Venezuela Business Projection Industry Update Quarter 3 2012

Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Ratings 7
Domestic Politics 8
Maduro Caught Between A Deteriorating Economy And Party Politics
We believe recently elected President Nicolás Maduro will adopt the policy mix of his predecessor Hugo Chávez, meaning the public
sector will remain the main driver of the economy, and a significant opening up to foreign investment is unlikely. Moreover, there are
significant risks that challenge Maduro's permanence in power, stemming both from the opposition and within his party, and a coup
cannot be ruled out given the high levels of social and political tension.
TABLE: POLITICAL OVERVIEW 8
Long-Term Political Outlook 9
Post-Chávez Era To See Greater Turbulence
Venezuela is entering a new era following the election of Nicolás Maduro as successor to the late President Hugo Chávez, but the
narrowness of his victory points to an increasingly polarised electorate, which will make the country harder to govern. With the economy
looking weak, Maduro could well lose office before his term expires in 2019. Regardless of who rules Venezuela, the country will face
formidable economic challenges, such as excessive state control, high inflation, corruption, violent crime, and a brain drain.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity 14
Substantial Downside Risks To Growth Outlook
We forecast Venezuela's real GDP growth to slow from 5.6% in 2012 to 2.6% in 2013 and 2.8% in 2013, as economic adjustments,
including a currency devaluation, feed through to the economy. However, the high level of political and social tensions following a
narrow victory by Nicolás Maduro in the country's April 14 presidential election, pose significant downside risks to our outlook.
TABLE: GDP BY EXPENDITURE, REAL GROWTH % 14
Exchange Rate Policy 15
New Dual Exchange Rate, Same Old Problems For The Private Sector
The recent introduction of a new dual exchange rate system in Venezuela will not be enough to address the severe foreign currency
shortages in the economy. This in turn will prompt government officials to continue to implement strict regulations to reduce the current
high levels of scarcity in essential goods, ultimately curtailing business activity.
TABLE: EXCHANGE RATE 16
Balance Of Payments 17
Income Outflows Will Weigh Heavily On Current Account
Venezuela's current account surplus narrowed sharply from 8.6% of GDP in 2011 to 2.8% in 2012, driven by record-high income
account outflows. Moreover, while the recent currency devaluation in Venezuela will weigh on imports, we believe ongoing income
account outflows, amid an unpredictable business environment, will result in near-record low current account surpluses over the next
couple of years.
TABLE: CURRENT ACCOUNT 18
Fiscal Policy 19
Maduro Will Use Spending To Retain Support
We believe that recently elected President Nicolás Maduro will pursue expansionary fiscal policies in a bid to retain popularity in a highly
polarised political environment. We expect this to take the form of an increase in public sector wages and high levels of social spending.
We therefore forecast the nominal fiscal deficit to remain elevated at 8.1% of GDP in 2013, albeit below the 11.8% deficit we estimate
for 2012.
TABLE: FISCAL POLICY 19
TABLE: LATIN AMERICA SOVEREIGN RISK RATINGS - EVOLUTION OF ABILITY TO PAY 20
Regional Sovereign Risk Ratings 21
Challenges Remain In 2013
While our latest Sovereign Risk Ratings show no change in the average overall score for Latin America since our last update in
October 2012, we continue to see 2013 as a challenging year for several economies in the region. Indeed, our ratings continue to
highlight a number of themes we believe will be key in 2013, such as economic underperformance in Argentina and Venezuela, the
impacts of slowing Chinese growth on Latin America's industrial metals exporters, and continued robust economic expansion and fiscal
consolidation in Mexico and Colombia.
TABLE: LATIN AMERICA SOVEREIGN RISK RATINGS - EVOLUTION OF WILLINGNESS TO PAY 22
Chapter 3: 10-Year Forecast 25
The Venezuelan Economy To 2022 25
Growth Outlook In A Post-Chávez Era
Although the Venezuelan economy is likely to experience a tough time over the next few years, we believe there is significant economic
growth potential over the long term. In our view, a more moderate and market-friendly government which is willing to make the
necessary structural reforms is needed to unlock this potential.
TABLE: LONG-TERM MACROECONOMIC FORECAS TS 25
Chapter 4: Business Environment 27
SWOT Analysis 27
BMI Business Environment Risk Ratings 27
Business Environment Outlook 28
Institutions 28
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS 28
TABLE: BMI LEGAL FRAMEWORK RATING 29
Infrastructure 30
TABLE: LABOUR FORCE QUALITY 30
TABLE: LATIN AMERICA - ANNUAL FDI INFLOWS 31
TABLE: TRADE AND INVESTMENT RATINGS 32
TOP EXPORT DESTINATIONS 32
Operational Risk 33
Chapter 5: Key Sectors 35
Defence & Security 35
TABLE: VENEZUELA'S ARMED FORCES PERSONNEL ('000, UNLESS OTHERWISE STATED), 2003-2009 35
TABLE: VENEZUELA'S MANPOWER AVAILABLE FOR MILITARY SERVICES, 2010-2017 (AGED 16-49, UNLESS OTHERWISE STATED).36
TABLE: AIR FREIGHT 41
TABLE: MARITIME FREIGHT 41
Other Key Sectors 43
TABLE: INFRASTRUCTURE SECTOR KEY INDICATORS 43
TABLE: AUTOS SECTOR KEY INDICATORS 43
TABLE: FOOD AND DRINK SECTOR KEY INDICATORS 43
TABLE: PHARMA SECTOR KEY INDICATORS 44
TABLE: TELECOMS SECTOR KEY INDICATORS 44
TABLE: FREIGHT SECTOR KEY INDICATORS 44
Chapter 6: BMI Global Assumptions 45
Global Outlook 45
Lowering Our US And Eurozone Growth Forecasts
TABLE: GLOBAL ASSUMPTIONS 45
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 46
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 46
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 47

Accounting and Corporate Finance in Venezuela