Business in Venezuela for Good or for Bad

8/13/2019 Business in Venezuela for Good or for Bad

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Business in Venezuela for good or for bad

By Kerly Siavichay Yagual


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Introduction

There exist several reasons that justify the creation of

new rules or procedure, in order to regulate the functioningof the economy 1 , imposed by the State. Nevertheless the State

always has been criticized by the double morality on having

intervened with policies of economic regulation, which on the

one hand look for a really collective benefit, limiting, in

certain form, to the private sector. On the other hand, when

the regulations 2 concern seriously the private sector, the

State looks for the nationalization, and assumes the functions

of the sector. Focusing on the Venezuelan economic sector, we

can realize that the state has a strong control over most of

the companies that provide higher incomes. After positioning

Nicolas Maduro as President of Venezuela, the National

Assembly passed the so-called "Enabling Act ", which allows

Maduro, govern by decree for one year. During his rule Maduro

has approved a law that increases controls and regulations on

market prices for imported products, like cars, electronic

products, etc. The Organic law for the control of prices,

costs and profits of the private sector according to

1 According to the Organisation for Economic Co-operation and Development(OECD)1997; Economic regulation generally aim to improve the efficiency ofmarkets for goods and services. These are restrictions imposed by the statepower company decision on prices, quantities, and input-output servicesmarket.2 (OECD)1995; the term "regulation" "include in this concept the full rangeof legal instruments through which public institutions at all levels,impose obligations or restrictions on the private sector. They can be

considered as regulation: constitutions, statutes, implementingregulations, decrees, ordinances, rules, licenses, plans, codes and evencertain types of administrative instructions ".


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Venezuelan President has one central objective is to defend

economic liberties and economic rights of the people you work

with. With that, it ensures the protection to "economic

freedoms and economic and social rights of the working

people."

The answer here is: how this regulation can affect the

business in this county? Searching for information on economic

sector in Venezuela, it appreciates that the government

practically dominates all the country economy due to the

seizures of different enterprises. The state oil company,

PDVSA, controls the petroleum sector. Government companies

control the electricity sector and important parts of the

telecommunications and media sectors. In 2008, the government

nationalized cement and steel producers, as well as select

companies in the milk and meat distribution sectors. In 2009

it nationalized assets in the oil (including assets owned by

U.S. oil services companies), chemicals, tourism, agribusiness

(including a processed rice plant owned by a U.S. company),retail, and banking industries. In 2010, the government

nationalized companies in the agricultural and construction

sectors as well as U.S. assets in the petrochemical and

packaging industries. Threats of continuing nationalizations,

as well as other threats to property rights and an uncertain

macroeconomic environment characterized by high inflation and


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foreign exchange controls, have led to reduced space for the

private sector and low levels of private investment. 3

For implement regulations Venezuelan Government is basedon the imperfection of the market and the redistribution of

richness that justified the state intervention in order to

get a national fortune. 4 Thats why the foreign investment is

not attracted to this country. Making business means gets an

advantage from the sales, however, Venezuela President pretend

that companies sell their products in accessible prices,

affecting their incomes because of the payments of different

taxes and quotes.

Other question is: these regulations are made for good or

for bad? According with the investigation the Latin America is

a riskily sector to invest. 5 And Venezuela government wants to

benefice the people that cannot purchase the products in

higher price established by foreign companies. On the other

hand the increasing interventionism of the government, with

regular nationalizations, is obstructing the diversification

of the economy and damage productivity. The fixing andcontrols on prices (for this to be equal to the average cost),

the government releases of the aid to maintain economic

3 All the information about the companies that form part of Venezuelan

Government seizures was taken from: Global Business Knowledge net pagehttp://globaledge.msu.edu/countries/venezuela/economy 4 Roosevelt, (1944) "The really big fortune, the swollen fortune, by the

mere fact of its size, acquires qualities which differentiate it in kind as

well as in degree from what is possessed by men of relatively small means.Therefore, I believe in a graduated income tax on big fortunes." 5 Steve Johnson made an analysis in a web page:

http://www.ft.com/cms/s/0/3ccd9d6e-6965-11e2-8d07-00144feab49a.html#axzz2o6Rvymew


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activity, even if a certain degree of inefficiency remains. It

is a simple and intuitive solution, but that does not

stimulate the production efficiency.

By the end of the 1980s, the structure of different

economic sectors as banks, mining, even manufacturing, were

dominated by thousands of small firms in the private sector

and a few hundred large, mainly public-sector, enterprises.

For these reasons governments also had established specialized

institutions to propel the development of agriculture,

industry, urban areas, tourism, and exports.

Thats why Venezuela became a very nationalistic economic

approach, so if both the Governor seeks to ensure good living

citizens should make the companies of the public sector must

be employed in an efficient way at terms of production,

productivity, quality and costs with the purpose of producing

goods of good quality and of low costs. It should give

subsidies and credits to the small and medium companies. To

raise the productivity and the competitiveness, doing that the

workers and employees are part of the benefits. To createstrategic alliances between domestic and foreign enterprises

to produce and to commercialize national and foreign products.

The changes in regulations could be taken as Economic

Barriers. Nowadays, in Venezuela there are many industries

which are not developed as it should be due to lack of

investment. Furthermore, government in Venezuela has created


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some restrictions and business difficulties according with the

Organic law for the control of prices, costs and profits of

the private sector that do not make this country attractive

to invest.

Conclusion

A constitutional rule of law is not achieved when there

is an obvious inequality in theoretical terms. On the other

hand government intervention and the importance of the

Constitution are not questioned. There is good evidence that

constitutional changes create conditions favorable to economic

growth, although it does not generate an automatic economic

and social improvement of a country. The Venezuelan government

through its policies intended to encourage and strengthen the

economy. "Benefitting" the people, but in turn forcing

companies to lower the prices of their products and limiting

the develop of private sector. Duties affect all industry

sectors, excluding foreign exchange outflow, transfers, sends

or transfers of funds abroad.

Create strategic alliances between domestic and foreign

enterprises to produce and to commercialize national and

foreign products, is an strategy to be a successful country

and expand sales to other countries and increase the national

economy. Thats why the State should support small and medium

companies, in order to increase the employment, revenue and

production. The State must stimulate the development of the


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scientific and technological research that makes possible the

creation of own technology.

Bibliography

1. OCDE (1995): Recommandation du conseil concernant l

amelioration de la qualite de la reglementation

officielle, Pars.

2. OCDE (1997): Reformer la Reglementation environnementale

dans les pays de lOCDE, vol. I. Etudes sectorielles y

vol. II. Etudes thematiques, Pars.

3. Roosevelt, F. 1944. The Second Bill of Rights,proposing.

4. Study Document: La Regulacion Economica el Preblema del

Monopolio Natural.

References

1. Latin America could be risky business By Steve Johnson:http://www.ft.com/cms/s/0/3ccd9d6e-6965-11e2-8d07-00144feab49a.html#axzz2o6Rvymew

2. Venezuela ECONOMY:http://globaledge.msu.edu/countries/venezuela/economyhttp://www.mongabay.com/reference/country_studies/venezuela/ECONOMY.html

3. Maduro anunci la regulacin de los alquilerescomerciales y prohibi transacciones en dlares:http://www.infobae.com/2013/11/29/1527178-maduro-anuncio-la-regulacion-los-alquileres-comerciales-y-prohibio-transacciones-dolares

4. Nicols Maduro anunciar nuevas regulaciones en losprecios de automviles:http://elcomercio.pe/actualidad/1667015/noticia-nicolas-maduro-anunciara-nuevas-regulaciones-precios-automoviles?ref=ecr
http://www.ft.com/cms/s/0/3ccd9d6e-6965-11e2-8d07-00144feab49a.html#axzz2o6Rvymewhttp://www.ft.com/cms/s/0/3ccd9d6e-6965-11e2-8d07-00144feab49a.html#axzz2o6Rvymewhttp://www.ft.com/cms/s/0/3ccd9d6e-6965-11e2-8d07-00144feab49a.html#axzz2o6Rvymewhttp://www.ft.com/cms/s/0/3ccd9d6e-6965-11e2-8d07-00144feab49a.html#axzz2o6Rvymew

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Business in Venezuela for Good or for Bad