Venezuela’s Road to Economic Recovery (Long Read)
The following is a translation of a guest lecture delivered by Venezuela’s Ambassador in Bolivia, César Trómpiz, at the UMSA university in La Paz.
For 100 years, our natural market for oil exports had been the United States. In 2019, the US decided to stop buying oil from Venezuela for political reasons and that forced us to adopt a series of internal transformations in order to guarantee the subsistence of the Venezuelan population.
In 2019, the flow of oil from Venezuela to the east coast of the United States was permanently interrupted for the first time since 1917. More than 30% of the fuel for vehicles on the East Coast of the United States came from Venezuelan oil and our refinery in the US.
We already had alliances with China, Russia, Iran, and other markets such as the Latin American Caribbean market. However, the problem was that Venezuelan oil extraction technology, like most of the world’s oil extraction technology, was European and American. Therefore, there was drop in oil production, causing a loss of income for our country.
We went from an average income of 900 billion dollars from oil, to just 700 million dollars. That means we lost 99% of our annual revenue. The state budget was devastated. In Venezuela, that means people were devastated, because all education is public, healthcare is public, and culture is public. There is a whole system built for the full guarantee of the economic, social, and cultural rights of our people.
Rebuilding the economy
Well, you can imagine that we had to do something. We had to build a new exchange system, a new technological and commercial approach to our oil development. I take this opportunity to publicly thank Iran and Russia for the permanent support they have had for the development of the oil industry during these times of sanctions against our country.
With the technical-scientific support of the Iranian oil industry and the Russian oil industry, we have been able to keep production afloat and begin a transition away from US and European technology. This is not an easy task in the oil industry, because these investments are big and have to last many years. For example, the Paraguaná Refining Complex or the José Refining Complex in Venezuela consume the same amount of energy as La Paz and El Alto combined.
So, I am going to talk to you about the things we have done to transform the rentier oil economic model into a diversified national production model, which will continue to have oil as an important basis for development, but which is now opening up to industrialized and diversified production.
Thanks to this, we are enjoying economic growth. In 2021, we registered positive growth in the first quarter of the year, for the first time since sanctions began. In 2022, we have already registered double-digit growth during the first semester which has been sustained throughout the year.
International agencies project growth of 16-20% for this year. This is a huge opportunity and also a testament to the political and institutional stability of the country. When institutions are credible, there is market confidence, and that is what is happening right now in Venezuela.
There is an important process of returning to stability in the international relations of our country. The world has already understood that our Republic is directed by the institutions and elections of our people. So, we are now working on new legal security for investors.
The first instrument is what we call the “anti-blockade law” which is a law that protects the identity of those who invest in Venezuela, including investors who have interests in North America and Europe, so that they’re not subject to US sanctions. This law has allowed us to move towards this first period of growth and to establish relationships with companies and states that did not dare enter Venezuela due to possible reprisals from the US government.
A country that is subject to coercive measures has to establish different models that avoid the existing system. The office of North American interests will always be here to persecute us and to persecute unrelated assets.
Then there is our law of special economic zones, to regulate the creation, organization, and operation, of areas where we can capitalize on Venezuela’s comparative advantages to build industry that produces for the Latin American market, Asian market, European market, and even the United States, etc.
We are targeting investment in tourism, in the production of both software and hardware technology, as well as financial services, so we can be a technological supply base for all of our America. We are also targeting non-financial services, especially primary food production. This is one thing that we have been criticized for in our relationship with Iran. We have announced that we have ample amounts of land that we are willing to work on in cooperation with other countries, such as Iran, for primary food production. This is a global security issue, it is a national security issue for our country.
What are the incentives for investment? This is the most important thing for entrepreneurs. The law, from article 27 to article 36, specifies a whole series of incentives. The first is the import tax refund along with a partial refund on income tax and municipal taxes.
Within each special economic zone, there is a tax regime that has nothing to do with the fiscal regime in the rest of our country. There is also free exchange of currencies, only within the special economic zones. This convertibility also means that there’s the possibility of paying entirely in foreign currency within these areas. Additionally, a series of financing is established with specialized credit institutions that will be installed in each of the special economic zones.
Bureaucracy is another complicated factor for business development. For this reason, a single office has been established for all procedures in the special economic zones that will remain directly in each of the zones.
Here we placed two additional incentives, which are provided for in the law. One is the scientific-technological incentive for scientific-technological development, which establishes that for scientific-technological development, are a series of special policies are going to be made, to be agreed upon with each investor. And there is another incentive that has to do with educational incentives.
We are working on the return of Venezuela to Mercosur. When we worked on that entry to Mercosur it was precisely the entry of Mercosur to the Caribbean and the investments in transport and ports in Venezuela to take advantage of our geography.
The maritime route will be direct access to several important markets such as the Asian market via the Panama Canal, and then via the upcoming Nicaraguan Canal, which we will have ready in a few years. The Nicaragua canal will be wider than the Panama Canal and will allow better transit of goods. It is a very, very important project that is currently in development. This creates opportunities for Venezuela’s industrial and transport sectors.
Obviously, there is an important weight in the US, European, and Asian markets crossing through Panama. Imagine when we have the Nicaraguan canal here, with this law of Special Economic Zones, we want to participate in these logistical opportunities that already exist.
We have the first five special economic zones already decreed by President Nicolás Maduro. The Paraguaná peninsula, of the Falcón state, it is a peninsula that had already been declared a Free Trade Zone approximately 40 years ago and that has now become a special economic zone of our country.
There is a second point that is Puerto Cabello. Yes, Puerto Cabello, in the state of Carabobo. Puerto Cabello, has always been one of the important ports in our country and connects with a critical industrial zone in the center of Venezuela, and additionally, It also connects with a free zone port in Barquisimeto.
The third zone is attached to the city of Caracas, it is the complete state of La Guaira, it is the Caribbean-facing area of the city of Caracas.
Additionally, the island of Margarita, a tourist destination par excellence in the Caribbean, is declared a special economic zone. Though, not only for tourism development but also for industrial development and port development.
Our 5th special economic zone is Turtle Island, dedicated exclusively to tourism investment, to the development of a large-scale tourism project in which there’s already an outline for infrastructure investment there.
These are the five special economic zones of Habitat, Paraguaná Peninsula, Puerto Cabello, La Guaira State, Isla de Margarita and Isla de la Tortuga.
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By Kawsachun News