VENEZUELA Country Profile

General Information

Political Climate


Venezuela has for decades been characterised by great social inequality and rampant corruption, which have periodically led to a popular disillusionment with politics. This situation formed the basis for the election of President Hugo Chávez Frías in December 1998 on the promise of massive social reforms, nationalisation of strategic sectors, fighting corruption and a rapture with the long-ruling political elite, infamous for its interlocking system of privileges. Chávez's controversial policy of '21st century socialism' has led to radical political and social changes. Political unrest and deep social cleavages between supporters and opponents have been characteristic of Chávez's time in office. As a result of an opposition election boycott in 2005, all seats in the National Assembly are held by pro-Chávez parties. His government controls the legislature, judiciary, the state oil company and the majority of state governments. Chávez remains very popular among the poor majority of Venezuelans, mainly because of his social programmes aimed at helping Venezuela's poor. On the other hand, he is extremely unpopular among the Venezuelan elite and business community. The main private sector association, Fedecamaras, is vehemently opposed to the Chávez administration and played a leading role in the mobilisation of anti-government protests in 2001 and a coup attempt against Chávez in April 2002. The opposition accuses the government of being undemocratic, disrespecting private property rights and inhibiting freedom of speech.

Public opinion concerning the level of corruption and the effectiveness of government anti-corruption efforts are fairly mixed in Venezuela. Transparency International's Global Corruption Barometer 2009 reports that two out of three respondents consider the government's efforts to fight corruption to be ineffective. Latinobarómetro 2008 (see English version) reveals that public distrust in the political system is very high. For example, public officials in Venezuela are believed to be highly corrupt, and the majority of respondents believe that the occurrence of corruption is more prevalent in the political system than in the general society. On the other hand, it also reveals that 39% of respondents believe that there has been 'some' or 'much' progress in fighting corruption and that the government's efforts to fight corruption are effective. Hence, Chávez's strong rhetoric against corruption seems to have had an effect on Venezuelans' perception of the problem: while most perceive the level of corruption to be an increasingly pervasive problem in the country, they also perceive government anti-corruption efforts and institutions as positively affecting the situation. Still, however, petty corruption is a large problem in the country, and both Latinobarómetro 2008 and the Global Corruption Barometer 2009 reveal that Venezuela ranks among the countries in the region where most households have been victim to corruption themselves.

Corruption is a significant problem in Venezuela, and a systemic culture of corruption exists at most levels of society. At state level, an increasing overlap between Chávez's United Socialist Party and the state has led to the abuse of public resources for electoral campaigns, as reported by the Bertelsmann Foundation 2010. Freedom House 2009 also points to the non-transparent administration of state resources when reporting that several large development funds are controlled by the executive branch without any oversight. According to Global Integrity 2009, the Comision Permanente de Contraloria, which has the power to provide oversight of public funds is controlled solely by the ruling party.

However, the fight against corruption is on the political agenda in Venezuela. Since his inauguration, Chávez has openly declared a zero tolerance policy towards corruption, which has been demonstrated by several public initiatives. His administration has passed an Anti-Corruption Law (in Spanish) in 2003 and established a number of agencies that are mandated to deal with corruption, gathered under an umbrella institution called Poder Ciudadano (in Spanish). However, despite the agencies' formal independence, the government has been criticised for interfering in their affairs in order to secure political support, and for using them as tools to investigate and prosecute opposition members. An example of this is the accusation by the Public Prosecutor's Office in March 2009 of former presidential candidate and mayor of Maracaibo, Manuel Rosales, for corruption and illicit enrichment. According to several sources such as Herald Tribune and Reuters, thousands of opposition supporters protested in Maracaibo against the attempt to arrest the opposition leader, claiming that it was a case of political persecution. Rosales fled to Peru where he was granted political asylum in May 2009. In June 2008, the opposition protested in Caracas after a top anti-corruption official unveiled a blacklist of people, primarily of opposition members, under investigation for corruption. The list could be used to bar key opposition candidates from running in future elections. However, critics claim that the ban is unconstitutional, as none of the individuals on the blacklist have been convicted of a crime. Incidents like these have made the opposition claim that the government uses its institutional anti-corruption set up to dispense with political opponents.

Business and Corruption

The management of Venezuela's oil wealth has been a dominant economic and political issue for most of the past 100 years. Venezuela has a huge investment and economic growth potential and its natural resource wealth has made it an attractive place to invest. Officially, Venezuela welcomes foreign investment and provides equal treatment to local and foreign companies. Nevertheless, political and regulatory uncertainty has seriously weakened Venezuela's capacity to attract foreign investment, as reported by companies in the World Economic Forum Global Competitiveness Report 2009-2010. Other factors too, such as heavy bureaucracy and corruption, inhibit the business climate and should be noted by investors considering doing business in Venezuela.

Companies operating in Venezuela have experienced a change in conditions under Chávez's presidency. After his re-election in late 2006, Chávez proclaimed that he would accelerate the drive towards '21st century socialism' by further nationalising the economy, and according to US Department of State 2009, some of Chávez' reforms have led to reduced property rights. The Bertelsmann Foundation 2010 do also state, that property rights are not protected sufficiently in Venezuela, as the government has started taking over so called 'strategic interests' of the people, such in the areas of food production, processing and distribution, construction materials, utilities, media, telecommunications, buildings, real estate and hotels. Acting in 'the people's interest' the government requires no proof in order to seize private goods. Private investment has generally been deterred by this uncertain legal and regulatory framework, although many companies with existing investments in Venezuela have been recording high profits thanks to high economic growth. The current government's emphasis on nationalisation has led several observers to conclude that the business operating climate has worsened and is continuing to do so. However, other economic observers, such as Bloomberg News, commenting on Venezuela's increasing dependence on oil revenues argue that due to the falling oil prices attributed to the global economic slowdown, Chávez may consequently be forced to relax his ambitions of further nationalisation of strategic sectors. He may also have to open the doors for foreign investors to attract investments if the current crisis prevails.

Access to foreign exchange is a major barrier to trade in Venezuela. Foreign exchange control is administrated by the Foreign Exchange Commission (Comisión de Administración de Divisas - CADIVI), which authorises the purchase and sale of foreign currency. The Transparency International Global Corruption Report 2009 reports that the government's management of foreign currency makes access to foreign currency a cumbersome bureaucratic process. Applicants fulfilling all the requirements to obtain foreign currency, might still have their application denied and there are no appeal mechanisms. The same report also reveals that CADIVI's officials allegedly request illegal commissions of up to 30% of the total value of the currency request in order to speed up the process.

Several sources indicate that corruption is a key constraint for doing business in Venezuela. In Transparency International Global Corruption Barometer 2009, the private sector scores 3.5 on a 5-point scale (1 being 'not at all corrupt' and 5 'extremely corrupt'). According to the World Bank & IFC Enterprise Surveys 2006, 40% of the companies surveyed identify corruption as a major constraint to doing business. They also cite transport security, customs and ports as serious problems for their business activities. Corruption and heavy bureaucracy combined with political, policy and social instability make Venezuela an uncertain place to do business. According to Transparency International Venezuela (in Spanish), competitive bidding in public procurement processes might be infrequent, as the law governing public procurement includes many exceptions to the principle of open tender. The US Department of State 2009 reports that a great majority of public contracts are awarded without open competition and Global Integrity 2009 states that political considerations prevail in most procurement cases. Foreign investors considering establishing themselves in Venezuela are generally advised to consult with experienced attorneys, to develop, implement and strengthen integrity systems, and to carry out extensive due diligence before committing funds or when already doing business in the country.

Regulatory Environment

The World Economic Forum Global Competitiveness Report 2009-2010 reveals that the regulatory environment in Venezuela constitutes a significant burden for companies. Apart from policy instability, the surveyed companies ranked foreign currency, inefficient government bureaucracy, as well as restrictive labour regulations as some of the most problematic factors for doing business in Venezuela. Freedom House 2009 additionally reports that the Chávez administration has done little to cut down on bureaucratic regulations or registration and licensing requirements. Complicated and sometimes contradictory regulations foster inconsistencies in public officials' interpretations and applications thereof. Global Integrity 2009 reports that due to the often very time-consuming process of obtaining licenses, many companies resort to irregular methods in order to shorten the waiting time and hire an agent, a so-called 'gestor', with connection to decision-makers. Compared to the regional averages, starting a company and obtaining business licences in Venezuela can be very time-consuming and bureaucratic. According to the World Bank & IFC Doing Business 2010, it takes an average of 141 days and 16 procedures to start a company in Venezuela. However, the process is relatively inexpensive and no minimum capital is required. According to the World Bank & IFC Enterprise Surveys 2006, almost 34% of senior management time is spent dealing with regulatory requirements and 34% of the surveyed companies identify licensing and permits as a major constraint for doing business.

According to the US Department of State 2009, the Venezuelan Constitution of 1999 (in Spanish) governing foreign investment in Venezuela generally give equal treatment to local and foreign companies, except in certain sectors, such as media, engineering and pharmacy, in which Venezuelan nationals or the state must hold at least 80% of the equity. Nationalisation of all important economic sectors of society is a high priority for the Chávez administration, and several sectors have already been subject to the nationalisation reform, most importantly the oil sector. The Hydrocarbons Law (in Spanish) ensures that all oil production and distribution activities are the domain of the Venezuelan state. As a result, foreign companies already operating in this sector in 2001 had their operating agreements and licences invalidated, and royalties for certain projects were raised considerably. One example would be the many Orinoco crude oil projects for which royalties were raised from 16.6% to 33.3%, as reported by The New York Times. In 2005, companies with operating contracts were informed that they had to convert the contracts into joint ventures that conformed to the Hydrocarbons Law. Foreign-owned companies operating in the Orinoco Belt, such as ConocoPhillips, Chevron, ExxonMobil, BP, Statoil and Total were forced into joint ventures with the state-owned oil company, Petróleos de Venezuela, S.A. ( PDVSA) in May 2007, giving it a minimum of 60% ownership. These controversial regulatory measures have led to reluctance on the part of international oil companies to invest further in Venezuela. Foreign companies considering investing in Venezuela are advised to contact the Venezuelan Council for Investment Promotion (CONAPRI - Consejo Nacional de Promoción de Inversiones), which is a private non-profit organisation providing relevant information on investment legislation, registration requirements, visas and licences.

Protection and enforcement of Intellectual Property Rights in Venezuela is often criticised by IPR advocates and pirated products are freely available throughout the country. In 2008 the Industrial Property Law of 1955 was resurrected. The law expressly prohibits IPR for pharmaceuticals, foodstuff and other products. Since 2005 Venezuela is listed in the US Special 301 "Priority Watch List". Venezuela's legal system is accessible to foreign entities seeking to resolve investment disputes and foreign investors may pursue property claims through the legal system. US Department of State 2009 reports that while the legal system is often slow, inefficient and corrupt, foreign entities do not generally suffer discrimination in legal proceedings. Venezuela is a member of the International Centre for the Settlement of Investment Disputes (ICSID) and the New York Convention of 1958; however, there are special regulations that define which arbitration body Venezuelan state-owned companies can use. For instance, the 2001 Hydrocarbon Law prohibits the PDVSA from entering into agreements that provide for international arbitration. Access the Lexadin World Law Guide for a collection of legislation in Venezuela.