Venezuela and investments. A new reality.

Venezuela. Where are we?

A year ago, in March 2021, we wrote on this blog:

“In the case of Venezuela, it encountered the COVID-19 pandemic while facing its seventh consecutive year of recession, with an accumulated drop of over 70% in its Gross Domestic Product (GDP).

However, during the last years, the size of the drop has reduced and some people estimate that the GDP will grow between 2021 and 2022.”

Now, the International Monetary Fund, in its report “World Economic Outlook, April 2022”, estimates the Gross Domestic Product growth at 1.5% by the end of year 2022.   

Also, in April 2022, Reuters underlined that Credit Suisse investment bank estimated a 20% growth for the current year, modifying the prior estimate of 4.5%, as a result of the increase in oil demand. Likewise, it estimated an 8% GDP growth for 2023.

BBC outlines that Venezuelan independent consulting firm Ecoanálitica anticipates an 8% growth of the GDP and a 12% growth of private consumption.

Oil production, historically the main industry of the country, has been also showing signs of recovery, reaching a level of 775,000 barrels per day and leaving behind averages of fewer than 400,000 barrels per day, as published by EFE and DW in May and July of this year. This is significant if we consider a price per barrel that exceeds USD 100.

In conclusion, after a very big fall, the country has been showing interesting signs of recovery.  

Venezuela and USA, some interesting approaches.

To have good relations with the United States is undoubtedly a tool that, appropriately used, could bring countless benefits for the country.

After some years of difficult relationships, some good faith acts have occurred on both sides for the sake of the normalization of the relationships.  

Among the most interesting approaches there is the one mentioned in a news displayed in many web sites about the authorization issued by the Treasury Department in order for two oil companies, Italian Eni and Spanish Repsol, to begin to send Venezuelan oil to Europe after July (World Energy Trade, June 2022) or the authorization issued by the US Treasury Department, through the Office of Foreign Assets Control (OFAC), for the exportation of liquefied petroleum gas (Bloomberg, July 2022).

Venezuela is on international investors’ radar again.

After a long wait, Venezuela is on international investors’ radar again.  

Such is the case of large investment groups such as Phoenix Global Investment, 3B1 Guacamaya, and Scale Capital, which have acquired operations of important companies during the last two years. This information is of the public domain and can be verified in different news sites.

Phoenix Global Investment, a US-based consulting and investment firm and with activities in North and South America, Africa, Europe, and Asia, acquired Cargill’s operations in 2020.

Also, in 2020, 3B1 Guacamaya Fund, an investment fund, acquired Corimon, one of the major paint manufacturers in the country.

Finally, Scale Capital, based in Miami, London, and Chile, announced in year 2020 that it had reached an agreement with DIRECTV Latin America LLC for the purchase of the stock of Galaxy Entertainment de Venezuela SAT III R C.A and Galaxy Entertainment de Venezuela, C.A.

Moreover, a few weeks ago Reuters reported that two American investment funds, Gramercy Funds Management and Atmos Global Energy, had formed a joint venture with a Venezuelan firm (Inelectra Group) to pursue oil and gas exploration and production projects.

Special Economic Zones. Venezuela prepares to receive new investments.

Investment is necessarily involved in any recovery process and Venezuela is setting the scene for receiving new investments from both domestic investors and foreign investors.  

A good example is the recent announcement of inclusion in the stock market of a group of shares of some of the major public companies, such as Banco de Venezuela (one of the principal banks of the country), Compañía Anónima Nacional Teléfonos de Venezuela – CANTV (one of the principal fixed telecommunications and Internet companies) or Movilnet (one of the principal cell phone companies).

In addition, a law to promote startups has been published. To date, different legal measures have been established to exempt startups from payment of registration fees at Mercantile Registries. Likewise, startups have been exempted from payment of fees at the time of registration with different state agencies.

Also, the recent enactment of the Organic Law of Special Economic Zones is to be considered. The purpose of said Law is to create and develop the so-called Special Economic Zones (SEZ), as well as the relevant economic, tax, customs, fiscal, juridical, commercial and other incentives, protections, and guarantees.  

Then, the companies with Venezuelan or foreign capital interested in investing in the SEZ and with activities that allow the development of industrial and technological sectors or activities, financial and non-financial services, and primary agribusiness production may have access to the different economic, tax, customs, fiscal, juridical, and commercial incentives, protections, and guarantees, among others. Incentives to the development of tourism in the SEZ will be given as well.  

Among others, such companies may benefit from incentives such as the DRAW BACK (Reintegro Tributario de Importación) or the Tax Refund, in relation to national taxes. Also, customs benefits will be allowed for purposes of the importation of supplies, raw material, parts or pieces. Likewise, there will be preferential areas for loading and unloading merchandise, through a system of multimodal transportation infrastructure corridors (land, water, river, lake, air, or railway transportation).  

Financial services will also be subject to an exceptional and preferential regime. Also, free convertibility of currency will be allowed and specialized financing plans will be implemented.

Through this law, the country is seeking to promote national and foreign productive economic activity in the national territory, diversify and increase exports, participate in international markets, forward industrial development in the country, increase the generation of income, among other goals.

To date, the following SEZ have been announced: Paraguaná (State of Falcón), Puerto Cabello-Morón (State of Carabobo), State of La Guaira, Margarita (State of Nueva Esparta), and La Tortuga (Francisco de Miranda Insular Territory).

Paraguaná: It neighbors the Caribbean Sea. It houses the Amuay and Punta Cardón oil refining complexes. It has an international airport and an already installed deep water port. This zone is considered to have a high capability for producing wind and solar power.

Puerto Cabello-Morón: The most important sea port, the one with the highest economic value in Venezuela, is located in this zone. Also, El Palito oil refinery, the second most important one in the country, Planta Centro, the largest thermal power plant in Venezuela, and the Morón Petrochemical Complex (Pequiven) are located in this zone.       

Estado La Guaira: It neighbors the Caribbean Sea and is less than 30 km away from Caracas, the capital of the country. It houses Venezuela’s principal international airport and one of the most important ports of the country because of the volumes of cargo handled by it and its proximity to Caracas.  The beaches in the state cause tourism to be a factor of relevant interest.  

Margarita: Margarita Island neighbors the Caribbean Sea. Tourism is its principal economic activity. Margarita has an international airport and was designated as free port in year 2000.  

La Tortuga: It is an island in the Caribbean Sea. La Tortuga is formed by a main island and several islets and cays. It is uninhabited and there is tourism on the island. A group of construction projects are expected to be carried out, which will include: resort hotels, international airport and cruise port, a scientific research center, and wind and solar power sources.

In conclusion…

There is a lot to be done in Venezuela and when the country seeks to overcome a great economic, political, and social crisis, opportunities tend to appear. In fact, the country is gradually adapting its legislation in order to foster investments. At the same time, attempts are being made to approach other countries and their governments with the purpose of restoring diplomatic relations.

Venezuela has a great development capability. It has the largest oil reserves in the world, an enviable location, infrastructure in place, and high capacity to continue to grow.