Archive for May 8th, 2012

Watching Some “Strategic” Companies In Bolivarian Venezuela

May 8, 2012

Over in Caracas Chronicles, Juan Nagel wrote an article criticizing Capriles’ stance on keeping industries in the hands of the State, which prompted a response by Capriles’ Chief Economics adviser, in which a defense was made of keeping certain “strategic” companies or areas in the hand of the Government. I must say that the article by Ricardo Villasmil was not to my liking, because he seems to be “lloviendo sobre mojado” (Raining over areas which are already wet). First of all, we have fifty years of experiences on the matter which should tell us where to go and where not to go.

But more ominous to me, is to hear the Chief Economic adviser of the opposition candidate suggest or say that “We don’t have it clear which is the way to development”

Well, I certainly have a clear idea of where not to go and confess being bothered that someone in such an important position does not have it clear where not to go or even where to go. Venezuela had some areas where a capability had been developed and they were abandoned, oil research is the best example, while it had areas like telecom and electronic, where the private sector was doing a reasonable job, until the Government arrived.

Take CANTV, the national telecom company. I have no idea whether this is considered strategic or not by Capriles or Villasmil. But we all remember how in 1989 it would take three tries to get a dial tone for a local call or years to get a home phone.  The company was privatized and very quickly, failed dial tones became a thing of the past and you could get a phone relatively quickly.

Then, in 2007 Chavez decided to nationalize CANTV, a very profitable company which was second in the country in cellular phones. I will not bother you with how CANTV has been favored with CADIVI dollars and the like. I will also note that CANTV is still making money, remaining highly profitable even after 5 years of Chavista management.

But when you look under the “hood” you start to get worried. CANTV has maintained the cheapest cellular phone rates in the country, while receiving the largest amount of official dollars of the three companies that compete in this business.

But guess what? After five years in Government hands CANTV has invested little in promoting the high speed networks required for smartphones, falling behind Movistar and Digitel, which are doing a reasonable job (even if the service is terrible), given that they do not receive regular dollars from CADIVI like CANTV does.

But when we go to the Internet the story becomes more worrisome. In 2007, you could get ADSL with a velocity of 1.5 Mbps. Today, you can get either 1.5 Mbps or 2.0 Mbps. That’s it, no more. Even worse, the 1.5 Mbps connection costs Bs. 260 a month, or US$ 60 at the official rate of exchange. (which I use because the company gets “strategic dollars at Bs. 4.3 to buy all the equipment). If you barely want to move up to 2 Mbps, the rate almost doubles.

Compare that to other countries, like Argentina,where you can get 20 Mbps for $40, much like the US, and you see the problem when these “strategic” industries are in the hands of the Government. CANTV has a captive market, little competition, subsidies and a Government that uses no benchmarks to measure its performance.

With the old private CANTV, Conatel could have required the company to increase speeds at a certain rate, while keeping prices constant. And if there was competition, all three cellular networks would be increasing bandwidth to compete.This affects everyone in Venezuela, not only the well to do as many revolutionaries who have little understanding of the country would suggest.

Let’s see Internet first. According to revolutionary statistics, Internet penetration in Venezuela was about 40% of the population as of 2011. That is close to 12 million people in a country of 28-29 million. Thus, by having CANTV be “strategic” and in the hands of the Government, what you are truly doing is delaying the progress of the inhabitants of the country.

And while it may be idealistic to think that this would be better if the opposition ran things, I just don’t see the point. A new Government, Chavista or opposition, would have so many other things to worry about and be priorities, that it would be best to have the private sector take care of CANTV. The Government could simply sell part of it and once the company runs well, sell the rest.

Venezuelans would be better off in many ways, as owners and as users.

The impact would be even higher if CANTV had a good 3G network. The country’s cell phone penetration is basically 100% according to official figures. Can you think of a better educational impact that having good Internet access on all cell phones?

And the Chavez Government has made a big deal, as it should be, of the PC and cell phone business. We have a Canaima computer bought in Portugal, which could have been built in Venezuela, but that is another problem. Separately, the Government has a company called VIT which sells computers. VIT also gets official dollars. except that the cheapest laptop costs Bs. 4,430, or US$ 1,100, more expensive than a comparable HP computer (or a MacBook) and certainly much more expensive than clones made in China.

But the whole policy is screwed up. While the Government promotes Canaima with Linux, it buys 200,000 licenses from Microsoft, sort of fighting itself.

I do think that the Government can create a policy in the computer business to orient things, but much like telecom, whether access to the internet or making cell phones, the way to development is to let the private sector do things, even if owned partially by the Government, but forcing it to meet benchmarks in price, performance and international competition. That is how other countries have done it. Whether Korea or China, the State was not running the manufacturing companies, but pushing them, helping them, coordinating the, but more importantly, imposing on them goals and benchmarks for their performance which would make them valuable for the people and the country.

The path to development is not a mystery. It is a matter of setting priorities, deciding areas to get involved and areas not to get involved. Areas with competitive human resources, areas with competitive advantages and areas where the state should play a role.

The rest as they say is just hard work and some mistakes. But the path is not that complicated. Just have the Government concentrate in the basics, low risk areas and let the private sector take the risks, under State supervision. Their loss, will be their loss, not the State’s.

Strategic? Education and health and maybe power generation. That’s about it. And even there, there is lots of room for flexibility given the limited funds.