Venezuela which is in the shape of a reversed triangle is located on the northern hump of South America and is twice in size of the land area of California. The climate of Venezuela is usually either winter or summer. The ethnic groups in Venezuela are Spanish, Italian, Portuguese, Arab, German and African while the official language spoken in Venezuela is Spanish. 96% of the population is Roman Catholic while 2% of the population is Protestants.
The population growth rate of Venezuela is 1.47% in 2012 while the population in Venezuela that is urbanized stands at 93% in the year 2010. Venezuela follows a Federal Republic type of government. It attained independence from Spain on 5th July 1811. Constitution was formed on 30th of December in the year 1999 and the same was amended on the 15th day of February in the year 2009. The legal system followed in Venezuela is the Civil Law System whose origin can be traced back to the Spanish Civil Code System.
Venezuela remains extremely reliant on the revenues generated from the oil sector. This is evident from the volume of the revenues from oil which is responsible for almost 95% of the export earnings. Also, the oil revenues contribute towards 40% of federal monetary resources, and are responsible for almost 12% of the Gross Domestic Product of the country. It was due to the increased prices of oil that the highest government expenditure has resulted in an increased gross domestic product in the year 2011. Precisely the gross domestic product had risen in 2011 by 4.2% (Central Intelligence Agency’s World Fact Book, 2012).
Government expenditure, nominal hikes in wages and enhanced availability of the credit on domestic front, all have lead to an augmentation in expenditure. Such superior utilization when got collaborated with supply problems, consequent effect was a higher inflation which precisely accounted to approximately 28% in the year 2011. President Hugo CHAVEZ's efforts to increase the government's control of the economy by nationalizing firms in the agribusiness, financial, construction, oil, and steel sectors have hurt the private investment environment, reduced productive capacity, and slowed non-petroleum exports (Central Intelligence Agency’s World Fact Book, 2012).
It was during the first six months of the year 2010 that Venezuela had faced the vision of extensive collapse on a national level due to the shutdown of one of its main hydroelectric power plant that was responsible for almost 35% of the Venezuela’s electricity. Finally it was in May 2010 when CHAVEZ decided to slam the unsanctioned market for foreign exchange that worked as a parallel market in the same domain. This step was executed as an effort to curtail inflation while causing a deliberate decrease in the currency's depreciation. The government again in June 2010 came up with the establishment of Transaction System for Foreign Currency Denominated Securities (SITME) as a substitute for the shutdown of the foreign exchange market in the previous month. Subsequently, in December 2010 the twofold exchange rate system was eliminated to form a unified exchange rate of 4.3 bolivars per dollar. Again in January 2011 another step towards the devaluation of the Bolivar was executed (Central Intelligence Agency’s World Fact Book, 2012).
Significance of the oil industry in Venezuela: The contribution of the oil industry to the economy of Venezuela can be acknowledged in two significant ways. While through one way it not only sources the incomes of Venezuela but also multiplies the expenditure of Venezuela. The other significant way in which it contributes to the economy of Venezuela is by providing appropriate stimulation to the investments in the goods sector. According to the U.S Energy Information Administration, “Venezuela had 211 billion barrels of proven oil reserves in the year 2011 making it the second largest the world. Venezuela is a significant supplier of crude oil to the world market: in 2009 the country had net oil exports of 1.75 million barrels per day (bbl/d), eleventh-largest in the world and the largest in the Western Hemisphere. In recent years, crude oil production in the country has fallen, while domestic consumption has risen, causing a decline in net oil exports. EIA estimates the Venezuelan net exports fell again in 2010 to 1.59 million bbl/d”.
The oil abundance in Venezuela during the 1970s and 1980s was looked upon as an opportunity to fuel one of the most intrepid projects in relation to the industrialization and modernization in the economic history of Latin America. According to John “This oil windfall represented a unique opportunity for Venezuela to undertake major structural transformations of the industrial and export structure of the economy in order to reduce the dependencies on oil while simultaneously permitting high growth and the accomplishment of distributive goals (22).
Petroleos de Venezuela S.A is believed to the largest employer in Venezuela which contributes majorly towards the gross domestic product, export earnings and the revenue to the government of Venezuela. The oil sector in the country and the companies running it were so huge in that any even such as strike of the workers etc. was believed to have a long lasting and irrecoverable loss to both the country and the sector. The decade in the 1990s was when the country initiated efforts towards the process of liberalization of the oil sector in Venezuela.
The expenditures relating to the oil sector in Venezuela lead to a multiplier effect on both the spending volumes and the income volumes in the economy of the country. It is estimated that Venezuela had created approximately 2.36 million bbl/d of oil in the year 2010. Of which Crude oil amounted to 2.09 million bbl/d while condensate and natural gas liquid account for the rest of the production volumes. The methodology adopted for the purpose of measurement is not unique hence there is a considerable variation in the estimate of production volumes created in Venezuela. For illustration, in some cases, direct counting method is followed to count the extra-heavy oil produced in Venezuela’s Orinoco Belt which is an integral element of the crude oil production in the country. Contrary to this various other analysts consider the upgraded sync rude that leads to a difference of about 10 percent lower when compared to the direct counting method that is adopted by the other analysts. Consequently, a falling trend in the production graphs of the crude oil production in Venezuela is noticed (U.S Energy Information Administration, 2011).
Going by the international standards of crude oil, the product of Venezuela’s crude oil production is considered to be both intense as well as sour. It is due to these two points of differences in the crude oil that the crude oil produce of Venezuela is directed towards the f8nearly half the oil volume of the total oil produced in Venezuela. It is also assessed that most of the fields in the country are appropriately grown-up which consequently requires huge investments to be made to foster their already fully grown capacity.
Moreover, the threats involved in the economic management of the nation which deals in the oil exports is to strike an adequate balance between the planning in the long term and the volatility of the export revenues in the short term. It also happens that the boom that takes place in the oil sector creates unexpected inflows of huge capitals. Consequently, such sudden inflows of huge capital amounts give rise to the absorptive aptitude in the economy. Also, such situations lead to the availability of huge resources at the disposal of the public officials who can misuse the resources as per their conveniences thus giving rise to extravagant expenditure and bribery. Another threat involved with the economic management of the nation which deals in the oil exports is the free availability of the oil resources. Such free availability of resources encourages volatile investments and speculations among the investors.
As per the version of various economists the absence of long term policy making by the state government was the main reason behind the snail paced economic growth of the Venezuelan economy. Witnessing this situation was the miscalculation of the revenues that were generated by the oil boom by the policymakers. Such miscalculation not only leads to rising inflation but also growing uncertainty which was practically evidenced in the economy of Venezuela when the policy makers had by mistake mishandled the revenues generated from the boom in the oil sector. Another issue concerning the economic management of nations that are rich in natural resources and deal in the exports of such resources is the lack of expertise to handle the complex nature of these natural resources that can ultimately lead to problems relating to the absorptive capacity of the economy.
John argues that “Venezuela long run growth performance when placed in the Latin American context does not support the Rentier state argument. If oil were such a curse to Venezuela’s economic development, then surely its level of catch up with more advanced countries would be slower than that of less oil dependant Latin American countries. This is not the case” (88). Rather, on a comparative note, the growth of the gross domestic product in Venezuela was very inspiring when compared to other Latin American country’s growth in their respective gross domestic products.
Therefore it can be rightly said that for Venezuela, oil resources were a boon rather than a bane. Though in the case of many countries those are rich in natural resources, there was abundant misuse of these resources evident, but Venezuela is evolving itself as a winner from such tough and unpredictable situations. It not only is prioritizing the correct use of the natural resources but also is skillfully handling the complex natured deals in relation to the oil sector. According to the U.S Energy Information Administration “In 2009 Venezuela signed bilateral agreements for the development of four major blocks in the Junin area. Last year the country awarded two more major development licenses in the Carabobo region. Venezuela expects these projects to add more that 2,000,000 bbl/d of heavy oil production capacity by the end of the decade” (2011).
Not only the imports but also the exports are efficiently handled by the country. The following statement from the U.S Energy Information Administration vouches for this fact, “Venezuela’s petroleum exports have dropped by almost 50 percent, since peaking at 3.06 million bbl/d in 1997. Venezuela sends a large share of its oil exports to the United States because geographic proximity enhances export profitability and because refineries on the U.S. Gulf Coast are specifically designed to handle heavy Venezuelan crude. Currently, Venezuela is the United States’ fifth largest supplier of imported petroleum. In recent years, Venezuela has attempted to diversify its export destinations away from the United States. Besides the United States, other important destinations of Venezuelan petroleum exports include the Caribbean, Europe and Asia” (2011).
Therefore it can be undoubtedly confirmed that Venezuela is very efficiently managing the imports exports and other trade related to its oil sector due to which the country is in a situation to provide a considerable amount of crude oil and refined products to its fellow countries at a price lower that the market prices but also with the provision of encouraging financing terms.
1. U.S Energy Information Administration. U.S Energy Information Administration. 2011. Web. Accessed on 23rd April 2012. Available at: http://www.eia.gov/cabs/venezuela/oil.html
2. John, Jonathan Di. From Windfall to Curse? Oil and Industrialization in Venezuela, 1920 to the Present. Pennsylvania: The Pennsylvania State University Press. 2009. Print.
3. Central Intelligence Agency. Central Intelligence Agency. 2012. Web. Accessed on 23rd April 2012. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/ve.html
4. Alexander & Robert J. Rómulo Betancourt and the Transformation of Venezuela. New Brunswick, New Jersey: Transaction Books. 1982. Print.
