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Venezuela Business Forecast Report Q3 2014

  • April 2014
  • -
  • Business Monitor International
  • -
  • 44 pages

Core Views

We expect economic growth to remain sluggish, characterised by a slowdown in private consumption, net exports, and investment. President Nicolás Maduro has consolidated his power in recent months, bolstered by a strong PSUV performance in the December 8 elections, and will continue Chávez’s policies of elevated social spending, resulting in sizeable fiscal deficits. However, a series of currency devaluations has begun to ease fiscal pressures. Inflation will remain elevated, at the highest level in Latin America, and the operating environment will remain very precarious for foreign multinationals in the country.

Major Forecast Changes

Due in part to a downward adjustment by our Oil & Gas team for crude production in 2014, we have downgraded our growth forecast for the year, from 1.5% to 1.2%.
For the second consecutive quarter, we have upgraded our Venezuelan fiscal deficit forecast for 2014, and now believe the shortfall will reach 6.5% of GDP, compared to our earlier estimate of 7.8%, due to reforms which will bolster bolívar-denominated government revenues.

Table Of Contents

Venezuela Business Forecast Report Q3 2014
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
Political Polarisation To Intensify, Increasing Medium-Term Risks 8
We believe that the widespread unrest and political violence in Venezuela since February has largely failed to provide the opposition
with any significant traction, and the administration of President Nicolás Maduro has leveraged the situation to the ruling party's
advantage, in line with our expectations. Nevertheless, political risk will remain elevated over the medium term, as the situation has
further polarised an already deeply divided country, with more belligerent factions in the opposition having gained in popularity.
Table: Political Overview 8
Long-Term Political Outlook 9
Post-Chávez Era To See Greater Turbulence 9
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
Persistent Headwinds To Limit 2014 Growth 14
We maintain our view that growth in Venezuela will be lacklustre in 2014, as high inflation suppresses household purchasing power,
a poor business environment constrains private sector investment, and stagnant oil production caps growth in net exports. We are
forecasting growth of just 1.2% in 2014, above our 2013 estimate of 0.8%, but well below Venezuela's average over the past decade of
5.8%.
tABLE: ECONOMIC ACTIVITY 14
Exchange Rate Policy 16
Despite Optimism, Sicad 2 Is No Silver Bullet 16
We believe the adoption of the new exchange rate system known as Sicad 2 is a positive step for the Venezuelan government in the
sense that it demonstrates an acknowledgement of the need for further reforms to begin addressing the extreme distortions in the
country's external markets. However, the system further complicates the process of acquiring hard currency and in the absence of other
major policy changes, it is unlikely to have a major substantive impact on the economy and fiscal position.
Balance Of Payments 17
We believe that Venezuela's current account surplus will continue to deteriorate over the course of 2014, thanks to stagnant
export revenues and a structural limit on the scope of further import declines, despite depreciatory policies recently adopted by the
government, which have seen the bolívar sharply fall in value and made foreign goods more expensive in local currency terms.
TABLE: A Major Devalua tion 17
TABLE: CURENT ACOUNT 18
Fiscal Policy 19
FX Policy To Relieve Some Fiscal Pressure 19
Although the government of Venezuela has failed to address longstanding issues which hamper economic growth and restrain the
conventional growth of fiscal revenues, we believe that recently enacted policies which erode the value of the domestic currency will
help narrow the country's budgetary deficit. We are forecasting a fiscal shortfall of 6.5% of GDP in 2014, compared to an estimated
9.6% in 2013.
TABLE: 'Bolivar Fuer te' Becoming Much Les So 19
TABLE: FISCAL POLICY 20
Chapter 3: 10-Year Forecast 23
The Venezuelan Economy to 2023 23
Growth Outlook In A Post-Chávez Era 23
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 23
Chapter 4: Business Environment 25
SWOT Analysis 25
BMI Business Environment Risk Ratings 25
Business Environment Outlook 26
Institutions 26
Table : BMI Busines And Opera tion Ris k Ratings 26
Table : BMI Legal Framewor k Rating 27
Infrastructure 28
TABLE: LABOUR FORCE QUALITY 28
TABLE: LATIN AMERICA - ANNUAL FDI INFLOWS 29
TABLE: Top Export Destinations 30
Operational Risk 31
Chapter 5: Key Sectors 33
Defence 33
TABLE: Defence Expenditure (2010-2017) 34
Freight Transport 37
Table : Air Freigh t 38
Table : Mari time Freigh t 39
Other Key Sectors 41
table : Pharma Sec tor Key Indica tors 41
table : Telecoms Sec tor Key Indica tors 41
table : Food and Drin k Sec tor Key Indica tors 41
table : Infras truc ture Sec tor Key Indica tors 42
table : Autos Sec tor Key Indica tors 42
table : Oil and Gas Sec tor Key Indica tors 42
Chapter 6: BMI Global Assumptions 43
Global Outlook 43
Chinese Economy Under Pressure 43
Table : Global Assump tions 43
Table : Developed States , Real GDP Grow tH, % 44
Table : BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 44
Table : Emerging Mar kets, Real GDP Grow th, % 45

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