Venezuela, the country with the largest oil reserves in the world, is in danger of an economic collapse. According to the OPEC data in 2015, Venezuela has approximately 300,878 million barrels of oil, far more than Canada (170 billion) and Saudi Arabia (265 billion). But that does not take away the fact that the county is going through a period of economic turmoil.
As per the International Monetary Fund’s predictions, Venezuela will see another year of hyperinflation with an approximate rate of 10 million percent.
Venezuela’s economy saw a massive bust right after the oil price crash in 2014. This left the country unable to sustain its socialist system of price controls and subsidies. The economic condition was so poor that El Banco Central de Venezuela stopped publishing all types of economic indicators. Six years down the line, the country is still suffering from the crash in oil prices. Does that mean it is the end of the road for investors in Venezuela? Are there no investment opportunities in this country? Let’s take a reality check.
Investing in Venezuela
According to Forbes reports, the Caracas Stock Market Index went up by almost 200,000% in 2019. This was due to the trading habits in Bolivar and not in USD. When it comes to comparing the investment in dollar terms, the index was one of the world’s worst-performing markets, suffering a 94% collapse in 2018.
Usually, foreigners invest in PDVSA bonds in Venezuela. But the bond manager from Schroders New York believes there is hardly any way to estimate the predicted future of investable platforms in this country. Those who have already invested before 2020 are still optimistic about a significant recovery value after the hyperinflation subsides.
Although the economic picture of Venezuela looks grim, many economists consider the 43.3% rise in USD-denominated bond of the JP Morgan Emerging Markets Bond Index GD as a positive sign. The significantly large hedge funds on Maduro’s ousters are becoming the pillars for reviving this country’s economy. This shift is giving investors a ray of hope as they are again relying on the relationship of the government with the opposition, mainly after Maduro supported the military.
Can I invest in Venezuela?
Despite the economic crash post-2014, Venezuela is still a country that offers a relatively satisfactory ROI. Yes, the social and political situation may make you think twice. Nevertheless, you need to consider a few factors before investing in this country.
- The government had recently announced the privatization of airports and ports, making them a good sector for business opportunities for foreign investors.
- The country has abundant natural reserves, especially when it comes to the oil sector. With the largest oil reserves in the world, Venezuela is still a gold mine for those who want to invest in this sector.
- The new production assistance policies are boosting the agri-food industry, involving tropical fruits, alcoholic beverages, cocoa, tobacco, rice, and coffee. Apart from the agri-food industry, the audio-visual and automobile industries also provide favorable returns on investments.
- Venezuela has a low-cost labor pool, making it a suitable country for manufacturing products and exporting them to different countries.
Procedures related to foreign investment
- Freedom of establishment – The Venezuelan government guarantees freedom of establishment. But you need to comply with the new barriers set by the government in the oil sector. You may need to pay a high tax from your profits if you venture into the oil industry.
- Acquisition of holdings – Guatemala authorizes all acquisitions of majority stakes in a company’s capital. You must follow the restrictions of the various sectors, such as shipbuilding, aviation, and press for security and independence.
- Obligation to declare – A new legal framework protects foreign investors in Venezuela, primarily through dispositions mentioned in the Decree 2095.
Is it a good time to invest in Venezuela?
With all the support from the Venezuelan government, it is still not a good time to invest in Venezuela. The political and economic turmoil of this county had transformed it into a skeleton. Of course, if you can wait and watch the condition get better over a decade or two, you may still invest in assets as they are relatively available for a cheap rate now. But if you are one of those who want to see significant ROI within a year or maybe 5 years, then this is not the time to invest.
The risk factor is too high right now, and it will most likely go against you. Even the Orinoco crude that Venezuela exports are full of impurities, making the oil almost worthless. The oil companies operating in the country don’t have enough money to add thinners to improve oil quality.
Does Venezuela have a stock market?
Venezuela’s infamous Caracas Stock Market Index is the only stock market operating in the country. But it has skyrocketed by almost 200,000%. The main issue with the Caracas Stock Market Index is it trades in Bolivars and not Dollars. 2018 saw the Caracas Stock Market Index perform the worst in dollars that got the market crashed by 94%. Investors during that time had lost almost everything. But there are still people who believe the market will go up in the next few years.
According to Chuck Thompson, a Socionomic Institute analyst, negative social mood trends reflect the stock market prices. The rise in social unrest, dissatisfaction with political leaders, various diseases, crime rates, and engender recessions contribute to the decline of the Caracas Stock Market. Chuck Thompson also points out that the Socialists United Party is to blame for this economic destruction and downfall of the only stock market in Venezuela.
Venezuelan citizens are already calling for Nicolas Maduro, the President, to step down, as the country’s Great Depression hits the third year. Although the stock market is practically worthless, one bond still exists that doesn’t come in the country’s default category: it’s the PdVSA 2020 issue.
The head of research of the Ashmore Group, Jan Dehn, indicates that regime change is the only way to revive Venezuela’s stock market. In 2019, the JP Morgan Emerging Markets Bond Index GD USD-denominated bond index reached 43.3%, the highest in recent times. But even these bonds have become penny stocks in 2020. Investors are not sure whether these investments will go in their favor or not. The results depend on geopolitical conditions.
What is the minimum wage in Venezuela?
The global economic disruptions have had an impact on the minimum wage structure in Venezuela also. Nicolas Maduro, the Venezuelan President, ordered a minimum wage hike right at the start of 2020, boosting the basic salary to 250,000 Bolivars. This is equal to $3.61. You will be surprised to know that this was a 67% salary hike. This should give you an idea of how low the minimum wage structure was in the country.
Apart from raising the basic salary by 250,000 Bolivars, the President also announced an additional 200,000 bolivars for food bonus to deal with Venezuela’s hyperinflation. The last time Maduro had increased the wage by 150,000 Bolivars, people could still buy 4 kg of beef in a month. But the recent hikes are not enough to buy even 1 kg of beef. The condition is so poor that most people could not feel the hike’s effect on minimum wages.