Overseas Business Risk – Venezuela

See below for information on key security and political risks which UK businesses may face when operating in Venezuela

Political and Economic

Presidential elections will take place on 7 October 2012. Opposition parties acting under the Democratic Unity Platform (MUD) held primary elections to choose a unity presidential candidate in February 2012 selecting Henrique Capriles Radonski as the unified opposition candidate. President Chavez was diagnosed with cancer in 2011 and has undergone long sessions of chemo and radiotherapy in Cuba. He continues to declare himself recovered and is expected to be the ruling PSUV’s candidate.

In 2011, Venezuela reported positive economic growth of 4.2% for the first time since 2008. Growth is forecast at 5% in 2012 assuming oil prices continue to be as high as the 2011 average. Venezuela’s economy is heavily dependent on oil production and export. International demand for oil remained strong throughout 2011 resulting in an average price for the Venezuelan basket of around US$100 per barrel. A lack of investment in existing and new production and the increasing use of oil futures have resulted in lower levels of production than Government figures show. Most analysts put 2011 production at about 2.4 million barrels a day. The economy is distorted by a regime of exchange controls, subsidies and price controls. Despite a devaluation of the Bolivar Fuerte (BsF) in Jan 2011 the official exchange rate is considered over valued (4.30 BsF to US$1). Inflation remains a major problem. Government attempts to control inflation through widespread price controls have resulted in shortages, price increases on unregulated goods and a growing parallel market for regulated goods. The government’s target for 2011 year-end inflation is 26%.

Since 2006, the Venezuelan government has pursued a policy of taking strategic sectors into State control in order to encourage national development, increase food security and improve labour stability. Key sectors include oil and gas, agriculture, power, telecommunications, construction, mining and financial services. Foreign companies, including some British-owned businesses have been affected by this policy and are pursuing compensation from the Venezuelan government. Government exchange controls can make it difficult for foreign businesses invested in Venezuela to repatriate dividends to overseas headquarters in foreign currency.

Reliance on oil revenue and poor economic diversification has resulted inVenezuela importing more than 70% of its needs. UK companies with the right product or service and the right partner continue to do good business. To minimise risk, payment terms can often be negotiated up front, in foreign currency and offshore. We strongly recommend that UK companies thinking of doing business in Venezuela undertake thorough market research and contact the UKTI Team at the British Embassy in Caracas for advice on market entry strategies.

More information on political risk, including political demonstrations, is available in the FCO Travel Advice.

Business and Human Rights

The Venezuelan Constitution of 1999 provides a comprehensive framework for guaranteeing human rights, incorporating many international best practices. Venezuela is a signatory party to the main UN Human Rights Conventions, and a party member of several other Human Rights treaties

The Government of Venezuela has been recognised by most countries, as putting particular emphasis on the promotion of social and economic rights, and there has been substantive progress in developing universal welfare programmes, increasing access to health and education and reducing poverty rates. However, during the UN Universal Periodic Review in October 2011, concerns were raised on the threat to rule of law through high crime rates and the small number of prosecutions, the independence of the judiciary, as well as certain political rights, including freedom of expression.

In September 2012 Venezuela denounced the American Convention on Human Rights. This is the formal procedure to withdraw from the Inter-American Court of Human Rights, based in Costa Rica.  The government decision will take effect in September 2013, a year after the denunciation. Apart from this, in November 2012, Venezuela won a seat on the UN Human Rights Council, which it will take up in January 2013 for a 3 year period.  

Bribery and Corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.

In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

Venezuela was ranked 172 out of 183 in the 2011 Transparency International’s corruption perception index (CPI).

Read the information provided on our Bribery and corruption page.

Terrorism Threat

Read the information provided on our Terrorism threat page.

Protective Security Advice

The Centre for the Protection of National Infrastructure also provides protective security advice to businesses

Read the information provided on our Protective security advice page.

Intellectual Property

IP rights are territorial, that is they only give protection in the countries where they are granted or registered. If you are thinking about trading internationally, they you should consider registering your IP rights in your export markets.

Read the information provided on our Intellectual Property page.

Organised Crime

Read the information provided on our Organised crime page.

More information is available on overseas business risk in a range of markets.

UK Trade & Investment Contact:

ian.mason.fco.gov.uk

Countries: Venezuela
Topics: Insurance & Risk
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