Archive for March 23rd, 2005

Venezuela Inc. is back, under revolutionary management

March 23, 2005

In the 1970’s, with the first wave of oil price
increases, another leftist populist Carlos Andres Perez, was President of
Venezuela. Perez nationalized the oil and iron ore industries and with the money
from the oil windfall, created the Venezuelan Investment Fund and the Venezuelan
Corporation for Guayana (CVG). Hundreds of companies ended up under these two
umbrellas, with few of them ever showing a profit or even producing anything. Venezuela Inc. was a
gigantic failure, as most enterprises had no business plan, were inefficiently
run and corruption was rampant. Few of them had anything going for them other than desire
or wishful thinking by some Government official that the state should participate in those particular areas.

Venezuela Inc. is back, and much like the first time
around, the decisions are being made at the top, without any serious studies and
most will once again become huge sinkholes for public funds. So far, President
Chavez and his Cabinet have had the state become newly involved in:

-The expropriation of the assets of bankrupt paper company
Venepal. It could not survive with private management; can anyone expect it to
survive under the Government’s supervision? US$ 7 million have been invested in it already.

-Government airline Conviasa, which so far has one
plane and will try to get the Government in what Warren Buffet considers the
most difficult business to be in.

-Venezuelan-Iranian joint tractor venture Veneiran. In
only ten days in existence the company has already faced its first general
strike, when management tried to fire Venezuelan workers because they did not
meet their standards. The most curious aspect is that the Iranian management wants
workers to be under thirty, but all of them are above fifty. Truly a fundamentalist

-Mercal, the food import company which has quickly
become the largest importer of foodstuffs in
So much for endogenous developments!

-Farmal is the pharmaceutical distribution company the
Government is now setting up to imitate the Mercal model in this area.

-CVG Telecom is the Government’s new entry into the
telecom field, after the country’s telephone company was privatized in 1991 and
few invested in
after the 2001 Chavez “telecom opening” bill. It will compete with companies managed
Telefonica and Verizon.

-Yesterday the Government created four new
enterprises: CVA Azucar, CVA Cereales y Oleaginosas, CVA Lacteos and CVA
Empresa Comercializadora de Insumos y Servicios Agricolas. These companies will
be in charge of sugar production, processing and commercialization, corn flour,
pasta, rice and oil, milk and agricultural supplies and services respectively.

more things change, the more they stay the same, but “revolutionary”
management will not change the final outcome this time around either.