Venezuela’s crisis of production
As the country fails to provide enough food staples and other items, imports soar.
CARACAS, Venezuela — Just a decade ago, Venezuela was producing nearly all of the sugar it needed.
But this week, 30,000 tons of Guatemalan sugar is being offloaded at the port city of Puerto Cabello for delivery to government-run supermarkets across the country, where desperate shoppers typically line up for hours to buy basic foodstuffs.
In some ways, the sacks of sugar being lowered on pallets to waiting trucks at Dock 10 symbolize the plight of a country that has seen the production of sugar and other products plummet. Venezuela now imports 80% of all the sugar it consumes, and many economists say 17 years of socialist policies are to blame.
Last year, the country produced 242,306 tons of refined sugar, less than onethird of the 740,000 tons produced in 2006, when the country came close to meeting annual consumer demand of 900,000 tons, according to figures from Fesoca, the Venezuelan sugar trade association.
But 2006 also was the year that then-President Hugo Chavez nationalized 10 of the 16 privately owned sugar refineries and turned them over to worker cooperatives, part of his “21st Century Socialism” agenda. After taking office in 1999 and until his death in 2013, Chavez also seized thousands of acres of sugar cane plantations and made them communal properties.
Comradely gestures to be sure, but sugar production has rapidly declined ever since the seizures. In May, scarcities got so bad that Coca-Cola temporarily suspended production of its popular line of soft drinks, saying it couldn’t buy enough supplies of the industrial sweetener.
Sugar production isn’t the only sector battered by the policies instituted by Chavez and continued under his successor, President Nicolas Maduro. Beef, coffee, toothpaste, auto parts, toilet paper and various medicines are just some of the items that Venezuela once produced on a large scale and that now must be imported to meet domestic demand.
At the same time productivity is plunging, the steep drop in global oil prices over the last two years has cut into revenue on which Venezuela depends for foreign currency and to bolster its budget. As a result, Maduro can’t afford to sufficiently increase imports of basic goods, which have already doubled from the mid-1990s, to meet consumer demand.
The upshot: long lines of shoppers waiting hours outside stores to buy increasingly scarce household items.
Maduro says an “economic war” waged by the United States is to blame. Juan Pablo Olalquiaga, president of Conindustria, the largest trade group of Venezuelan manufacturers, counters that industry has been decimated by nationalizations, government-imposed price and currency controls, and difficulties in obtaining component parts or materials to make things.
The latter factor was cited by Kimberly Clark in July when the U.S.-based company announced it was closing its factory where it manufactured toilet paper, disposable diapers and feminine hygiene products. In a statement, the company said economic conditions in Venezuela made it “impossible” to do business here.
Maduro called the closure illegal and promised to reopen and staff the factory with 1,000 laid-off workers, but analysts were skeptical that the factory would fare any better than the nationalized sugar mills.
Kimberly Clark’s departure follows those of other multinationals since Maduro took office in 2013, including Clorox, Bridgestone, Procter & Gamble, General Mills and Ford, not to mention hundreds of domestic firms. Conindustria estimates that Venezuela has lost 1.2 million direct and indirect manufacturing jobs since 1999.
“Two decades ago, Venezuela had 12,700 industrial companies,” Olalquiaga said. “Only 4,000 are left…. The government of President Maduro has been absolutely incompetent in taking correct policies, and so the deterioration of the few companies left has continued.”
The auto industry has been hit especially hard. According to Cavenez, the Venezuelan automobile trade association, this year Venezuelan assembly lines are on course to produce about 4,000 cars. During the 1980s, Venezuela sometimes averaged more than 200,000 autos assembled yearly.
Minister of Industry Carlos Faria, the Cabinet official in Maduro’s government responsible for managing the supply of consumer goods to the nation, is the latest to occupy the hot seat. His predecessor, Miguel Perez Abad, lasted only seven months on the job, and the minister before him, Luis Salas, one month.
Maduro’s appointment of Abad in January led some to think industrial policies might be redirected to stimulate private investment as a way to restart the country’s poor productivity.
But his abrupt firing Aug. 2, after making statements that seemed to presage free-market-friendlier policies, put an end to such predictions. Abad had favored liberalizing Venezuela’s currency laws and said in May that the government would cut down on imports so it would be able to pay its debts.
Maduro has hosted conferences with government officials and business leaders to attempt to “reactivate productive motors” and called on entrepreneurs to “break their piggy banks and bring your dollars.” But critics say he has done little to rectify the effects of nationalizations, price controls and scarcity of spare parts.
So, any short-term reactivation of Venezuelan industry is a long shot, and the economy could take years to recover.
The International Monetary Fund expects inflation to reach 700% this year and the economy to shrink by 10 percentage points. The government will be hard pressed to pay $10 billion in foreign debt obligations this year.
Meanwhile, Maduro’s Cabinet ministers accentuate the positive.
“Everything we have recovered is in the hands of the people,” said Oil and Mining Minister Eulogio Del Pino, another Maduro loyalist. “No steps backward.”