Looking Ahead

It’s budget time, and as we do every year, Venamcham has hosted a special event in September called “How to Budget”, where we invite specialists from different areas to provide their insights on the coming year.  This provides our members with tools and useful information for their internal budgeting activities, and in turn allows us to gather information on how our companies view the near term future and what their expectations are.  The participants complete a survey on business and investment issues and indicators, and since the event is usually well attended by a large and very diverse group of companies, it provides us with a very interesting picture of what we can expect in the coming months.

Predicting the future for the Venezuelan business community is a tough job.  The president of Venamcham, Edward D. Jardine, underlined this when he mentioned in his opening statement that our event was going to be longer than usual given the complexity of what's happening in Venezuela. Mr. Jardine pointed out the difficult environment that the Venezuelan business sector is facing, the lack of clear rules of the game, and the necessity of clarifying the role of the private sector in the country. He informed that 26 corporate members of the Chamber have been expropriated, and, in contravention of both the Constitution and the 2002 Expropriation Law, 20 of them have not yet been paid for, let alone received timely, just and convertible compensation prior to occupation of the facilities.

Our distinguished speakers did a masterful job of discussing their respective topics. Robert Casanova, from Liderazgo y Vision, a Venezuelan think tank, presented a profound analysis of the political and economic content of the Bolivarian revolution. Jose Ignacio Hernandez, a distinguished Venezuelan lawyer, presented his analysis of the proposed Social Property bill, explaining the model of Transition to Socialism as set out in the Government’s National Development Plan for 2007-2013. He detailed the preeminence of the communal economic initiatives over those of individuals, and the preference of social property over production means. He also underlined that the current processes of expropriations go against the Venezuelan Constitution, due to the way they have been implemented, and additionally they target individual companies instead of addressing a sector that is determined to be of public interest.

Education Expert Enrique Mijares discussed the new Organic Education Law. He stressed the importance to educate for intellectual freedom, and the need to push for innovation and knowledge transformation. He also expressed his concerns about the content and aims of the law, particularly its manifest intent to reinforce the objectives of the Government’s national plan, including the new socialist productive model and its revolutionary tenets.

Economist Jose Manuel Puente spoke about macroeconomic trends. He pointed out that after 22 consecutive quarters with economic growth, the Venezuelan economy is now beginning to contract. He estimated that for the second quarter of 2009 the economy decreased by 2.4%. He underlined the deleterious effects of high rates of inflation and noted that systematically, national products are being inflated at higher rates than imports: the net effect is that consumption of national goods is reduced. He predicted a lower spending capacity for the government and indicated that negative real interest rates will lead people to consume more and not save. He noted that imports have skyrocketed, increasing from about $10 billion in 2003, to $47.6 billion in 2008. And he emphasized that consumption has increased twice as much as the economy. Rising oil prices might make for a better third quarter, but for the first time we've had a deficit in our balance of payments. In his view, the Venezuelan economy will have serious difficulties at any oil price below $60 per barrel.

Luis Vicente Leon from Datanalisis gave an overview on market trends. He indicated that shortages in the market have been reduced and are currently at 12.2%, down from the peak of 25% in March 2008. However the absence of products, that is to say not being able to find the product or brand that one wants, is 46%. On the demand side, real earnings and salaries are either flat or descending since 2005. Consumer credit (i.e. for vehicles and credit cards) has gone down 13% in the last year. And the consumer trust index has gone down 16% since 2008. Looking forward, Luis Vicente sees price increases in oil, but average family income will fall. He predicted a sharp increase in public spending due to elections, but a drop in consumption of -2.5% for 2010.

Labor lawyer Monica Ortín walked us through current labor issues and the upcoming new labor law. Her analysis of the project indicates that among other issues, layoffs will no longer be permitted, outsourcing will be prohibited, and they will be a much wider definition of what a worker actually is. She commented that the International Labor Organization has taken a keen interest in the preparation of the law and its future contents.

Froilan Barrios, a national union leader, gave us his views on the future situation of unions of Venezuela. He explained that formal employment of Venezuela represents only 49% of the economically active population. The private sector still provides the majority of formal employment of Venezuela, but he pointed out that the public sector has grown dramatically during this administration rising from 900,000 public employees in 1998 to the current figure of 2.3 million. Mr. Barrios shared his concern with the fact that labor conflicts have increased significantly in Venezuela rising from 550 conflicts in 2008, to 660 conflicts in the 2009-to-date. Going forward, he sees the Venezuelan Ministry of Labor stimulating even more union parallelism within Venezuelan companies, and even more labor unrest. He pointed out that 80% of these labor conflicts are in government owned companies.

The results of our internal survey are equally interesting. 156 companies answered from all sectors of the economy. They indicated that exchange controls and political discourse are the key factors that have adversely impacted their companies. 52% say that their sales volumes decreased in 2009 with respect to 2008. Only 26% said that they increased the number of their employees and workers during the current year as opposed to 47% last year. The vast majority of the respondents said that the principal strategies that their companies implemented in 2009 to maintain competitiveness in the national market were a) adapting to economic changes, and b) adapting to legal changes, reactive strategies which leave little room for innovation and growth. 37% of the companies have no investment plans, whereas 26% have investment plans in the near term and 30% in the medium term. On average, the companies will use the following parameters for 2010: inflation 32.67%, salary increases 25.48%, bank loan interest rates 23.21%, and the official exchange rate 2.93 Bolivars per dollar.