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CARACAS, Saturday January 05, 2013 | Update
 
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INDUSTRY

Production by state-owned corporations has fallen 6.7%

The Central Bank of Venezuela reported that exports other than petroleum sunk 20.5%

Just two weeks after Hugo Chávez launched ice-cream factory Helados Coppelia, its plant halted production as a result of shortages in raw materials (File)
VÍCTOR SALMERÓN |  EL UNIVERSAL
Saturday January 05, 2013  12:00 AM
On October 20, Hugo Chávez inaugurated Coppelia, an ice-cream factory that would according to state-controlled media churn out 26,000 ice creams per day. Only two weeks later, however, the president himself announced that production had come to a standstill as a result of deficient machinery and insufficient raw materials.

Official statistics revealed that the shortcomings in the industrial puzzle the government has tried to assemble through expropriations, nationalizations, new projects and transfusion of petrodollars are not limited to the ice-cream context.

In his end-of-year address, Central Bank President Nelson Merentes acknowledged that "production by public-sector industries" fell 6.7% in 2012.

Issues concerning lack of investment and spare parts, as well as lackluster management, also chip away at state-owned conglomerate Corporación Venezolana de Guayana (CVG). In fact, SIDOR, the nation's main steel and iron factory, generated significant loss throughout the year and its production plunged.

The main CVG companies are key to the diversification of exports. Despite a long list of plans implemented by the government, 96% of all exports still relate to petroleum.

The Central Bank of Venezuela indicated that in 2012 non-oil exports represented USD 3.71 billion, falling 20.5% with respect to 2011.

Even though the central bank acknowledges that state-run industries have recorded lower production levels and it is quite evident that CVG is running at half throttle, Merentes blames the poor performance in exports other than petroleum on "a downward trend in raw-material prices (aluminum, iron and others) as well as lower foreign demand."

Shuffling along

The private industrial sector ends 2012 with a mere 3% production improvement. It is nonetheless evident that the sector grows much less steadily than other areas of the economy, such as construction, trade, banking and communications, which have all grown in excess of 7%.

This outcome is explained by an unfriendly environment marred by obstructions in gaining access to foreign currency, price controls hindering the capacity to break even, overvaluation of domestic currency leading to increased imports and fear of expropriations bringing investment to a standstill.

The government has based its plans for the sector on granting low-interest loans, a strategy failing to muster significant effects. Current standards compel the banking sector to grant loans to the industrial sector representing at least VEF10 for each VEF 100 lent. Those loans bear low interest rates and, over the first 11 months of 2012, loans granted to this sector spiked 49%.

If both the state-owned and privately owned portions of this sector were taken as a whole, a growth of 2.1% would have been recorded in 2012. In other words, manufacturing has been injected loans of roughly USD 1.39 billion for each percentage point gained.

This sluggishness is not devoid of consequence. From an academic standpoint, Nicholas Kaldor's Growth Laws establish that development within the manufacturing industry leads to growth in other sectors and raises productivity in all areas of the economy.

Therefore, growth in the manufacturing sector would generate employment and increase productivity throughout other areas of the economy and improve purchasing power.

The industry has constantly been lagging over the past 14 years, to the point that its position has slipped within the economy and, from 1998 to 2012, its contribution to the GDP has gone from 18% to 14%.

In the meantime, imports have soared to unprecedented highs.

vsalmeron@eluniversal.com

Translated by Félix Rojas Alva
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