CARACAS, Saturday April 13, 2013 | Update

Venezuelan economy mirrors a stagnant manufacturing area

Back in 1998, a year prior to Hugo Chavez's rise to power, the industrial sector represented 17.3% of the country's GDP. Now, it simply stands at 13.9%

Shortage of raw materials and lack of supplies are two pressing issues (FILE)
Saturday April 13, 2013  12:00 AM
This upcoming 14th of April, Venezuela will once again hold presidential elections. Whoever comes out on top will have to deal with a petroleum-dependent economy and stagnant production levels.

Official data shows that application of the so-called "21st Century Socialism" over the past three five-year terms has reaped negative effects on the manufacturing area. The industry's leverage on the economy has slipped.

According to statistics published by the Central Bank of Venezuela, manufacturing represented only 13.9% of the Gross Domestic Product (GDP). This result confirms the deindustrialization process taking place in recent years on the basis that, in 1998, a year prior to Hugo Chavez's rise to power, the industrial sector accounted for 17.3% of the GDP.

Throughout 2012, manufacturing grew a mere 1.8%, an outcome inferior to that of trade, telecommunications or financial institutions areas generating significantly less jobs than the industrial sector.  
The Central Bank's analysis reveals an even more serious condition: nine of the 16 manufacturing sub-sectors surveyed evidence lower production levels than in 1997. 

Textile products, clothing, leather tanning and dressing, metal products, machinery and electric appliances, as well as vehicles, have been some of the hardest-hit areas in recent years.

Non-petroleum exports also shed light on plummeting production levels. In 2012, this indicator amounted to USD 3.711 billion, which is 31.79% less than in 1998. A detailed look also reveals that, as of the end of last year, non-petroleum exports by the private sector amounted to only USD 1.575 billion.

The Venezuelan Confederation of Industries (Conindustria) has long warned that, without a shift in economic policy, industry results would not change. Ongoing price controls, red tape in allocating foreign currency promptly, shortage of raw materials and supplies, labor conflicts and an uncertain legal environment are just some of the obstacles industry members emphasize when explaining stagnant production levels.

The latest sector-specific survey, corresponding to the last quarter of 2012, showed that 85% of the industries polled pointed at "political uncertainty" as the biggest hurdle for increasing production. Shortages in currency and lack of raw materials, noted by 85% and 80% of those surveyed, were the two main barriers cited.

Even within the central bank itself, concerns were raised and recently passed upon interim President Nicolas Maduro about those very same issues, in light of a spike in shortages and inflation. Therefore, the Central Bank issued an official recommendation to Maduro suggesting assessment of "the market impact of applying suggested retail prices to all food products," as proposed by certain ministers.

Recently, the former minister of Basic Industries and Mining, Victor Alvarez, expressed the need to develop "socialist industrialization" and summarized the events of recent years.

"The lesson was clear: to wage on the downfall of the capitalist economy without having previously created the new socialist economy. It was the perfect shortcut leading us to a vicious circle of crumbling production, shortages, stockpiling, speculation, inflation, unemployment and growing social distress."

Negative signs

The first quarter of 2013 having come to an end, forecasts remain unfavorable. In fact, economic indicators point at deceleration in key areas such as the food industry, vehicle assembly and manufacturing of spare parts.

The food industry is a case in point. After six quarters of negative results, it rebounded in the fourth quarter of 2012 but, in the first few months of 2013, the industrial sector has reported issues in obtaining raw materials, a downturn in prices giving rise to loss in manufacturing certain products and currency shortages for importing supplies.

The sector's dismal performance has forced the government to increase on a yearly basis the resources used for imports of food products, thus benefiting foreign companies. 

In addition, the Venezuelan Automotive Chamber (Cavenez) announced that in the first quarter of this year the number of cars assembled fell 51% as a result of delays in delivery of currency by official entities and in approval of permits to import assembling materials.

The Chamber of Venezuelan Manufactures of Automotive Products (Favenpa) has denounced that sector companies are working at 50% of their capacity as a result of delays in allocation and payment of currency by authorities.

"The outlook is grim, and it is likely that the impact of the measures adopted so far this year, which further constrain access to currency and the possibility of price adjustments, has not been fully taken into account," alerted Conindustria last week.

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."