Venezuela is rich in natural resources and attracts a number of our clients. In particular, it has huge oil and gas reserves (it has the largest proven oil reserves in the world) and is one of the main suppliers to the US. Venezuela has a long tradition of democracy, although the rise to power of Hugo Chávez in 1998 ushered in a new era of tensions between the government and the private sector. This dynamic which has only been exacerbated under the helm of President Nicolás Maduro, given low economic growth and the government’s heavy-handed approach to stemming political dissent and regulating the private sector.

We keep our clients informed of the latest market moves and political developments as part of our 'top-down' and 'bottom-up' perspective. Clients also benefit from in-depth analysis on 20 of Venezuela’s most important industries. We provide interactive data and forecasting alongside detailed and risk-assessed analysis from our expert research teams. We aim to keep you ahead of the curve, so you can do business with ease in Venezuela.

Country Risk

Venezuela Country Risk

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Core Views

  • We expect economic growth to remain sluggish, characterised by a slowdown in private consumption, net exports, and investment. The negative outlook has deteriorated further amid falling oil prices.

  • President Nicolás Maduro has consolidated his position at the helm of the PSUV, but his popularity has waned amid economic difficulties affecting all segments of society. He will continue his predecessor's policies of elevated social spending, resulting in sizeable fiscal deficits.  

  • Inflation will remain elevated, at the highest level in Latin America, and the operating environment will remain very precarious for foreign multinationals in the country.

Major Forecast Changes

  • We have downgraded our GDP forecast for the next several years,...

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Venezuela Operational Risk Coverage (9)

Venezuela Operational Risk

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BMI View:  Although the terror threat in Venezuela is low, high rates of violent crime and the implications of anti-American foreign policy pose substantial operational risk to investors. In particular, foreign workers are exposed to kidnapping risks and inadequate protection from the country's police force, which often necessitates hiring private security. Venezuela performs poorly in BMI 's overall Crime and Security Index, scoring 24.4 out of 100. The country ranks 151st out of 170 countries globally and 27th out of...

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Venezuela Crime & Security

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BMI View:  Although the terror threat in Venezuela is low, high rates of violent crime and the implications of anti-American foreign policy pose substantial operational risk to investors, undermining its Crime and Security performance. In particular, foreign workers are exposed to kidnapping risks and inadequate protection from the country's police force which often necessitates hiring private protection. Venezuela performs poorly in BMI's overall Crime and Security Index, scoring 24.2 out of 100. The country ranks 154th out of 170 countries globally, and 27 thout of 28 countries in Latin America, marginally ahead of its regional ally, Ecuador.

Crime is endemic in Venezuela and poses a critical threat to foreign operators. The capital Caracas is the third-most dangerous city in the world with an estimated 10 homicides per day. Foreign...

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Venezuela Labour Market

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Venezuela has consistently delivered strong social welfare programmes which have improved public services and the availability of labour. However, the country performs very poorly with regards to labour costs, which significantly increase operational risk to private companies and are a serious concern for investors. These strengths and weaknesses are factored in the BMI Labour Market Risk Index, in which Venezuela scores an overall 52.9 out of 100, ranking it 11th out of 28 countries in Latin America, in between Ecuador and Panama. Meanwhile Chile, which has very liberal labour laws, is a regional outperformer with a score of 64.6.

Labour Availability in Venezuela is good, due to high rates of urbanisation, and strong public spending in health and primary education. As a result, the workforce is located in close proximity to commercial areas, transport hubs, and effective public services. This is good for business...

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Venezuela Logistics

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BMI View:  Venezuela's transport infrastructure is in poor condition, utilities supply is struggling under growing demand and trade bureaucracy creates major bottlenecks in international trade. The country does however offer some strong comparative advantages for investors, including the lowest energy costs in the world, but these fail to significantly mitigate logistics risk. Overall, Venezuela has a weak supply chain which carries inherent threats to business operations. This contributes to the BMI Logistics Risk Index, which places Venezuela 25th  out of 28 countries in Latin America, with a score of 38.6 out of 100.

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Venezuela Trade & Investment

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Poor economic openness, severe government intervention, and weak rule of law present high risks to investors in Venezuela. Overall trade is restricted, while markets are tightly controlled and government owned to a large extent, which distorts the competitive landscape. Furthermore, successful private businesses have been nationalised and compensation is often insufficient or delayed. Given that the legal system is subject to government influence, investors are forced to seek compensation through international organisations which are unable to influence the Venezuelan government. Therefore, the fundamental risks far outweigh the few consolatory advantages available to investors.

As a result, Venezuela scores 26.9 out of 100 for Trade and Investment Risks in our Operational Risk Index. This puts it in 27th place out of 28 countries in Latin America, ahead of last placed Haiti (19.0), while Panama is the regional outperformer scoring 61.4. This...

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Venezuela Industry Coverage (20)

Agribusiness

Venezuela Agribusiness

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BMI View: Venezuela is on track to record another lacklustre year for agricultural production in 2014, as output price restrictions and soaring input prices are keeping a lid on investment in crops and machinery. Nicolás Maduro and ruling Partido Socialista Unido de Venezuela made the choice of continuity in terms of interventionist policies, which will maintain a challenging environment for agricultural and food production. Price fixing in particular continues to be a source of woe for producers unable to meet input costs which are soaring in line with some of the highest rates of inflation in the world. Meanwhile, consumption remains relatively robust causing shortages of some imported goods.

Agribusiness Market Value
BMI Market Value By Commodity (2005-2018)
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Autos

Venezuela Autos

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Vehicle sales in Venezuela declined 85.6% y-o-y, to 8,236 units, in the first six months of 2014 as the increasingly poor economic outlook impacts the sector. BMI is increasingly bearish on Venezuela's private consumption outlook, and we expect this to lead to a 95% drop in autos sales over the full year.

Vehicle production in Argentina declined 83.3% y-o-y in the first six months of 2014, to 6,161 units, as the domestic market contracts and the country's business environment deteriorates. BMI forecasts a 75% decline in output over the full year as these dynamics continue to hamper the sector.

BMI has long maintained a bearish outlook on vehicle production in Venezuela, as the government continues to intervene in the economy, further restricting access to foreign currency and implementing import restrictions on auto components. The ongoing weakness...

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Commercial Banking

Venezuela Commercial Banking

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Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Venezuela Consumer Electronics

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BMI View: The prospect of currency unification in 2015, which is our in-house Country Risk team's core scenario, is expected to add to the negative trends already impacting consumer electronics spending in Venezuela and result in a sharp contraction in US dollar spending. Meanwhile, the push by the government to implement the 'fair price' law in H114, which restricted vendor margins to 30%, means vendors face continued political as well as economic risk factors. The law adds to a hostile business environment and exacerbates existing challenges for vendors including currency weakness, and economic, political and security risks that are weighing on purchasing power and consumer confidence. As the economy is stabilised in the latter years of our forecast period we believe there is...

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Defence & Security

Venezuela Defence & Security

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BMI View: The Venezuelan defence sector is set to continue to be the largest in Latin America in terms of expenditure, which we project at USD3.5bn in 2015. However, in terms of production Venezuela will remain an insignificant player in the world arms market. Although falling oil prices are set to lead to budget cuts, we believe that military spending will be maintained.

Venezuela relies on oil export receipts to fund government spending, and rapidly falling oil prices in the final months of 2014 heighten the existing risks from economic mismanagement and political instability. While we estimate a decline in GDP growth of 2.5% in 2014, and believe a recessionary environment will prevail in 2015, we do not believe that the government will default in the coming year at least. Moreover, the defence budget will continue to rise despite inevitable budget cuts. We forecast defence spending to reach...

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Food & Drink

Venezuela Food & Drink

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BMI View: In view of the substantial headwinds facing the Venezuelan economy, the country's real GDP is likely to contract by 2.0% in 2014 and grow by only 0.8% in 2015. Despite enormous natural resource wealth, the economy's outlook will continue to be dimmed by poor macroeconomic governance, high inflation, low oil prices and significant political uncertainty. Furthermore, we expect household consumption to continue to be constrained by high inflation, which has substantially eroded purchasing power (we forecast headline CPI price growth rising to 60.8% year-on-year in 2014), as well as government price controls, which create market inefficiencies that significantly reduce productivity (and, by extension, incomes)...

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Freight Transport

Venezuela Freight Transport

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Low Cargo Growth Expected in 2015

BMI envisages very low cargo volume growth in 2015, due to a standstill economy and a number of industry-specific problems. The freight transport sector faces ongoing concerns about the lack of sustainable import demand and slowing oil exports. Chronic mismanagement of the country's port facilities since they were nationalised in 2009 has damaged their international reputation and their profit-making capabilities. We do not expect any significant recouping of lost throughput levels over the medium term. Over a longer period, investments from China could see the facilities begin to regain some lost ground. Regarding other transport modes, airfreight sector remains restricted by currency controls. Venezuela lacks reliable data on its small rail freight and large road haulage volumes, but cargo growth on both will be kept to low single percentage digits.

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Information Technology

Venezuela Information Technology

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BMI View: We expect the Venezuelan IT market to be a regional underperformer in 2015, with unification of exchange rates for the bolivar expected to be a major disruptive factor under our core scenario . Additional economic challenges in 2015 include inflation forecast at more than 50% and real terms economic growth forecast at just 0.8%. These add to the existing challenges posed by the policy environment in areas such as ...

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Infrastructure

Venezuela Infrastructure

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BMI View : Declining global oil prices, high levels of national debt and substantial inflation have all contributed to a further downgrading of our forecasts for Venezuela's ailing construction sector. Few new projects are coming to the pipeline and existing construction projects are often subject to extensive delays and rising debts as costs of key supplies increase. Venezuela continues to present an unattractive foreign investment environment, and there is little scope for future growth unless fundamental economic and political reforms are enacted.

2014 saw Venezuela's construction sector shrink by an estimated 9.1% and our expectations for 2015 are little better, with a contraction of 5.4% forecast due to the narrowing project pipeline and scarcity of funding. We do not expect to see the construction sector exit recession until 2018, at the earliest, when growth will...

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Insurance

Venezuela Insurance

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BMI View : Due to demand for health insurance, and also motor insurance, Venezuela's insurance sector is, by many metrics, surprisingly large and well developed. The total premiums written in 2015 will be around USD11.5bn which is substantial for an emerging market (80% is from motor and health). Depending on how Venezuela returns to economic and financial normalcy, the growth opportunity in the insurance sector could be surprisingly large. However, we think the weakness of the currency and crippling impact of inflation...

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Medical Devices

Venezuela Medical Devices

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BMI Industry View: The Venezuelan medical device market is hyper-inflated, ranking sixth in the Americas region. It is projected to register a negative 2013-2018 CAGR due to maxi-devaluations of the bolívar, which should bring down per capita consumption. The market is reliant on tightly controlled imports, which have performed negatively since 2011. Import restrictions have been reported in 2014, with shortages impacting health services provided by the public and private sectors...

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Mining

Venezuela Mining

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BMI View: We expect uneven mining sector growth through 2018 across various countries within Central America and the Caribbean. The region has significant untapped mineral potential, though variations among countries' business environments and operational challenges will mean varied performance. Overall, we expect Colombia and Panama to see the strongest mining sector growth, while Guatemala, and to a lesser extent Honduras, underperform.

We expect Colombia and Panama to lead the region in terms of mining sector development, with the Dominican Republic not far behind. The former two lead in their overall business environments and mining sector regulatory framework, which should enable consistent investment and sector development...

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Oil & Gas

Venezuela Oil & Gas

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BMI View: We maintain a cautious outlook for Venezuela's oil and gas sector despite vast below-ground potential and ambitious production plans by state-owned PdVSA. We expect Venezuela to continue to underperform given the large scope of operational challenges, such as political interference, chronic underinvestment, an unattractive operating environment and...

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Petrochemicals

Venezuela Petrochemicals

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BMI View: Progress on the expansion of the Venezuelan petrochemicals industry has been slow and undermined by the government's policy in upstream sectors that provide feedstock and its general indifference to improving the investment climate.

Venezuela will be unable to move towards self-sufficiency under the current business environment in which the government has assumed a high degree of managerial control and intervention in the economy. There were high hopes that strong projected growth in oil and gas output would support investment in the petrochemicals industry, but these have largely been destroyed and expansion programmes are largely limited to fertilisers.

Polymer shortages in recent years have had a detrimental impact on the Venezuelan market. Beset with operational problems and lacking...

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Pharmaceuticals & Healthcare

Venezuela Pharmaceuticals & Healthcare

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BMI View: New trade and cooperative agreements for necessary medicines as well as financial injections into the healthcare system will ease Venezuela's troublesome medicine shortage as well as expand healthcare provision in the short-term. Though, the country's fundamental problems which include an increasing inflation, currency devaluation, and a problematic desire for pharmaceutical self-reliance will continue to significantly impair the development of Venezuela's pharmaceutical and healthcare markets over the long-term.

Headline Expenditure Projections

  • Pharmaceuticals: VEB59.85bn (USD9.85bn) in 2013 to VEB96.94bn (USD15.41bn) in 2014; +62% in local currency terms and 56.4% in US dollar terms. Forecast revised upwards from Q414 due to higher...

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Power

Venezuela Power

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BMI View: Venezuela's power market will continue to suffer from severe infrastructure inefficiencies and unreliable electricity supply over our 10-year forecast period, as lower oil export revenues - due to falling oil prices - will constrain public investment into the power sector. Given the high dependence of the market on public spending, a cut in the 2015 budget for Venezuela's power ministry supports our view and increases the risk of power shortages for the country's downstream oil sector.

Over the past year, Venezuela's power market has swelled in terms of capacity. For instance, according to a report from BNamericas, 1.07 gigawatts (GW) have been brought online since Energy Minister Jesse Chacón announced a new energy short-term plan at the beginning of May 2013, after President Nicolás Maduro declared a state of emergency for the power sector in April 2013.

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Real Estate

Venezuela Real Estate

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BMI View: Venezuela's hostile business environment and troubled economy has seriously held back growth in the commercial real estate sector. Both tenants and landlords are being negatively affected by the uncertainty that surrounds the market and this is deterring much needed investment in the sector. Despite this the country's economy is still developing and, as such, possesses a number of opportunities that we believe will generate strong growth for the country's real estate sector in the long run.

All three of Venezuela's real estate sub-sectors are suffering from chronic shortages of supply due to a severely limited construction pipeline. There have been few indications that this situation will change significantly over 2015 and 2016, meaning that demand will remain high for the limited space that is available.

Government policies that...

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Retail

Venezuela Retail

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BMI View: As a result of the adverse business environment, particularly in terms of import restrictions and an expected fall in household income, the outlook for the Venezuelan retail sector remains bleak over our forecast period. We expect to see negative growth in total household spending in 2015 and 2016 although positive growth is forecast to continue from 2017 as the long-term economic outlook appears brighter.

Economic instability and Venezuela's business environment are two key drivers behind our decision to downgrade projections over the forecast period. Investing in the country's retail sector presents challenges as high inflation and exchange rate...

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Shipping

Venezuela Shipping

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BMI maintains its cautious outlook for Venezuela's shipping sector. Economic growth in Venezuela will remain extremely low, and may drop into negative territory in the coming quarters given the poor business environment, high inflation, and on-going market distortions associated with price controls and the country's complex system for acquiring foreign currency. We are forecasting GDP growth of 1.2% in 2015, but we believe that risks continue to be weighted to the downside.

Sluggish private consumption will mean that container volumes are kept low. Household purchasing power will continue to erode, as inflationary pressures remain elevated. Until money supply growth falls, we believe that inflation will remain elevated, and real private consumption growth will remain subdued. More fundamentally, Venezuela's slow-growing economy, and particularly its dwindling industrial base, reduces employment and household incomes,...

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Telecommunications

Venezuela Telecommunications

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Industry Forecast Scenario

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Autos Total Market - Historical Data And Forecasts (Gabon 2012-2018)
  2012 2013 2014f 2015f 2016f 2017f 2018f

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