race

Narcotics And Security

Venezuela Security Risk Rating

Venezuela Conflict Risk

Venezuela Terrorism Risk

Venezuela Physical Safety Risk

Chapter 4 - Security Overview

Internal Security Situation

Political Unrest

External Security Situation

Table: Venezuela Regional Insurgent Groups

Regional Relations

Venezuela-US Relations

Chávez And Regional Solidarity

Venezuela-Colombia Relations

Venezuela-Vatican Relations

Chapter 5 - Market Structure & Defence Industry

Armed Forces

Table: Regional Armed Forces (including conscripted) 2006

Weapons of Mass Destruction

International Deployment

Market Overview

Arms Trade Overview

Imports

Exports

Industry Trends and Developments

Procurement Trends & Developments

Table: Comparison Of Military Equipment And Proposed Procurements

Overview Of The 2005 Procurement Plan

Russia A Key Player

Chapter 6 - Industry Forecast Scenario

Table: Venezuela Defence Sector - Historical Data & Forecasts

Army Enlargements

Government Expenditure

Key Risks To BMI’s Forecast Scenario

Chapter 7 - Macroeconomic Forecast

Booming Stagnation?

Table: Economic Activity Indicators

Chapter 8 - BMI Forecast Modelling

How we generate our industry forecasts

Defence Industry

Sources

Chapter 9 - Appendix A: Risk Ratings Methodology

Conflict Risk Methodology

Terrorism Risk Methodology

Physical Safety Risk Methodology

Overall Risk Rating

State Vulnerability Index Methodology

Competitive Landscape for Latin America Defence & Security: Sample of  
Companies Ranked

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Rankings and Competitive Landscapes by production and sales; market share and change on previous year; number of employees, ownership structure and year established. Also includes analysis of company expansion, export and investment strategies.

Network of Defence & Security Sources

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BMI's Latin America Defence & Security Reports are based on an extensive network of multilateral organisations, government departments, automotive industry associations, chambers of commerce and company reports. Information sources include: