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Table of Contents

Introduction………………………………………………………………….

Background of Juan Guaido

The Tale of Two Presidents

 

Background and Overview………………………………………….………

Best Investment Properties

 

Statement of Challenges, Problems or Opportunities……………………..

 

References…………………………………………………………………….

I.               Introduction

         Over several years the country of Venezuela has been in a political turmoil. Around four million citizens have left the country due to famine, lack of medicine, and hyperinflation. What caused such chaos? A dispute of power. Nicolás Maduro elected back in April of 2013 after his predecessor Hugo Chavez. Within his first term, the country’s economy decline began from the corruption in the socialist government. Venezuela was already at a low point but when Maduro was re-elected to a second term from scandalous elections it started the dispute of power. The National Assembly in Venezuela refused to recognize Maduro’s re-election. At his swear-in ceremony, the National Assembly disputed that his poll numbers were flawed and that there is no true president.

Background of Juan Guaido

         According to Venezuela’s constitution, articles 233 and 333 if the presidential spot is vacant then the head of the National Assembly becomes president. Juan Guaido is the other side of the coin in this power dispute. Guiado joined the National Assembly in 2011, but before he became leader of the National Assembly he was not a prominent figure in this battle. Guaido majored in engineering, attended George Washington University for graduate school, and attended Instituto de Estudios Superiores de Administración for business school. Prior to him joining the National Assembly, he had no experience in politics. What some say drove him to follow politics was, in 1999, the same year Nicolas Maduro was elected, there was a flash flood in his hometown. The flood killed thousands of people and ruined crops. His family survived thankfully, but the poorness of the government's response drove him to become active. After seeing that he became a youth organizer for Leopoldo Lopez. Guaidó has prioritized inspecting corruption cases that have come to the light of day during Maduro’s presidency. He’s now working with joint and private organizations to exile stolen money once a new government is in place to help fight Venezuela’s humanitarian crisis, which hit his hometown of Vargas predominantly hard

The Tale of Two Presidents

 Guaido acknowledged himself as the president after the re-election of Maduro, he went in public surrounded by several protestors and formally announced that he would be acting as Venezuela’s interim president. He began ordering the military to acknowledge him as the president and asked them to switch sides against Maduro. U.S. President, Donald Trump, even recognizes Guiado as the current president which cause Maduro to break ties with the U.S.  

         The security forces of Venezuela play a key role in this power struggle. They are loyal to Maduro because he gives them pay raises and places top ranking officials in powerful positions of key posts and industries. Guaido on the other hand, still tries to get the security forces on his side by offering amnesty to those who are willing to denounce Maduro and switch to his side of the battle. Guaido even posted a video where he asked military officials to join his side on twitter and it caused an uproar.

         Venezuela got to this boiling point due to Maduro and the former president Chavez. The socialist have been in power since 1999. The policies they brought in were aimed to help the poor, but they backfired. They placed controls on prices so for example, putting a cap on basic food supplies meant the businesses producing these items no longer made a profit. The biggest problem that citizens of Venezuela are facing every day is hyperinflation. The National Assembly recorded a 1.3 million percent increase of inflation within 12 months to November of 2018. With such harsh conditions in Venezuela, many citizens have resulted in to migrating.

         The most likely event to occur in the future of the country would be more authority for Maduro as long as he is in office. Small economic reforms would come along to try to fix the catastrophe of an economy; along with enhancing divisions within the political opposition.

Regardless of who gets the next chair in the office, the post-Maduro will be a long and excruciating process for the citizens of Venezuela. 

II. Background and Overview

The political state in Venezuela has been volatile since the failed military-civil rebellion April 30, 2019, against the regime of President Nicolas Maduro. The situation has continued to deteriorate, affecting the economy which is almost going into recession. There has been widespread distress in humanitarian aid as well as huge numbers of people moving out of the country to seek refuge in other countries (Myers, 2017). The stability if the country has been entirely threatened by the potential collapse of the state and increasing humanitarian crisis.

There has been increasing insecurity from many groups, threatening the existence of people in some areas and compounding the humanitarian efforts since some areas are not secure enough for accessibility. This has attracted the attention of various countries such as US which are considering strategic policies to help the country and stabilize it. A political change in Venezuela is as important as being prepared for the post-Maduro era (Myers, 2017). The current regime should be able to consider important policies and strategies to address the instability of the country and reconstruct it. This would initiate democratic transitions which are necessary in alleviating the current situation in the country in the long run (Ochoa, 2017).

Humanitarian crisis has been increasing since the beginning of 2019, making it difficult to predict when the challenges will be overcome. The confrontations and polarization of the country began when the opposition leader, Juan Guaido, and the president, Maduro, intensified their control over the National Assembly, followed by both of them taking presidential oaths of the country, resulting into power struggle (Myers, 2017). Since that time, many countries have recognized Guaido as interim president, legitimately elected by the people. On the other hand, Maduro still maintains that he is the president of the country because he has received support from neighboring countries such as Turkey, Cuba and even Russia. Consequently, there has been no willingness to have dialogue from the two leaders thus increasing tensions and instability in the country (Ochoa, 2017). Reports show that huge numbers of paramilitaries, criminal gangs and armed groups which support Maduro have been roaming major cities freely without any fear from government aligned forces. These groups have been targeting members who support the opposition leader, Guaido.

The Venezuela situation has had a major toll on the economy which has contracted by more than 60 percent since 2013. There is hyperinflation in the economy recorded as the highest since the inception of the country. The food infrastructure has also collapsed entirely, and food has become unaffordable by nearly 90 percent of the people. Consequently, the food shortage has resulted in an increase of diseases such as malnutrition (Ochoa, 2017). Additionally, many hospitals have been closed due to lack of medication for the vulnerable and sick people. Electricity blackout has made the situation worse because water cannot be pumped, and medicine cannot be stored safely. There has been a blockage of sewage system due to lack of water which has compounded the health crisis (Ochoa, 2017). Death statistics has been increasing at alarming levels since the power struggle began.

The crisis situation in Venezuela has caused huge implications in the neighboring countries due to the refugee problem. The US has put oil sanctions to the country, resulting in a decrease in oil revenues (Ochoa, 2017). The number of people fleeing to the nearby countries has reached 5.1 million this year and the numbers seem to be on the increase. Disease infections are spreading fast in the country causing more distress to the people due to lack of humanitarian aid (Szent-Iványi, 2016). Systemic violence and threat from criminal organizations has caused more pain and insecurity to the people. There has been an increase in drug peddling, and other organized groups are operating nearly half of the country (Ochoa, 2017). This has compounded regional security and humanitarian distress. Instability of the country has threatened democratic rule of law as well as human rights.

Best Investment Prospects

         Due to the economic situation in Venezuela, thousands of people have been crossing over to the nearby countries such as Columbia to buy basic needs which are no longer accessible at the country. This is an indication of the state of the political and economic turmoil (Szent-Iványi, 2016). Hyperinflation, high unemployment levels, corruption, high poverty rates, reduced revenues from oils, and rampant cronyism have caused much pain and distress to the people. Venezuela's economy has been a disaster since the power struggle began (Ochoa, 2017). According to IMF statistics, inflation has risen to more than 700 percent in 2019 and it is estimated to hit 1600 percent by the end of next year if the situation is not curbed.

         In order to alleviate the situation, Maduro has been implementing price controls, nationalizing many facilities and imposing many tariffs, with the aim of contracting the economy. The economic state of the country has resulted in low investments in the country due to hyperinflation and instability of the country which has threatened the country entirely. Security and economic catastrophe, and increased cases of homicide threaten any prospective investors in the country (Ochoa, 2017). Corruption cases have risen to alarming levels, with the latest corruption index being the highest since the country’s inception.

         Venezuela’s economic freedom has been the worst for the country, degrading massively since the political situation began. According to the Heritage Foundation’s Freedom Index, which ranks economic freedom in any society in relation to economic and social goals, Venezuela has downgraded to 176 out of 178 countries, above North Korea and Cuba (Ochoa, 2017). As such, the country is experiencing the worst economic melt-down ever recorded, threatening any perceived investments in the country.

         Venezuela has lost the grip of its economy, pushing away any would-be investors currently and in the future. The economic recovery journey has been painful, and the recovery process seems difficult under the current administration. Consequently, international Financial Institutions have been calling for implementation of austerity measures in the country. The government has reduced subsidies and there is high inflation and unemployment in the country, worsening any prospects for investment (Ochoa, 2017). China has been adamant in intervening in the situation because the previous support for the country has not yielded much fruit for the country. With the depression and stagnancy in the oil sector of Venezuela, China has been looking the other way for fear of losing its money and investments (Ochoa, 2017). With key countries pulling away from stepping in to invest in Venezuela to stir up the economy, it is unlikely that private investors would think of doing any meaningful investments.

         The unending political instability and economic melt-town has forced many investors to pull away from the country. There has been an unwillingness of the two leaders, President Maduro and opposition leader Guaido, have not initiated any meaningful conversations towards peaceful negotiations. For investors, conducive business environment, stable economic and political environment is crucial for attracting investments (Ochoa, 2017).  Economic growth initiates and attracts investment from local and international investors. It is therefore important that Venezuela focuses on stabilizing the country economically and politically in order to create a business environment for investment (Szent-Iványi, 2016). 

  III.             Statement of the Challenges, Problems or Opportunities

Political instability has long remained a thorn in the flesh and has continued to deter foreign direct investments to Venezuela. This has been due to political disagreement between the president elect Mr. Nicholas Maduro and the opposition leader Mr. Juan Guaido. Having being elected in 2013, Mr. Maduro has led Venezuelan’s economy to doom; since being in power, the country has experienced record levels of hyperinflation, high unemployment rates, increased poverty rates due to rampant corruption and government lootings, and endless political instability (Vela, 2015). The country’s citizens have been subjected to an endless political and economic crisis that has seen most Venezuelan’s cross the Colombian border to purchase basic necessities such as food and medicine (Vela, 2015). The decline in its oil prices has not done the country any good either, and the IMF has projected that the nation’s economy will be its worst  in 2019; its inflation rates will run at nearly 700% in 2018 and it’s expected to exceed a record high of 1,600% in 2020 (Zones, 2019).

To date, the country’s economy remains a mess despite the president’s effort to make it better. The president has attempted to address the hyperinflation issue through implementation of various policies such as price controls, imposing tariffs that will help contract the GDP by at least 10% and implementing Chavez’s policy of widespread nationalization of Venezuelan companies (Zones, 2019). Despite his efforts, Mr. Maduro has terribly failed and the fact that he refuses to vacate office makes it even worse. There have been political unrests led by opposition leader Mr. Guaido where he seeks to initiate a referendum that will reduce the president’s term (Jayasuriya, 2016). The president is blamed for making the country a mess where the nation’s security environment is ranked as catastrophic; its homicide rate is ranked the world's second highest and its corruption levels are so high that Transparency International Corruption Perception  Index puts the country 168/167 (Zones, 2019).

While the world continues to remain hopeful of a prosperous Venezuela, the country’s foreign direct investments continues to deteriorate. This is mainly due to falling oil prices and decline in its overall oil production. The country’s economy mainly depends on oil production and the record decline in its production continues to hurt her economy. It’s reported that the country’s oil production had reduced drastically from 3.4 million barrels in 1998 to just 1 million barrels in 2018, and could further drop to half a million barrels in 2019 (Jayasuriya, 2016). This is a major problem for the country’s economy and there's a need to ensure mismanagements of oil firms, low corruption and steady oil prices is maintained to keep the economy stable. This low production has been at a hug cost, where the country’s private economic activities have continued to decline due to the nation’s inability to produce power; the basic commodities required for economic growth (Jayasuriya, 2016).

The nation’s economic problems are also as a result of economic sanctions against the Maduro government. Almost half of the nation’s oil products are exported to the U.S for refinery. The US government has imposed a sanction on the nation's largest oil firm (PDVSA) limiting the purchase of oil between the two nations (Jayasuriya, 2016). This has reduced the nation’s oil exports leading to further economic distress. Despite these many economic issues faced by the Maduro’s government, there is a light at the end of the tunnel, there seem to be more investment prospects in a post Maduro-Venezuela (Jayasuriya, 2016).

In Maduro’s government, Venezuela’s stock market performance continues to deteriorate. The Caracas Stock Market Index has shot up by 200,000% in 2018, as a result of Maduros policy that demands it to trade in Bolivar, instead of USD (Zones, 2019). Most of the nation’s private investors prefer to invest in the nation’s most profitable oil firm, PDVSA.  If the Caracas Stock Market Index should trade in U.S dollars, it would be the world’s worst performing market and would suffer a 94% collapse but would still perform better than Bolivar; attracting more direct foreign investments (Rosales, 2016). The nation’s sovereign and quasi sovereign bonds are all in default, a post Maduro Venezuela would see more investments in the nation since there’s prospects that the issued bonds which were defaulted by his regime would be paid (Rosales, 2016).

Even though the trading of bonds on Bolivar as opposed to USD have been of negative effects to foreign direct investors, it could also pose a future invest opportunity (Rosales, 2016). With the nation’s bad debt status due to bonds defaulted, investors could buy these cheap bonds compared to dollar bonds and sell them later when the nation gains favorable political climate. Change in governance will see more direct investments in transport and telecommunication, education and aviation since there could be a lifting of the ban on most U.S. citizens barred from investing in the country (Jayasuriya, 2016).

The Bolivarian reforms has condoned violation of property rights, increased political control, currency control, nationalization of companies among other policies have been of negative effects to foreign direct investments (Rosales, 2016). This government policy don’t really support investment into the country hence curtailing its potential economic growth. Other policies on foreign investments reduces the statutory rights of foreign investors and the nation’s total foreign investments is estimated at USD 23 billion representing the lowest in the South American region (Jayasuriya, 2016). The nation is also listed 188/190 in the 2019 Doing Business ranking by the World Bank, and it’s also reported that many multinationals such as General Motors, U.D General Mills and Kimberly-Clark ceased operations in the country due to unfavorable economic climate (Vela, 2015). A post Maduro Venezuela would see the abolition of the Bolivarian policies which will allow for more direct investments into the nation.

Venezuela remains and will continue to be an investment destination to many due to its petroleum attractiveness. Foreign investments flow into Venezuela has decreased over the years due to its political instability.  Should the nation adopt favorable political climate free from political instability and unaffordable business policies, it would receive more direct investments in many of its core sectors (Rosales, 2016). Its estimated that abolishing the Bolivarian reforms would make the country experience an increase in foreign direct investments to a minimum of over $900 million in 2020 as opposed to -$68 million in 2017 and the country would receive 0.2% of the total investments into the region (Zones, 2019).

Away from the tense political environment in the country, Venezuelan’s economy continues to rely on some of its strengths. Venezuela has one of the world’s largest oil reserves and could use this natural resource to provide industrial energy and electricity which will open up its economy hence improving its attractiveness for investment (Rosales, 2016). The privatization projects of various government sea ports, airports and the oil sector could be the biggest opportunity for investors (Vela, 2015).  A post Maduro Venezuela could encourage adoption of food production assistance policies to agro-food industries like coffee, cocoa, tobacco, rice, etc. and this could encourage more agribusiness investments into the nation (Jayasuriya, 2016).

There a greater concern when deciding the country’s investment opportunities in real estate. It’s a general norm all over the world that real estate business’ performance worsens during tough financial and political situations just like those present in Venezuela. It’s estimated that due to Maduro’s unstable government, the country’s real estate business is considered even more risky than its bonds (Rosales, 2016). The real estate is always a major investment space in any given country. Should Venezuela accomplish political stability, its economy will gradually improve; allowing for investments in the real estate which is highly dependent on a stable economy and political peace (Rosales, 2016).

The Venezuelan government has adopted the 2095 foreign investment policy on manufacturing for exports. Even though the current regime haven’t implement this policy, there's a possibility it could be implemented by a post Maduro regime which will encourage investments into the nation by providing incentives i.e. tax exemptions (Vela, 2015). This will open up investment opportunities in the nation’s strategic sectors such as agriculture, energy and transport.

The Venezuelan constitution even though being aligned with international trade policies on foreign direct investments by provisions for non-discrimination between national and foreign companies, there are still many problems to be managed. The country’s legal and judicial space is still politically influenced and there is lack of trade transparency (Rosales, 2016). The country still faces challenges such as; enforcing trade contract takes 510 days and has 30 procedures, trade across Venezuelan border is costly and timely; it takes 49 days to export and 70 days to import, the tax system is corrupt and ineffective, and the cost of startups is rocket high (Jayasuriya, 2016).  These challenges make investing in Venezuela a nightmare, but with the right regime in place, they can be overcome hence increasing investment opportunities in sectors like energy, health and housing which have been mostly affected by the political instability.

In conclusion, if the nation would fix its unpredictable political environment, it would have a stable economy free from corruption and international sanctions that negatively impact on its ability to attract foreign direct investments. The nation has no adequate freight services, its telecommunication sector only comprises of 3 companies; MOVISTAR, MOVILNET and DIGITEL, and have only 24 universities (Rosales, 2016). The space for future investment could only be wider.  It’s therefore necessary that a post Maduro regime implements the 2095 foreign investment policy on manufacturing, abolish the Bolivarian laws and encourage the use of a more stable currency like the USD in Caracas Stock Market Exchange to ensure economic stability.

 

References

Venezuela crisis: How the political situation escalated. (2019, August 8). Retrieved from https://www.bbc.com/news/world-latin-america-36319877 .

Venezuela crisis: Who is parliament leader Juan Guaidó? (2019, April 30). Retrieved from https://www.bbc.com/news/world-latin-america-46985389 .

Prospects for a Post-Maduro Venezuela. (2017, August 4). Retrieved from https://intpolicydigest.org/2016/07/25/prospects-post-maduro-venezuela/ .

Jayasuriya, D. (2016). Improvement in world banks ease of doing business rankings: Do they translate into greater foreign direct investments? The World Bank.

Rosales, A. (2016). Deepening etractivism and rentierism: Chinas role in Venezuela’s Bolivarian developmental model. Canadian Journal of Development Studies/Revue canadienne detudes du development, 37(4), 560-577.

Vela, L. (2015). Venezuela199-2014: Macro-policy, oil government and economic performance. Comparative Economic Studies, 57(3), 539-565.

Zones, S. E., (2019). United Nations Conference on Trade and Development (UNCTAD) World Investment Report (WIR).

Myers, D. J. (2017). The Struggle to Legitimate Political Regimes in Venezuela: From Pérez Jiménez to Maduro. Latin American Research Review, 52(4), 711–719. doi: 10.25222/larr.240

Ochoa, O. (2017). What Future for Venezuela in the Wake of the Current Crisis ? IdeAs, (9). doi: 10.4000/ideas.1902

Szent-Iványi, B. (2016). Conclusions: Prospects for FDI-Led Development in a Post-crisis World. Foreign Direct Investment in Central and Eastern Europe, 241–257. doi: 10.1007/978-3-319-40496-7_11