Development: On 17 August the central bank reported that real GDP rose 5.6% year-on-year in the first half of 2012.
Significance: There is no mystery to the results. Thanks to sky-high oil prices, the government is spending hand over foot to ensure the October re-election (for a third consecutive six-year term) of President Hugo Chávez. Imports soared 27% year-on-year in the first half, to just over US$27bn, and supplied fully a third (33%) of the total domestic offer, the highest such proportion in 16 years. Oil accounted for 96% of total exports, generating a whopping US$47bn in revenues. Yet flush export earnings (plus decent tax revenues) were not enough - the government also issued debt to the tune of US$16bn between January and June. Local economists project the 2012 fiscal deficit at a record 15% of GDP. What goes up must come down - and the consensus is for a hard landing next year. Devaluation is expected come early 2013, as per the typical Chavista post electoral strategy.
More notably, the oil sector itself posted real annual growth of just 1.0% in the first half. Between 1998 and 2011, real growth in the oil sector averaged just 1.2% a year. If the Bolivarian Revolution is to survive and prosper, the government urgently needs to ramp-up production.
Key points:
• Total external debt is still emminently manageable at US$91.7bn, or 29% of GDP, but domestic debt has soared to US$57bn on some estimates, propelling total public debt to a projected 47% of GDP by end-2012. Again, that’s nothing in comparison to the US or the bankrupt peripheral Eurozone countries. But there is no question now that Venezuela needs not just sustained high oil prices, but also high-volume sales. Worryingly, despite tens of billions of dollars in Chinese investment in the oil sector in lucrative cash-for-oil deals, there is no sign of significant additional production coming on stream any time soon. Output was 3.0m barrels per day (bpd) in the first half of 2012, according to the energy minister and president of Venezuela’s state oil company, Petróleos de Venezuela (Pdvsa), Rafael Rodríguez. Brazil is now producing more oil than Venezuela. The government’s target is to reach some 5.1m bpd by 2019-2020.
• President Chávez on Saturday (18 August) said that Pdvsa would transfer shares from Petropiar, a joint venture with the US-based Chevron, to the troubled state miner Corporación Venezolana de Guayana (CVG) so as to form a new oil company to be known as Petro San Félix. Speaking in Guayana, he pledged an industrial development axis in the state, centred on the giant Orinoco oil belt (home to the largest land-based oil reserves in the world), focusing on mining, agriculture, industry and petrochemicals, under his next government (2013-2019). The mining sector has stagnated under Chávez (it fell 4.8% in the first half of 2012) and CVG has also been plagued by labour unrest, with Chavista and non-Chavista unions coming together against the central Caracas government. In late July workers re-elected an opposition trade unionist, Rubén González, to the helm of the Sindicato de Ferrominera del Orinoco (SintraFerrominera). Three unions in Guayana are opposition controlled, SintraFerrominera, CVG Carbonorco and CVH Alcasa.
• Chávez also announced a new tie up between Pdvsa and Siderurgica del Orinoco ‘Alfredo Maneiro’ (Sidor), to be known as Faja-Acero, the aim of which is to produce up to 1.0m tonnes of steel a year, generating US$3.5bn a year for Sidor, according to the president. Chávez also promised a US$300m electricity transmission line, along with three new substations, between El Guri and Ciudad Bolívar. “The Revolution is a sequence of new births”, Chávez declared, adding, “on 7 October we will deliver a knockout to the bourgeoisie…we are heading for 80% of the votes”.
• Upstream industrialisation towards petrochemicals and other value-added sectors is all well and good — it is also the strategy in Brazil, for instance. The problem in Venezuela’s case is one of implementation. Having gutted Pdvsa of its professional workers and managers following a crippling oil strike in late 2003, the Chávez government has struggled to replace them with similarly qualified ‘Bolivarian’ staff. Despite record oil prices, Pdvsa has also been starved of cash, with a massive chunk of its earnings siphoned off for social spending; and been asked to deliver for the government on a string on non-oil fronts, from agriculture to housing.
Pointer: The construction sector, now accounting for 7.2% of GDP, rose 7.5% year-on-year in the first half. Within manufacturing, non-metallic minerals output contracted 11.2%, while food, drink and tobacco fell 9.4%. The Marxist finance minister, Jorge Giordani, insisted on 18 August that the current pace of growth is sustainable and projected average growth of 6.0% in 2013-2019. He celebrated the fall in annual inflation to below 20% (19.4% in July).
