CARACAS, Saturday December 01, 2012 | Update
BASIC INDUSTRIES | Standard metal manufacturing fell 35.3%

Basic industries run at 40% of their capacity despite higher staff costs

Industries in the Guayana region have failed to become an alternative to the oil sector; instead, they are a burden on public finance. The central bank has reported that metal manufacturing fell 35.3% during the third quarter. As a result, basic industries resorted to borrowing money from the government to pay their staff

Existing machinery and equipment in the Guayana industrial hub are obsolete (File photo: Jorge Santos)
Saturday December 01, 2012  12:00 AM
Basic industry employees are massively visiting shops around the Guayana region to do their Christmas shopping. Queues, hustle and bustle and the holiday atmosphere are taking over. On November 23, the Venezuelan Corporation of Guayana (CVG) and Orinoco Steel Company (Sidor) paid profit-sharing to their employees.

Prior to this commercial chaos, the executive and legislative branches of government had to rush to approve millions of bolivars to meet their obligations with employees under collective agreements and appease the unrest generated in previous weeks. Most of these companies, however, are incurring in losses and have no actual profits to share.

Authorities from the Ministry of Planning and Finance as well as from the Central Bank of Venezuela (BCV) reported economic growth during the July-September period of 5.2% in the Gross Domestic Income and favorable trends for the past eight consecutive quarters. Nevertheless, certain sectors have not only remained stagnant; they are incurring in significant losses.

These authorities referred to growth in construction and communication sectors, as well as services rendered by the government overall, among others. But, in contrast, "metal manufacturing, such as steel, iron and aluminum, has fallen 35.3%."

The government attributed this strong contraction to "operating and employment issues." Nothing further. Those issues do certainly affect the basic industries of Guayana, but they are not the only causes.

Cecilio Pineda, staff director of CVG, believes that the fate of that industrial conglomerate and its financial results responds to a series of factors, including low production and absorption of third-party employees.

He claims that these companies operate at 40% of their installed capacity. As a result of low production levels, sales (domestic and foreign) are reduced and income is lower. Nevertheless, payroll expenses are increasingly higher because of "elections and political factors."

He adds that as production of supplies and manufactured products drops, imports to meet local demand rise, and currency flows toward other countries.

These industries, in his opinion, "have obsolete equipment, and their industrial machinery has not been updated. Investments have been made, but no structural gains have been achieved whereas current expenses have soared."

Venalum, which used to be a leading company in the aluminum sector and had positive results, currently runs at 30 to 40% of its capacity. Alcasa, which has faced issues for several years, produces only 30% of its potential.  "In these cases, lack of decision-making by authorities has led to uncertain future for these companies, and several top government spokespersons have even stated that they should be shut down while others stress the need to refloat them," adds Pineda.

In addition to these factors is the allocation of management roles to certain employees. "These people are not the best technicians or managers; they are political pawns."

Throughout recent years, the Guayana companies have not become an alternative to the oil industry and have become a burden of public finance as they are "subsidized by the central government." Pineda added that after the electricity crisis affecting this industrial segment "it has not managed to recover."

He concluded by indicating that "under a socialist plan, no profitability may be expected from those companies."

Translated by Félix Rojas Alva
The end of a cycle

Hundreds of thousands of demonstrators took to the streets of Brazil on March 13 to demand the ouster of embattled President Dilma Rousseff, carrying banners expressing anger at bribery scandals and economic woes. A banner read "We don't want a new Venezuela in Brazil."

fotter Estampas
fotter Estampas