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Venezuela Business Forecast Report Q4 2014

  • July 2014
  • -
  • Business Monitor International
  • -
  • 38 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 position at the helm of the PSUV, but his popularity has waned amid economic difficulties affecting all segments of society. He will continue his predecessor'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
We have downgraded our fiscal deficit forecast for 2014 and 2015, following a downward adjustment by our Oil & Gas team for crude production, to 6.7% of GDP and 6.5% of GDP respectively, compared to our previous projections of 6.5% and 6.2%. We have incorporated our view that currency unification will occur in 2015, reflected in our forecast for the official exchange rate to reach VEF25.00/USD that year, compared to the current rate of VEF6.292/ USD.

Table Of Contents

Venezuela Business Forecast Report Q4 2014
Executive Summary.... 5
Core Views..5
Major Forecast Changes5
Key Risks To Outlook....5
Chapter 1: Political Outlook.. 7
SWOT Analysis.... 7
BMI Political Risk Ratings. 7
Domestic Politics .... 8
Protests To Persist As Opposition Gains Ground....8
We believe that public protests in Venezuela will continue over the coming months, although we expect them to remain largely peaceful.
This view is supported by recent polling data showing that Venezuelan President Nicolás Maduro's popularity has declined to its lowest
level since his election in April 2013, while support for key opposition figures and non-violent demonstrations is on the rise.
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
GDP Growth Constrained On Multiple Fronts...14
Economic growth in Venezuela will remain extremely low, and may drop into negative territory in the coming quarters given the poor
business environment, high inflation, and ongoing market distortions associated with price controls and the country's complex system
for acquiring foreign currency. We are forecasting growth of just 0.5% in 2014 and 1.2% in 2015, but we believe that risks continue to be
weighted to the downside.
TABLE: Economic Activit y....14
Balance Of Payments . 15
Export Stagnation To Weigh On Current Account..15
Venezuela's current account will remain under significant pressure due to the poor performance of the oil sector and other industries
producing goods for exports. While import growth is also likely to have fallen in recent months, we maintain our view that the current
account surplus will narrow from 2.1% of GDP estimated in 2013 to 2.1% in 2014.
TABLE: Current Account16
Fiscal Policy.. 17
Falling Revenues To Temper Fiscal Consolidation....17
Venezuela's fiscal deficit will narrow significantly in 2014 thanks to the government's greater purchasing power afforded by the ongoing
devaluation of the currency. However, we have downgraded our budget forecasts following a deterioration in the outlook for the
country's oil and gas production. We are forecasting a budget deficit of 6.7% of GDP in 2014, and 6.5% in 2015, compared with 9.8% in
TABLE: Fiscal Policy....17
Exchange Rate Policy. 19
Currency Unification To Be Delayed Until 2015.19
We do not expect that Venezuela's multiple exchange rates will be unified in 2014, despite assurances from some government officials
that such reforms are imminent. However, we believe that the government's strategy of devaluing the bolívar gradually through migrating
more transactions to weaker exchange rates will continue apace and that currency unification will occur in 2015.
Chapter 3: 10-Year Forecast 21
The Venezuelan Economy To 2023. 21
Growth Outlook In A Post-Chávez Era21
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 Macr oec onomic Forecasts ..21
Chapter 4: Business Environment 23
SWOT Analysis.. 23
BMI Business Environment Risk Ratings 23
Business Environment Outlook 24
Institutions.... 24
Table : BMI Business And Operati on Ris k Ratings ...24
Table : BMI Legal Framew ork Rating ...25
Market Orientation.. 27
TABLE: Top Export Destinations28
Operational Risk 29
Chapter 5: Key Sectors.. 31
Pharmaceuticals and Healthcare.. 31
TABLE: Pharmaceutical Sales , Hist orical Data And Forecasts 32
TABLE: Healthcare Expenditure Trends , Hist orical Data And Forecasts .... 32
TABLE: Government Healthcare Expenditure Trends , Hist orical Data And Forecasts ... 33
TABLE: Private Healthcare Expenditure Trends , Hist orical Data And Forecasts ... 33
Telecommunications... 34
TABLE: Telec oms Sect or - Mobile - Hist orical Data and Forecasts . 34
TABLE: Telec oms Sect or - Wireline - Hist orical Data and Forecasts .. 35
TABLE: Telec oms Sect or - Internet - Hist orical Data And Forecasts , 2011-2018.. 36
Chapter 6: BMI Global Assumptions. 37
Global Outlook... 37
Global Recovery Still On Track..37
Table : Global Assumpti ons ....37
Table : Devel oped States , Real GDP Growt H, %.38
Table : Emerging Mar kets , Real GDP Growth , %39

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