Why Venezuela now has 526 state-owned companies, up from 34 in 1999
By Carlos Camacho
CARACAS -- Dairy maker Lacteos Los Andes was taken over by the government of Hugo Chavez with great fanfare in 2007.
The company, the leader in its field of milk production, was deemed strategic by the late Venezuelan President and the nationalization was announced on live television as a great achievement.
Nowadays, the company has more than doubled its employees but milk and other products are scarce, since production has fallen by 33%. Workers however are expected to remain faithful to “el proceso”, the Bolivarian Revolution that began in 1999 and continues to this day under Nicolas Maduro.
Now imagine that example repeated 526 times and you begin to understand why Maduro broke Chavez’s old records in 2015, when he created 47 of those companies. And to think the country only had 34 state-owned companies, including PDVSA, in 1999, according to a report on state owned companies presented Thursday by the Venezuelan chapter of international transparency think-thank “Transparencia Venezuela”.
Venezuela has 10 times more state-owned companies than Argentina, one of the largest economies in the planet, which has only 50-something, and almost five times more than Brazil, the giant across the border, which has only 130 state companies.
Mind you, those 526 companies do not include smaller concerns owned by
“We see a pattern to this behavior, in the interest (by the government) to take over companies and to partake in every productive sector and that is an intentionality to control. Political, economic and social control. And they are using companies from the alimentary sector to achieve that political control. Food is being used as a tool to manipulate society”, Cristina Rangel, the lead economist in the report, said.
Venezuela has more than 3 million public-sector workers, around 10% of the nation’s total population. IN a country with unemployment of around 10% and where 75% of all workers make minimum wage, the influence of the state as an employer cannot be exaggerated enough.
‘We see the payrolls for these companies being used to increase the number of political militants for the ruling party”, Mercedes de Freitas, head of “Transparencia Venezuela”, told reporters. “Production drops but the payroll shoots up once they are taken over by the state”.
The companies are not only inefficient, or their products used as subjugation tools. They are also powerful in a very real sense: Having access to hard currency at a preferential exchange rate has given them “immense power” in
Venezuela, which imports more than 90% of all its food, Rangel says.
“They have the monopoly for hard currency that has allowed them to agglutinate immense power”, is how Rangel describes it. Venezuela has currency exchange controls since 2003: nowadays practically only state-owned companies get dollars.
“In terms of margin, the arbitrage you can make by buying US Dollars at Bs 10 and selling them in the black market at the parallel exchange rate of Bs 27,000, well, that margin is only seen in drug trafficking, not even”, De Freitas said.
Non-food state companies, no matter how crucial to the country’s economy, have seen their production drop even more dramatically. Even state oil company PDVSA has seen its output fall to under 2 million oil barrels a day nowadays from slightly under 4 million b/d in 1999. And PDVSA was state-owned since its creation in 1976 to this day.
“That pattern (drop in productivity) is repeated in almost every company but for me the most dramatic decline is in Sidor. In certain products such as beams, wire and rods, production has fallen by 100%,” Rangel says.
Steel and steel products maker Sidor began as a state owned company in the 1970’s. In 1997 it was privatized, taken over by an Argentine company. “It was doing well, but it really improved with that privatization”, Rangel said
Nowadays, its production has declined to an all-time low.
And that fact, in itself, is an extremely worrying message for the Bolivarian socialists: the private sector can do it better.