Venezuela country brief
Australia-Venezuela relations
Australia and Venezuela have cordial relations with modest commercial cooperation.
The Australian Embassy in Santiago is responsible for Venezuela. Venezuela has an Embassy in Canberra.
Political overview
Background
The Spanish expedition led by Alonso de Ojeda in 1499, which sailed along the northern coast of South America, gave the name Venezuela (“little Venice” in Spanish) to the Gulf of Venezuela because of its similarity to the bay of Venice.
Spain colonised the north-east coast of Venezuela from 1521. Caracas was established as the capital of the province in 1577, which came under the jurisdiction of the Viceroyalty of New Granada (modern Colombia).
Independence from Spain was declared on 5 July 1811, when the area was included in the Republic of Gran Colombia, with Ecuador, Panama and New Granada. Venezuela seceded from Gran Colombia in 1830.
Venezuela is a federal republic, made up of 23 states, one Capital District (Caracas) and the Federal Dependencies (Venezuela's islands in the Caribbean Sea and the Gulf of Venezuela).
Under the 1999 Constitution, the Venezuelan government consists of a democratically elected representative system with a strong executive. The president, who is head of state and head of government, is elected for a period of six years (previously five).
Venezuela has a unicameral parliament known as the National Assembly and is comprised of 165 seats,, with members elected for five-year terms. in 2009, the Venezuelan constitution was amended by national referendum to remove term limits on all elected officials, including the presidency.
Along with a number of other countries in Latin America, in 2010 Venezuela celebrated its bicentenary of independence from Spain.
Recent political developments
Hugo Chávez, who was elected President of Venezuela for a third 6-year term in the October 2012, passed away on 5 March 2013.Chávez was President from 1998-2000 before amending the constitution to extend presidential terms to six years and allow for re-election.
After winning 55 per cent of the vote and defeating the main opposition contender, Henrique Capriles, Chávez was subsequently hospitalised in Cuba for on-going cancer treatment, and was not able to attend the formal inauguration scheduled to take place in Caracas on 10 January.
New presidential elections took place on 14 April 2013. Chavez’s preferred successor, Vice President Nicolas Maduro, ran as the candidate for the ruling Partido Socialista Unido de Venezuela (PSUV) against Capriles, and won by a narrow margin (50.7 per cent to Capriles’ 49.1 per cent). Maduro was inaugurated on 19 April, amidst calls for a recount by the opposition Mesa de la Unidad Democratica party. However, the result has been verified by Venezuela’s electoral authority (Censejo Nacional Electoral) and accepted by the international community.
International relations
Chávez made deep changes to Venezuela's foreign policy and relations with other countries. He identified with the ‘global south' favouring not only a fundamental shift in international political economy, but also the re-emergence of a multipolar world order to constrain the United States. His views manifest from time to time in vitriolic criticism of the US's role in Latin America, especially in relation to Colombia where the United States strongly supports the campaign against FARC, the leftist guerrilla group.
However, Venezuela has played an important mediating role in peace talks between Colombia and FARC, and the relationship between the two countries have improved considerably since their diplomatic standoff of 2010.
Chávez strengthened relations with many of Latin America's left-leaning administrations, including Bolivia, Ecuador and Nicaragua and Cuba, through the creation of the Bolivarian Alliance for the Peoples of Our America (ALBA). It was proposed by Chávez as an alternative to the Free Trade Area of the Americas (FTAA), based on cooperation through social, political and economic integration of these like-minded countries.
Chávez also sought to deepen Venezuela's foreign and strategic relations with states not allied to the US, such as China, Russia, Vietnam, and Iran. Evidence of this includes Venezuela's offer of support to Russia during its 2008 war against Georgia in South Ossetia and Abkhazia. China has been an important source of financial capital for Venezuela, to the amount of US$32 billion since 2007, according to recent estimates.
Chávez also publicly supported Iran's nuclear program, by claiming that Venezuela would ‘not be indifferent' should a pre-emptive attack be launched against Tehran. In addition to closer political ties, Venezuela has materially benefited from its strategic relationship with Russia. Since 2006, Venezuela has purchased around US$5billion in Russian defence technology, including the building of a factory to manufacture Kalashnikov rifles and conducted joint military exercises with the Russian navy.
Economic overview
At a glance
For latest economic date refer to the Venezuela fact sheet [PDF 29 KB].
Policy directions
Venezuela's economy is largely based on its petroleum sector, which accounts for roughly a third of the country's GDP and over 90 per cent of its export earnings. Like other oil-dependent economies, Venezuela suffered from the rapid reduction in the price of oil compounded by the global financial crisis and remains susceptible to international volatility.
Venezuela has also experienced high inflation. The government introduced a new currency in January 2008, known as the bolivar fuerte, to replace the old currency, known simply as the bolivar, at a rate of 1 bolivar fuerte = 1000 bolivars to deal with the rampant inflation. In 2012 inflation was 20 per cent as a result of deteriorating domestic productive capacity and tight currency restrictions.
In a bid to reduce Venezuela’s dependence on imports and improve the country’s fiscal position, the government has undertaken several currency devaluations since January 2010. The most recent devaluation took place in February 2013, from 4.3 bolivares to 6.3 bolivares to the US dollar. This was praised by the International Monetary Fund (IMF) as an important measure to reduce the country’s macroeconomic imbalances, particularly its fiscal deficit of 16 per cent of GDP. However, the devaluation will increase the cost of imports, putting pressure on domestic industries (particularly pharmaceuticals) and raise food prices and associated government food subsidies.
Due to Venezuela's dependence on oil revenue, the focus of the Chávez government's economic strategy was to increase this by controlling output, working primarily through OPEC and other oil-producing allies.
In an effort to reduce reliance on oil, the Chávez government also worked to promote growth and diversification of the economy by implementing major tax incentives for small- and middle-sized enterprises in the manufacturing, commerce and service sectors, so as to boost employment in the most economically depressed states. President Chávez has also expressed a desire to reinvigorate labour-intensive, non-oil sectors of the economy, in particular tourism, agriculture and small business. Restoring and sustaining investor confidence remains an important issue. However, given the challenging operating environment and continuing uncertainty over contract and property rights, restoring investor confidence in Venezuela is unlikely to occur in the near term.
In July 2012, Venezuela joined Mercosur — the Southern Common Market formed in 1991 between Argentina, Brazil, Paraguay and Uruguay. Venezuela’s membership of Mercosur expands the market to 269 million people with a gross domestic product worth US$3.3 trillion, 76 per cent of South America's GDP.Economic outlook
Venezuela's main source of income continues to be Petróleos de Venezuela (PDVSA), the state-owned oil company. Its revenues gave Chávez the ability to fund his sweeping social reforms such as free health-care clinics, discounted food centres in poor areas and university and education programs.
Venezuela was hit hard by the global financial crisis, with GDP contracting 3.2 per cent in 2009 and 1.5 per cent in 2010. Venezuela’s economy grew by 5.6 per cent in 2012, but is forecast to grow by only 0.4 per cent in 2013.high inflation, falling public expenditure due to volatile oil prices, a weak investment outlook and deteriorating infrastructure are contributing factors to this slowdown.
The United States is PDVSA’s main full cash export market. Most other exports go to political allies that receive oil shipments on long-term credit agreements at concessionary interest rates (such as Nicaragua or Cuba), or constitute payments for previously received loans (as in the case of China). Also, while Venezuela boasts one of the region's more developed physical infrastructures, the quality has deteriorated in recent decades because of underinvestment—in spite of a prolonged oil bonanza—stemming largely from a lack of effective administrative capacity. This has been most evident in the electricity sector, where a failure to invest in extra capacity and in improved distribution networks has left the country facing constant rationing, but also in the deteriorating quality of roads and ports.Bilateral relationship
The Parliamentary Secretary for Foreign Affairs, the Hon Richard Marles MP, visited Venezuela in January 2012.
Bilateral economic and trade relationship
Bilateral trade is modest, although businesses continue to explore possibilities for expanding commercial interaction, particularly in the mining, agriculture and maritime sectors. Two-way trade was A$11.8 million in 2012. Australian exports to Venezuela totalled A$11.1 million in 2012, consisting mainly of medicaments (including veterinary) and motor vehicle parts and accessories. Imports to Australia from Venezuela were A$0.7 million, consisting primarily of alcoholic beverages.
Economic opportunities
The mining industry offers some potential for Australian involvement. Despite abundant mineral wealth and some of the world's largest reserves of iron ore, aluminium, nickel and gold, Venezuela's mining industry is underdeveloped and accounts for less than one per cent of GDP. The government has identified the mining industry as a key sector in the diversification of the economy away from petroleum, particularly as a source of export revenue and inputs for domestic industry.
Excel Mining and RFC Finance Corporation are involved in two mining projects in Venezuela: a diamond project in the Guaniamo region and the Cosila coal mine.
A significant Australian investment in Venezuela is Orica's joint venture with Venezuela's Grupo Merand in two explosives manufacturing projects. One project involves an existing plant that supplies on-site bulk explosives for a large coal mining facility in western Venezuela. In the other, Orica Venezuela upgraded an existing packaged explosives plant and operates it on behalf of its owner, CAVIM, the state-owned military industries company.
However, the government's action to nationalise strategic industries in addition to banks and food producers that do not comply with government regulations may give rise to sovereign risk concerns. Government policy is favouring ties with state-owned firms linked to governments that are either close allies of the Chávez administration or countries the administration wants as allies. The imposition of foreign-exchange controls requires all persons in Venezuela to obtain government approval to send any funds overseas. The difficulty in receiving payment in foreign currencies such as $US or the Euro has discouraged many small to medium sized Australian companies from exporting to Venezuela.
Updated April 2013