Venezuela nationalisations show disarray
by Benedict Mander
President Hugo Chávez’s nationalisation of Venezuela’s cement industry has highlighted the Caracas government’s often haphazard and unpredictable policymaking style.
The initial announcement last Thursday was followed up with a series of confusing and contradictory statements.
After Mr Chávez declared that only companies previously owned by the state would be nationalised, the government now says it wants to take at least a 60 per cent stake in the local operations of Mexico’s Cemex, Switzerland’s Holcim and France’s Lafarge.
This was after it emerged that assets belonging to two of the three companies, which together control around 90 per cent of the market, had never been in state hands.
“It is very hard to imagine that any of the companies will be willing to continue operating in Venezuela without any kind of control over their business. It’s either all or nothing,” said an inside source, who questioned whether the government would be capable of managing the business as efficiently as the private companies.
“It might even end up having to import cement from the very same companies.”
The nationalisations have been seen as an attempt by Mr Chávez to boost sagging popularity ahead of regional elections in November by tackling housing shortages and speeding up infrastructure projects.
Indeed, Mr Chávez’s initial justification for nationalizing the sector was that foreign cement companies were exporting too much of their produce, while Venezuela suffers an acute housing shortage, with official figures showing a deficit of 2.7m homes.
But, according to local daily El Nacional, there were no cement exports in March, and in the first quarter of 2008 exports represented less than 2 per cent of local production.
That represents a considerable decline from 2007 when exports were almost 10 per cent of production, as the sector reacted to previous threats from Mr Chavez.
“It is clear that the problem in the housing sector is nothing to do with cement, and less so cement exports. Having the sector under state control will certainly do nothing to help, it was working just fine already,” said José Grasso Vecchio, a Caracas-based analyst. “The housing deficit is so large that no government can fix such a problem by itself, no matter how much money it has,” he said, adding that the government has made no serious study of the housing sector’s problems.
“The problem with this government is that it doesn’t have an efficient decision-making process. Economic policymaking has become completely distorted and disorganised,” said Guillermo Ortega, who led the research team in the finance ministry until early this year.
“There are people who understand the problems, but they have no influence over the actual decisions that are made.”
The nationalization is Mr Chávez’s most radical move since losing a referendum late last year, preventing him from deepening his “Bolivarian revolution”. He is also increasing state control over foreign-owned sectors of the economy by imposing a windfall profits tax on foreign oil producers, which energy minister Rafael Ramirez estimates will yield at least $1bn.
But analysts highlight that the move could bring the government additional and unnecessary problems.
Firstly, the state’s managerial capacity is widely questioned. Analysts say it is to soon to judge whether other companies, such as those in the telecoms and electricity sectors, have actually deteriorated since being brought under state control last year, although there have been no obvious improvements.
Secondly, the move will also put the government’s financial resources under greater strain, and divert funds away from more urgent spending commitments such as health or infrastructure.
Furthermore, even though Mr Chávez assures that the companies will be compensated “to the last cent”, the move sends out a negative signal to investors.
Source: Financial Times
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