With a population of slightly more than 30 million people, Venezuela is regarded as one of the most urbanized countries in Latin America. Oil production is the main source of revenue and with one of the largest oil reserves in the world it should also be one of the world’s wealthiest countries.
But despite these advantages it recently added another rather more dubious accolade to its resume. It joined countries such as North Korea and Cuba by introducing food rationing for its citizens.
In September 2014 in 36 supermarkets in the western border state of Zulia, the Venezuelan government brought in fingerprint scanning equipment to implement its rationing regime. Many basic items on sale in the country such as rice, powdered milk, coffee, toothpaste and chicken are price controlled to make them more affordable for the general population. Now even these staples are subject to rationing with fingerprint scanning controls in place to prevent shoppers returning again and again to stock up.
During his term in office, the socialist government of Hugo Chavez brought in strict currency regulations to prevent currency flight aimed at reducing inequality, poverty and malnutrition among its population. Despite these well-meaning intentions, the result of these policies was to create a complex currency regime that prevented businesses from obtaining the dollars it needed to import goods, raw materials and spare parts.
Far from alleviating shortages in basic necessities, the opposite result ensued. The Venezuelan government however blamed the problem on smugglers, who they say, purchased large amounts of price-controlled items in Venezuela then smuggled them over the border into Colombia to be sold for huge profits.
Economists estimate that 10 percent of consumer goods in Venezuela end up for sale in Columbia in this way, a figure disputed by the government, which insists that the figure is closer to 40 percent.
In a bid to put a stop to this black economy, the border between the two countries is shut down at night. Also, there is a crackdown on smugglers and the arrest of any shoppers in Venezuela who are believed to be planning to sell their purchased goods in Colombia.
Smuggling is not the only widespread crime in Venezuela. Violent crime is pervasive with kidnapping and carjacking running at high levels. In 2013 there were nearly 25,000 murders for a murder rate of 79 per 100,000 inhabitants, placing its homicide rate among the highest in the world. With economic conditions deteriorating during 2014, demonstrations have become commonplace, many of them becoming violent and resulting in the deaths of more than 40 people.
It’s not just the food supply industry that is being affected by government policy. The sale of gasoline, which is heavily subsidized and cost only five cents a gallon in mid-2014, has been restricted to a maximum of two tank fill ups a week. This policy is enforced by the use of bar codes on vehicle windscreens, a measure employed to prevent the resale of fuel in neighbouring Colombia where it can fetch $4.50 a gallon.
The irony of this rationing is that it takes place in a country that during 2013 had oil sales of $114 billion yet still had to ration toilet paper. Corruption has been commonplace with corrupt businessmen billing the government for imports that never took place and billions more going toward election year spending over the course of a decade.
The car industry in Venezuela was once the third largest in Central and South America with Ford, Fiat Chrysler, General Motors and Toyota all having large production facilities there. But the government monopoly in supplying the dollars needed for purchasing spare parts has almost brought this once-thriving industry to a grinding halt.
The Venezuelan government has been accused of delaying $4 billion dollars in payments that the car companies need to convert local currency into the dollars it needs to pay its overseas suppliers. During the first six months of 2014 vehicle production was cut by 80 percent due to a lack of dollars with which to pay essential parts suppliers.
In June of 2013, 37,000 vehicles came off the production lines but that number fell to slightly more than 6,000 in June 2014. Despite this dramatic drop in output, the 2,500 Ford workers still turn up for work each day, their jobs protected by strict labor laws.
Perhaps predictably the Venezuelan government doesn’t consider their economic policies to be the source of problems in the motor industry, but places the blame with the motor companies themselves. In 2013 GM was fined after it was accused of selling overpriced car parts. In February 2014 Venezuelan socialist president Nicolas Maduro publicly criticized Toyota when they announced plans to cease production in the country. He accused the company of colluding with his political opponents to destabilize the government.
The shortage of new cars coming off the production lines combined with restrictions in car imports has resulted in the strange paradox of cars immediately becoming more valuable as soon as they’re purchased. With one of the world’s highest rates of inflation rates in the world, which hit almost 50 percent during September 2014, the population views used cars as investments for the future. A car bought for 100,000 Bolivars in June 2014 was worth more than 130,000 Bolivars five months later.
Even old gas-guzzlers that originated in the U.S. are popular due to the lowest priced gas in the world. Although the government is bringing in new laws to regulate the prices of both new and used cars in an effort to curb profiteering, many people believe that these price-fixing policies will fail in the car industry just as they have in the food industry.
Sourcing spare parts has become a daily nightmare for the automotive aftermarket in Venezuela with service centers spending a great deal of their time trying to locate components. Due to the difficulty in getting parts, thieves are resorting to stealing certain parts, such as batteries, from parked cars.
Foreign and domestic investors have free and equal rights to establish and own businesses in Venezuela, but one of the main inquiries received at the U.S. embassy in Caracas is from U.S. exporters who are experiencing delays or non-payment from Venezualan importers.
U.S. companies with operations in Venezuela also are experiencing severe problems in converting their local currency earnings, Bolivars, into the Dollars that are essential to repatriate profits back to the U.S. Despite these problems, the U.S. remains Venezuela’s main trading partner. With a change of government to one more sympathetic to business interests or a change in economic policy to free up currency controls, Venezuela, with its strong trading ties with the U.S., could once again become a lucrative market for U.S.-based automotive aftermarket suppliers and vehicle producers.
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