Let Us Work!

During the last few years, Venezuela has been consistently ranked as one of the hardest countries to do business in.  The prestigious (and unbiased) World Bank Ease of Doing Business survey placed us in the 177th place out of 183 countries,  a sad state of affairs for a traditionally outward looking and cosmopolitan society.  But in the last six months, an already tough business environment has become increasingly challenging.  A series of measures undertaken by the Venezuelan Government, including increased restrictions in the exchange control system, new and harsher laws in key areas such as housing, land ownership, and financial activities, and an increasingly hostile attitude from the Bolivarian Government towards business in general, represent a further turning of the screws on an already beleaguered Venezuelan private sector.

The pressure comes from all sides. We have mentioned in previous editorials the rapid implementation by the Venezuelan National Assembly of a series of new laws whose contents directly and negatively affect the private business sector in such diverse areas as exchange controls, land ownership, and financial activities.  Most recently, the elimination of the parallel market for dollars and its replacement by a much more restrictive allocation system has placed most importing companies in a very precarious position. And there is more to come: as of this writing, a new law is being discussed within the legislative branch that would profoundly change the economic environment as we know it.  Under the working title of “Law for the Promotion and Development of the Communal Economic System”, it introduces a new type of labor organization under socialist principles, which contemplates amongst other things the elimination of company hierarchies and management levels, the introduction of the barter system within a new structure of communes throughout the country, the creation of new local currency within each commune, and the elimination of profit making in “social production companies”, where any gains would be redistributed within the communes by the Executive.

In essence, this legislation would create a parallel law to the existing Organic Labor Law, leading to the establishment of three separate classes of workers: private sector workers, public sector employees, and the new communal companies.  As far as we can tell, the proposed law greatly weakens the working conditions of employees and workers in the public sector and in the proposed communes, eliminating social security and the obligatory distribution of company earnings. Incidentally, the proposed law contemplates several new types of property but does not address in its current form the concept of private property. Another serious implication is that the law would force the banking sector to finance these communal activities, with the specter of high delinquency rates, the necessity of Central Bank intervention, and in all probability, surging inflation.

Another source of difficulties is the increasing hostility in public government statements regarding the private sector.  It is becoming common to hear the government characterizing the business sector in general as exploiters of the workers, hoarders and monopolizers who keep their products from the people, and threatening to take over the operation of companies and sectors of the economy. The insistence on these messages, coupled with the scarcities in basic products which are beginning to arise as a result of the difficult environment, are generating a pervasive but erroneous belief in large segments of the population that the main culprits of undersupply is the private sector value chain.  On the contrary: our member companies are doing their utmost to maintain operations in the face of tremendous obstacles.

This tense environment has generated a significant upsurge in inspections from persons who allegedly are representatives of Government organizations such as the National Guard, SENIAT (the local Tax authorities), INDEPABIS, SADA, and even the Department of Military Intelligence. In many cases these persons do not present credentials nor do they provide any documentation regarding the purposes of the visits and under what authority they act, as required by Venezuelan law.  The amount of these inspections is such that Conindustria, the leading manufacturing guild in Venezuela and in which many of our member companies also participate, considered it necessary to send a formal letter to the Vice Presidency of the country to inform of this worrisome situation.

Other pressures abound.  Although the arrival of the rainy season has somewhat diminished the urgency of the power sector in the public eye, the situation is anything but improved.  Blackouts have barely decreased in frequency in the interior of the country, and the inadequacy of both the generation and transmission systems almost guarantees an even more severe situation for 2011.  New regulations for the insurance sector could lead to a significant increase in premiums and a collapse in health services.  The major ports in the country are working increasingly slower and more inefficiently, and the trend towards further expropriations, or to use a more adequate term, confiscations, has not abated:  44 members of Venamcham have had their assets partially or totally taken over by the Government.  To date, only eight have been partially or totally compensated.