Venezuela's International Business

Tejas Jadhav

Vikram Sarma

Aditya Shetti Follow me on Twitter @adit7777

INTERNATIONAL BUSINESS

VENEZUELA

INTRODUCTION

• Venezuela is a country on the northern coast of South America.

• Its territory covers around 916,445 square kilometres (353,841 sq mi) with an estimated population of approximately 29,100,000.

• Considered a state with extremely high biodiversity, with habitats ranging from the Andes mountains in the west to the Amazon Basin rainforest in the south, via extensive llanos plains and Caribbean coast in the center and the Orinoco River Delta in the east.

• Venezuela is among the most urbanized countries in Latin America

• Vast majority of Venezuelans live in the cities of the north, especially in the capital, Caracas, which is also the largest city in Venezuela.

• Since the discovery of oil in the early 20th century, Venezuela has the world's largest oil reserves and been one of the world's leading exporters of oil.

THE ECONOMY

• Venezuela has a Market-based mixed economy dominated by the petroleum sector, which accounts for roughly a third of GDP, around 80% of exports, and more than half of government revenues.

• About 50% of Government income is from oil.

• Industries: Petroleum, food processing, textiles, iron ore and steel mining.

• Venezuela has the least expensive petrol in the world.

• 60% of Venezuela's international reserves is in gold, eight times more than the average for the region.

THE ROLE OF OIL

• Generated 50% of government revenue over 1991-2002

• Intuitively, we would expect that volatile revenue generation, caused by erratic oil GDP, would lead to unstable fiscal outcomes in Venezuela.

• 5th largest oil exporting country in the world

• 20% of global oil reserves

• 2.3 mn barrels of oil produced per day

• Oil revenues account for approx 95% of export earnings which is 30% of GDP

• 7% of total OPEC oil production

EXPORTS OF VENEZUELA

• Venezuela manufactures and exports heavy industry products such as iron, steel, aluminum and cement.

• Venezuela has been one of the world's leading exporters of oil, and it is a founding member of OPEC owing to the country having the largest oil reserves in the continent .

• It is also a country rich in Cacao, extracted from its natural flora, Venezuela is also a leading exporter of chocolate.

ENERGY OVERVIEW•Venezuela has the largest conventional oil reserves and the second-largest natural gas reserves in the Western Hemisphere. It also has vast deposits of extra-heavy crude oil and bitumen.

•Venezuela consistently ranks in the top four sources of oil imports to the United States, meeting around 15% of US requirements. As the world's fifth largest net exporter, oil accounts for about half of total government revenues.

•Venezuela has been producing oil for nearly a century and was an OPEC (Organization of the Petroleum Exporting Countries) founder-member.

• Chocolate and oil are main products of Venezuela. Cacao is the main ingredient of chocolate and it grows on Venezuela's trees.

• Also some other products of Venezuela are coffee, rice, sugarcane, bananas and baseball players.

• Venezuela exports Petroleum, aluminum, steel, rice, corn, fish, tropical fruit, coffee, beef, and pork.

• The Venezuelan Oil sector represents 80% of exports.

THE IMPORTS

• Venezuela is very inefficient in producing its own food supply.

• They import two thirds of their food from countries around the world.

• In 2009 Venezuela imported $967 million worth of agricultural products such as wheat, corn, beans animal fats etc.

• Venezuela relies on the U.S. in a big way as both an importer and an exporter.

• Venezuela imports at least a fourth of its food from the U.S.

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IMPORTANCE OF VENEZUELA

Location •Has a coastline of 2800 km. Surrounded by three countries. 38 ports. 400 airports.

Infrastructure •Developed modes of transportation

Labor Condition •36 hour week, well educated with 95% literacy rate•Majority of population 65.1% in working age of 15-64 years.

Urbanization •93% of total population is urban.

Oil Production •20% of total oil reserves•Large amount of oil sands.

• Venezuela main imports are:

• Imports: Raw materials, machinery and equipment, construction materials

• Electronics (32 % of total imports)

• Chemical products (18%)

• Agricultural products and livestock (11 %)

• Base metals (8%)

• Food, beverages and tobacco (6%).

VENEZUELA’S TRADE PARTNERS

• Main trading partners are:

• United States (22 percent of total exports and 26 percent of imports)

• China (11 percent of exports and 15 percent of imports)

• Netherlands (7.6% of the exports)

• Others include: Brazil, India, Cuba and Colombia and Mexico

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FOREIGN RELATIONS

USAFriendship with Cuba, Iran and Iraq has severed relationshipHigher oil prices for US, Largest export market for Venezuela

Latin America• Formation of Bank of South with Argentina, Brazil &

Bolivia.• Severed relationships with Colombia.

China• In 2010, China has agreed to extend $20 billion loan.• The loan amount is to be invested in oil sector and

China would seek oil supplies – Tied in Aid.

Iran• Strong ties in energy production, economic and industrial

cooperation.• Join ventures in sectors like, energy, agriculture and housing

infrastructure.

STRENGTHS

• Water

• Fertile Soil

• The US

• International Oil Cartel

WEAKNESS• Economic Policy

• Inflation

• Tarnished Reputation

• Poverty

• Corruption

• Crime

• Undertaking poor discretionary policy that causes recession rather than sustaining growth.

• Political incentives that cause Governments to begin discretionary spending in times of revenue gains.

• Increases in spending growing out of proportion to revenue growth.

• Absence of entrepreneurial activity

OPPORTUNITIES

• Loosening regulations could help Venezuela

• Instant Translation to the web pages

THREATS

• Bad Economy could lead to bankruptcy of the country.

• Volatile Currency.

• Government regulations stifling the country.

• Poor economic diversification

• The growth of its GDP was contracted to -3.3% in 2009 and -1.3% in 2010.

• Increased government spending

• Inflation at 30% in 2010.

PROBLEMS FACED BY THE NATION• Inflation – 30%

• High Crime rate

• Energy crises

• Fluctuating oil prices

• Declining oil production

• Strained relations with partners: US and Columbia

• The unemployment rate has reached 8.6% in 2010

• Importing more than 70% of its needs.

CONCLUSION

• Venezuela business cycle is mostly influence by short term cyclical components.

• Oil revenue is indeed very volatile, due to price volatility.

• Ran a pro-cyclical fiscal policy.

• Ultimately, left in a fragile economic position.

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