Archive for August 17th, 2015

Venezuela And Colombia: A Joint Future

August 17, 2015

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I was in Colombia last week. As the price of oil hit its lower level in five years, the Colombian peso was reaching a five year bottom, Bogota’s real state prices were dropping, the economy was slowing, but most people in Bogota seemed to be thinking, real state can not get lower than this and the price for the US$ is simply speculation, so why should I pay more for it?

Few seemed to see what I saw, that the peso will keep devaluing as oil drops and that the twenty year boom in real state prices is over. But sometimes changes are hard to see if you are a local.

Which made me think about the impact of what is going on in both Venezuela and Colombia in the future. And it is simply very bleak…

Think about it, at a time that Colombia is having a hard time with its finances and the peso devaluing, more than one million Colombian/Venezuelans or Venezuelan/Colombians are thinking of going back to Colombia, as jobs are ever more scarce in that country. And the Santos administration  is not even looking at the problem: What are these people going to do? Where will they work? Who will employ them?

Because Colombians are more concerned with other problems, like increasing taxes to cover the deficit, or the FARC negotiations. Meanwhile, the economy seems to be running away from them.

But, without being a doomsday predictor, imagine some likely scenarios: Oil keeps dropping, the deficit keeps widening in Colombia, which only exacerbates the problem. What happens at $ 30 per barrel, how about $20, and don’t even think about $10.

But that is precisely the scenario we should be thinking about. At US$ 30 per barrel, which technically seems to be quite feasible, things would get so bad in Venezuela, which not only it would drive many Colombians out of Venezuela, but may force the Government of Venezuela, current or future, to equilibrate prices. And in such an equilibrium, not only will there be another million of Colombians be driven out of Venezuela, but there will be the destruction of thousands of jobs for Colombians, currently involved in the arbitrage of prices between the two countries.

To begin, he elimination or reduction of the arbitrage will be a severe blow to the Colombian economy. Not only will 25% of the oil sold in Colombia (local estimates of what is extracted from Venezuela) go back up to international prices, but thousands of items from food, to medicines, to every day items will no longer be available at much lower prices. And even worse, those currently employed in Colombia in the bachaquero/arbitrage industries, will lose their jobs. Just like that…

And we are talking of thousands of jobs, as evidenced by a friend of mine who went to the Guajira region and found that after a certain point, “formal” gas stations disappear, as “bachaqueros” take over from them, selling gasoline in containers and sophisticated pumping systems at a 30%-40% discount to Colombian prices.

Which implies that the humanitarian crisis will not be exclusive to Venezuela, but a joint problem. A problem that makes Venezuela’s future closely linked to Colombia’s. We face a joint future, which politician’s seem to be ignoring. But if oil truly goes down to the low 30’s as many expect it, it is a joint future for the two countries.

And is not a pretty one.