Foreign direct investment (FDI) in Venezuela

FDI in Figures

Despite the attractiveness of the country due to its petroleum manna, the size of its national market and the wealth of natural resources, the FDI flow towards Venezuela has decreased in the last years due to the country's political and economic instability. According to UNCTAD's World Investment Report 2022, the country recorded a decrease in FDI inflows in 2021, reaching USD -761 million, compared to USD -456 million in 2020. Furthermore, the total stock of FDI was estimated at USD 21.1 billion in 2021. As for Greenfield Investments, they amounted to USD 5 million in 2021, a significant drop from the total recorded in previous years USD 774 million in 2019 and USD 43 million in 2020). The climate of uncertainty arising from the “Bolivarian” reforms (violation of the private property rights, currency control, increasing regulation, nationalisations, etc.), the inefficiency of the port system, and the fall of petroleum prices (96% of currency entries) are all obstacles to investment. Venezuela’s government keeps balancing regional and revolutionary policies, without closing the door to foreign investments which it is in dire need of. Nevertheless, “Bolivarian” socialism put in place by the government, mostly interventionist, does not allow the flow of FDI to develop and fulfil the country’s potential. A law of 2014 on foreign investments reduces the statutory rights of foreign investors compared to the previous regime.

According to the Economist Business Environment, Venezuela ranks 82 out of the 82 countries reviewed for their investment climate. That's because while Venezuela has the world's largest oil reserves and a strategic geographical location, the country also has the highest inflation rate in the world, endemic corruption, high levels of poverty and violence, economic and political instability, government intervention, and a restrictive legal framework. Additionally, the judiciary is highly politicised and is often influenced by the executive branch, and even though Venezuela’s legal system is open to FDI, it is manipulated by the executive branch. For that reason, FDI in Venezuela has been significantly lower in recent years in comparison to the majority of Latin American nations. Furthermore, numerous multinational companies (including United States’ General Mills, General Motors, Kimberly-Clark, Exxon Mobil, Bridgestone Firestone, Kellogg’s, United Airlines, and Delta Airlines) left the country in recent years, to sell their assets at a low price or gave them up completely. Around 150 multinational companies maintain their presence waiting for an upturn. They have interrupted or reduced their production and laid-off workers while continuing to provide them with a minimum wage and, in numerous cases, meals.

What to consider if you invest in Venezuela

Strong Points

Apart from the extremely tense political and social situation, Venezuela's economy can rely on certain strengths:

• Abundant nature reserves, in particular the oil sector. Venezuela has the world's largest oil reserves.
• The announced privatisation of ports and airports, a business opportunity for foreign investors
• The adoption of production assistance policies has given new impetus to the agri-food industry (coffee, tropical fruits, rice, tobacco, cocoa, alcoholic beverages), as well as to the automobile industry and audiovisual production.
• The strategic geographical location between the Caribbean and South America
• A young low-cost labour pool

Weak Points

Development interventionist policies set up by the various governments of the last decades has resulted in a commercial environment that is not attractive to foreign investors. Therefore Venezuela has many obstacles to attracting foreign investors:

• Highest inflation rate in the world (6 500% in 2020 - IMF)
• High risks corruption and a deep-rooted informal sector
• The high unemployment rate, resulting in poverty and violence
• State revenues highly dependent on oil exports (which account for 95% of export profits in 2021, according to Euler Hermes)
• The persistent political instability that impedes business confidence
• Political and social insecurity resulting in one of the highest crime rates in the world
• Fast decrease in foreign exchange reserves regardless of exchange controls, leading to shortages, especially of basic commodities.

The country's economic situation is clear: the World Bank's Doing Business ranks 188th out of 190 countries ranked for the quality of its business environment.

Government Measures to Motivate or Restrict FDI

Venezuela has adopted Decree 2095 on foreign investment, which is encouraged and protected by a new legal framework. In addition to this, there is a policy supporting manufacturing that is potentially good for exports. The government also gives fiscal bonuses, ranging from tax exemptions to special credit treaties, in order to encourage investment in the so-called "strategic" sectors, or in order to stimulate the establishment of businesses in the country's five least developed states.

The Constitutional Law of Productive Foreign Investment is in place since 2017, this norm aims to regulate everything related to foreign investment in the country and to promote a productive and diversified contribution of foreign origin that participates in the development of the existing productive potential in the country.