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General market information

An overview of the Venezuelan Petroleum, Trade, Manufacturing Agriculture and Labour and Infrastructure sectors.

Petroleum and Other resources

Economic prospects remain highly dependent on oil prices and the exportation of petroleum. In 2004, the oil sector accounted for roughly a quarter of GDP, 85% of export earnings, and about half of the central government's operating revenues. Venezuela remains the fourth-leading supplier of imported crude and refined petroleum products to the United States. Even as oil prices have increased in 2004, the Venezuelan government has sought more income from the petroleum sector. The most prominent example was a decision in late 2004 to increase the royalty rate on production from the Orinoco heavy crude 'strategic associations' with international oil companies from 1% to 16.67%.

The Government of Venezuela had historically opened up much of the hydrocarbon sector to foreign investment, promoting multi-billion Dollar investment in heavy oil production, reactivation of old fields, and investment in several petrochemical joint ventures. Almost 60 foreign companies representing 14 different countries participate in one or more aspects of Venezuela's oil sector. On November 13, 2001, under the enabling law authorized by the National Assembly, President Chavez enacted the new Hydrocarbons Law, which came into effect in January 2002. This law replaced the Hydrocarbons Law of 1943 and the Nationalization Law of 1975. Among other things, the new law provided that all oil production and distribution activities were to be the domain of the Venezuelan state, with the exception of the joint ventures targeting extra-heavy crude oil production. Under the new law, private investors cannot own 50% or more of the capital stock in joint ventures involved in upstream activities. The new law also provides that private investors may own up to 100% of the capital stock in ventures concerning downstream activities, in addition to the 100% already allowed for private investors with respect to gas production ventures, as previously promulgated by the National Assembly.

During the December 2002-February 2003 general strike, petroleum production and refining by PDVSA, the state-owned oil company, almost ceased. Despite the strike, these activities eventually were substantially restarted. Out of a total workforce of 45,000, 19,000 PDVSA management and workers were subsequently dismissed because the government asserted they had abandoned their jobs during the strike. Current levels of production remain a subject of debate, with considerable difference between the levels cited by the Venezuelan government and those cited by private sector observers. With world oil prices high, there remains significant international interest in investing to develop Venezuela’s oil resources. However, as of late 2004 there have been no major new deals announced under the new Hydrocarbons Law. Venezuela’s Gaseous Hydrocarbons Law provides significantly more liberal terms and two large natural gas projects are in different stages of development.

Trade, Manufacturing and Agriculture

Thanks to petroleum exports, Venezuela usually posts a trade surplus. In recent years, non-traditional (i.e., non-petroleum) exports have been growing but still constitute only about one-fifth of total exports.

Major concern in 2005 has been imports of a large amount of food products to cover needs of newly opened Mercal shops. Mercal are small supermarkets that cover the needs for the poorest in the population. Imports of cheap Brazilian, Argentinan chicken, pork and veal have taken over local production, and ruined a large number of local producers.

Manufacturing contributed 1% of GDP in 2003, though manufacturing output decreased by 8%. The manufacturing sector has been recovering during 2004 and 2005, although it remains hindered by a marked lack of private investment. Venezuela manufactures and exports steel, aluminum, textiles, apparel, beverages, and foodstuffs. It produces cement, tires, paper, fertilizer, and assembles cars both for domestic and export markets.

Agriculture accounts for approximately 4% of GDP, 10% of the labor force, and at least one-fourth of Venezuela's land area. Venezuela exports rice, cigarettes, fish, tropical fruits, coffee, cocoa, and manufactured products. The country is not self-sufficient in most areas of agriculture. Venezuela imports about two-thirds of its food needs.

Labor and Infrastructure

Official unemployment statistics registered 11% in September 2005. Unofficial estimates are significantly higher. The public sector employs about 16% of the work force, while less than 1% work in the capital-intensive oil industry. About 18% of the labor force is unionized, and unions are particularly strong in the petroleum and public sectors. The 'informal' sector accounts for some 47% of the work force, or 4.9 million people.

Venezuela has an extensive road system. With the exception of Air service, transportation has failed to keep pace with the country's needs. Much of the infrastructure suffers from inadequate maintenance. Caracas has a modern subway but only one functioning rail line serves the rest of the country.