Venezuela’s Business Crisis

Venezuela’s Business Crisis

By Ricardo Guanipa D’erizans / Diálogo
December 09, 2019

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Sixty percent of Venezuela’s private companies have shut down over the last 20 years, according to data the Venezuelan Federation of Chambers of Commerce and Production (Fedecámaras, in Spanish), presented the Venezuelan National Assembly in mid-2019. Fedecámaras said 370,000 of the 620,000 active businesses in 1998 have now disappeared.

Of those, about 1,500 fell into the hands of the government through expropriations under a strategic areas nationalization plan Hugo Chávez initiated, said to Diálogo Carlos Fernández, former president of Fedecámaras, who is currently in exile in the United States. Oil, electric, finance, and construction companies, among others, were nationalized.

Since 2007, under the National Social and Economic Development Plan, the government began to take control of several sectors that had been privately owned until then. The state also used its plan to sanction multinational companies that refused to negotiate and remain as minority partners. In June 2007, for example, U.S. oil companies Exxon Mobil and ConocoPhillips were stripped of their projects in Venezuelan territory and taken over by the government under PDVSA.

In 2010, Chávez accelerated expropriation procedures by reducing bureaucratic formalities and allowing the confiscation of assets without the authorization of parliament. Reforms and laws were introduced as being necessary for the social interest and government security. Through his weekly TV program, Aló Presidente, Chávez ordered the takeover of several companies, such as U.S. glass manufacturer Owens-Illinois and private Venezuelan steelmaker Sidetur.

“Large industrial parks […] are almost 90 percent paralyzed, all because of the policy of violation of private property and expropriation of companies,” said to Diálogo representative Carlos Berrizbeita, member of the Venezuelan National Assembly’s Permanent Commission of the Comptroller.

Many industrial giants lost their facilities during Chávez’s regime. According to Berrizbeita, the 2010 expropriation of Agroisleña, Venezuela’s main provider of consumable goods and marketing services for agricultural products, was the starting point of the ongoing food crisis in the country.

“It had more than 60 branches in all of Venezuela with a wide network of silos, mixers, shops, labs, seed and fertilizer markets, and they set up a financing network for the country’s small and medium-sized agricultural industries to be able to produce from arable land that represented 80 percent of Venezuela’s agricultural production,” said the representative.

The economic crisis forced the closure of thousands of companies while foreign companies debated whether to stay in Venezuela or risk losing their local investments. Under the Maduro regime, expropriations continue: in 2015, the regime took over the warehouses of Nestlé, Pepsi, and Cargill (to build a few housing units), and in 2018, of Kellogg, when the corporation announced plans to close down its operations. During the series of blackouts the country experienced in the first quarter of 2019, 96 percent of companies reduced production, while 14 percent halted activities altogether, reported the Venezuelan Confederation of Industrialists.

“What happened here is theft using the power of the State, because they have kidnapped the government institutions,” said Berrizbeita. “An order from Chávez and now from Maduro, was enough for companies to be stripped of their owners without any sort of payment.”