The economic context of Venezuela

Economic Indicators

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Endowed with the largest oil reserves in the world, Venezuela is largely dependent on fluctuations of oil prices. The country had a 6% growth of GDP in 2022, due to the increase in oil prices and the recovery in the level of remittances sent to the country by Venezuelans abroad. According to the IMF, the country should record a growth of 6.5% for 2023 and 0% in 2024. The country has been in a deep recession since 2013 and, according to the IMF, Venezuela’s GDP contracted more between 2013 and 2018 than the United States did during the Great Depression of 1929-1933.The GDP per capita nearly halved between 2019 and 2021, going from USD 2,299 to USD 1,627, and should continue down the same trajectory in the short term.

The country's industrial activity continues to suffer from insufficient diversification and difficulties to import intermediate products. The policy of redistribution of the petroleum through social measures was impeached by the weakness of the oil prices, in strong decline since 2012. This reinforced the macro-economic imbalances that Venezuela suffers from. According to the Central Bank of Venezuela, the country's hyperinflation went from 686.4% in 2021 to 210% in 2022, demonstrating a deceleration of consumer price growth thanks to inflation control measures but in place by the government, which include the restriction of credit and lower spending in bolivars to maintain the stability of the exchange rate. The hyper-inflationary climate was created by several years of monetising the public deficit, a free-falling currency that makes imports more expensive, a strong depreciation of the currency in both the official and black markets and dramatic shortages of basic goods. The central bank’s policy of reducing the money supply is not expected to help reduce hyperinflation sustainably, as it does not address the economy’s key imbalances. Despite multiple minimum wage hikes decided by the government, real wages have been continuously decreasing, and household consumption is highly dependent on remittances from expatriates. As a result, growth in the host countries of Venezuelan expatriates, such as Colombia, Spain, the United States, increased remittance flows in 2022, supporting some recovery in household consumption. According to the latest available data from the IMF, public debt rose stood at 240.5% of the GDP in 2021. While the government has implemented a series of fiscal measures to mitigate the impact of the pandemic, the country was already facing significant social and economic issues before, so the impact of COVID-19 on Venezuela compounded on preexisting issues of economic instability, and health and food insecurity and recovery has been slow.

In Venezuela, even though minimum wage has been increased numerous times over the past few years, wage increases have not been following inflation. Therefore, purchasing power is weak and has greatly decreased in recent years; poverty has increased and the health system is in critical state. The unemployment rate has been rising for years, and the IMF estimated that this rate has surpassed half of the Venezuelan workforce. Nevertheless, the state has not released an official unemployment figure since 2016, when it claimed it was 7.3%. Furthermore, the country also faces a rise of insecurity, with the highest homicide rate in South America. Because of the country's current economic situation, there are severe shortages of basic goods, such as food and medicine - with Venezuela being among the countries with the highest rates of food insecurity in the world. As such, neighbouring countries have been receiving a large number of Venezuelan migrants and refugees in recent years, with estimates suggesting that over 6 million people have left the country so far.

Main Sectors of Industry

Compared to other Latin nations, Agriculture has a smaller contribution to Venezuela's economy. The agricultural sector represents 5% of the Venezuelan GDP and employs 7.9% of the active population. The main agricultural products of the country are corn, soy, sugar cane, rice, cotton, bananas, vegetables, coffee, cocoa, beef and pork meat, milk, eggs and fish. However, Venezuela enjoys important natural resources, such as petroleum (their main natural resource), gas, gold and silver mines, bauxite, and diamonds. According to the OPEC, the country’s proved resources in petroleum would reach 302,809 million of barrels which puts it at the first place in the world in front of Saudi Arabia. Actually, despite a continuous decline of the petroleum production for the past few years, Venezuela remains largely dependent on revenue from petroleum, which accounts for nearly all of its earnings from exportation and for almost half of the government’s revenue. In 2022, the country agricultural production increased, especially that of corn, rice, and coffee.

The industrial sector represents 37.2% of the GDP and employs 15.3% of the active population. The main industrial activities revolve around the petroleum sector - which is controlled by a State company, and represents the first natural wealth of the country. Additionally, other important industries are construction equipment, food, textile, iron, steel, aluminium and engine parts assembly. However, due to the State control over the country's currency and prices, local industries have encountered difficulties to acquire the necessary goods to maintain operations or to sell goods with profit on the local market. Still, 2022 saw a positive performance of the industrial sector, mainly led by machinery, chemicals, metal, plastic, textile, leather, and food production.

The service sector represents 51.7% of the GDP and employs 76.8% of the active population, making it a major source of revenue and jobs. The sector includes banking and finance, real estate, education, medicine, governmental agencies, hotels and restaurants, as well as entertainment. Together, these activities represent more than two thirds of the total employment in Venezuela. Although the COVID-19 crisis negatively impacted the Venezuelan economy as a whole, the services sector was hit the hardest, and it's still feeling the impacts of the pandemic.

 

Breakdown of Economic Activity By Sector	Agriculture	Industry	Services
Employment By Sector (in % of Total Employment)	7.9	15.3	76.8
Value Added (in % of GDP)	5.0	37.2	51.7
Value Added (Annual % Change)	-4.6	-5.8	-0.4

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:

24,7/100

World Rank:

177

Regional Rank:

32

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:

3.09/10

World Rank:

82/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025

 

Sources of General Economic Information

Ministries

Ministry of Economy, Finance and Foreign Affairs (in Spanish)
Ministry of Foreign Affairs (in Spanish)
Ministry of Petroleum (in Spanish)
Ministry of Planning (in Spanish)
Ministry of Industries and National Production (in Spanish)

Statistical Office

National Institute of Statistics (in Spanish)

Central Bank

Central Bank of Venezuela (in Spanish)

Stock Exchange

Caracas Stock Exchange (in Spanish)

Economic Portals

Business News Americas