Where to invest in a non-emerging economy.
Venezuela a wealthy emerging economy has immense investment opportunities but under the legal, economical and political instability the risk is far too large for most investors. Only those who are courageous and can bear some losses are investing. The main ingredient to invest today in Venezuela is courage and the best asset well informed people. The Country has capacity but its economic activity is restricted at the present time.
To success in business a good market research (location, costs, industry competitors, potential costumers, risks) and a projected cash flow (Internal Rate of Return, Present Value, Time length to repay initial investment). Once confirmed the business opportunity study deeper its legal structure, compare to other rates of return and opportunity costs. Be conscious in time frames, have a long term perspective, monitor your finances, keep updated financial statements. Good management in time will translate into profit to reinvest.
But there are other less vigorous investments, though very limited due to the restriction on the domestic economy, some are:
-Equity. Trading on the net or using brokerage houses. One good advice is to give your investment some time. Don't invest in equities with the intention to pull the money in months but years. Diversification is the tool against risk. The liability is that the actual situation of the Venezuelan capital market has too few outstanding stocks and is highly illiquid. Buying in domestic currency carries inflationary risk, and the only volatile shares seem to be: CANTV, EDELCA, Mercantil Financial Services. A better yet opportunity in the same area are the American Depositary Receipts ADR�s(CANTV, ELDAY), one of the last few ways to acquire US dollars is converting your domestic shares to foreign ADR and selling them, some call it the CANTV dollar. Converting your currency to a stronger one such as de US$ is a vital tool to protect your purchasing power, but is not truly an investment.
A conservative investment is, buying non-deflationary goods, such as commodity contracts or Real State.
-Corporate and Public Debt is nowadays the most widely used option. There are also far too few corporate issuers of commercial papers (those paid within the year) such as EDELCA, PROVENCES and Public Treasury Notes and �Pagar�s� yielding an average of 7% maximum 12%. But our recommendation in the investment category are the instruments of Public Debt (DPN), such as the newly issued VeBono2008 and 2009, Bradys, Global10 and Global27 as the one with the most liquidity and better rate of return. These Government Bonds, used to restructure the Internal Debt, are paying the highest yield. Since the government is playing by far the biggest role in the economy it is understandable that its bonds are the ones traded the most. Some argue the good return of there bonds is due to the long term stronghold that Chavez has had and will have over its government and institutions and other speculate that is due to an eventual disappearance of Chavez from the political picture. The fact remains that an investment in US dollars seems more competitive than in domestic currency.
Once we lived in a LDC, then in an emerging economy. Now we come across new barriers and a shortage of opportunities. The nation situation seems to be reversing, closing its economy; with virtually no investment and disappearance of an infant industry, the governmental common voice doesn�t reveal the underlying circumstances. Worse yet the lack of institutional autonomy and a large unplanned government spending are causes for the immense political risk we pointed out. Still there is hope in our investment scenario, being a wealthy oil producing country as long as the price of such commodity remains picking the Economic Risk of the government to pay its debt remains low. The concern is not economic but political.
On the other hand the managers, investors, private sector, true planners of the future of the nation are getting our hands tied up. But there are still chances in the micro economies and gaps to make fortune at the margin of conventional business.
Some useful links: www.conapri.org , www.bcv.org.ve, www.caracasstock.com , www.bancaynegocios.com , www.activalores.com, www.bbo.com.ve , www.cajavenezolana.com
Venezuela. Macro-Economic Outlook.
Venezuelan macroeconomics are unordinary, more now than ever. This country gifted location provides it with vast energy resources that position it between the wealthiest of the region. Even with production under spare capacity Venezuela should be a good economic performer given the 5 year long oil price boom, on the contrary its Economy is shocking and its perspectives are uncertain.
The management of the economic policies is as appalling as the political transformation. There has been a tremendous fall in productive activity; Central Bank figures real GDP contraction of -9.24% last year, while private consultants� figures can be as high as 16.7% in 2002 and 29% in 2003. The past two years GDP trend has been downward sloping. These sectors have been the most affected: -49.8% in Construction, -23.7% Commercial activity and a -20.5% in Manufacturing. The unemployment index for March is 4, 7 points higher than last years, averaging 19.8%, more astonishing if we consider that the regime is practicing a labor immobility law.
Soft-Line Consultants (Banking specialists) calculate as of February 2003 a Total amount of deposits of Bs.30 billion 775 thousand million (72.68% yearly increase) quite disproportionate in comparison with the Total amount of Credits totallingBs.10 billion 71 thousand million (only just %13.99% yearly increase). Another outstanding figure is the 114,75% rise in the totting up of bonds and stocks investment counting for 17 billion 699 thousand million. This can be explained by large emissions of rentable government papers designed to restructure the internal debt (remember some of these are the only way to acquire US dollars). Therefore the Internal Debt figurers are overwhelming; Bs.2.164.139MM in 1998 while in 2003 was Bs.20.635.099MM. The total of Internal Debt has increase 790% in the last five years. On the other hand the External Debt has been reduced by a 6% to Bs.22.026MM. The stock market closed index close this week at 27000, it averaged 22.203 in 2003, trading few sharers but highest than ever. The banking and financial sector is more regulated everyday day decreasing its intermediation. Interest Rates are at a low (considering inflation) averaging 20% also explained by the tight control, the closing of the economy and the rise liquidity derived from the foreign exchange control. Since 1999 the Capital Account has reflected the capital flees, and the Current Account shows the cuts in oil production, though 2002 and 2003 have been better than 2001. Last year we had the at least double of the inflation than any other Latin-American country totaling 27.10% rate of inflation, followed by Uruguay with 10.19%.
The indicators that remain positive due to regulation and control on currency exchange are the International Reserve funds and the Capital Markets given that there are no real foreign investment opportunities; but the FIEM (monetary stabilization fund) although it grew to a maximum in 2002 is once again at the lowest possible level, this fund was intended to cushion eventual oil price drops.
To conjecture under which assumptions Chavez is basing his economic policies is a hopeless task. The US is the primary market for Venezuelan Oil, as long as Chavez remains fulfilling his quotas the Anti US rhetoric will be tolerated, so bilateral relations are still strong though clouded by chat talk. Even though his disastrous economic policies. If he is able to maintain oil production and resume it to higher levels once its price drops, he can be in for a long term, if he doesn�t become able the exit might be a violent one provoked by the extreme poverty. The hope remains in the total catastrophe of the economy withdrawing the radical Chavez supporters. Rehabilitating the economy Hill will be costly and lengthy.