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Venezuela Economy Choked by Bureaucratic Red Tape

The challenges of doing business in Venezuela

By Sarah Grainger
BBC News, Caracas – 28 October 2011

Hugo Chavez may be a fan of baseball, yet the Venezuelan president’s economic policies have driven many Major League Baseball academies out of his country. However, it’s not just the business of baseball or foreign investors who have to deal with mountains of red tape.

Getting things done in Venezuela can sometimes feel like an uphill struggle.

Some form of identification is required for even the smallest purchases. I have to give my passport number every time I buy a pack of gum or a carton of milk in the local store.

But the biggest chores are banking ones. Cash machines have strict daily limits on the amount of cash that can be withdrawn, but taking out money over the counter is no easy task.

Venezuelan baseball fans.

Venezuelan baseball fans. While there were once a dozen major league baseball training academies in Venezuela, there are now only five.

It requires two signatures, fingerprints and in some cases a photograph. So it is not unusual to queue for more than two hours in a bank for a simple transaction.

Imagine then, the challenges to businesses based here.

Greater suspicion

There are tight currency controls in place, a measure brought in by the government to stop people withdrawing all their capital from the country and investing it elsewhere.

Businesses wishing to buy US dollars with their Venezuelan bolivares fuertes must apply at the offices of CADIVI, the central currency authority. There is a daily limit on how many dollars can be bought.

“I go and queue up for my dollars myself and wait for them to be issued,” says clothing importer and retailer Katiuska Viana.

“If you love your business, then you are prepared to work hard for it.”

Such strict measures, however, mean a black market for US dollars is thriving.

But this also leads to greater suspicion around financial transactions, even when they are of a relatively small nature.

Buying a plane ticket a few months ago, I was asked by the cashier to explain where I had obtained the money to do so.

The lady from whom I bought my car had to submit supporting documents when she deposited the money in her bank to explain how she had come to obtain such a lump sum.

Standing empty

Business owners themselves are suspicious of the government. The policy of expropriation has created fear and uncertainty amongst property owners.

President Hugo Chavez has nationalised dozens of companies and expropriated tens of thousands of hectares of land since coming to power in 1999.

Targets have included pasture belonging to Britain’s Vestey family, which raised cattle for decades, and the local subsidiary of US bottling company Owens Illinois.

Even small property owners are worried.

“It’s not good to have your property standing empty for too long,” one landlady in Caracas tells me.

Empty apartments and houses can quickly become accommodation for the homeless.

A grandiose example of this is the Torre Confinanza in Caracas, a 45-storey tower block begun in the early 1990s.

Squatters moved into the semi-completed building after its owner could no longer finance the construction project.

Few in the private sector believe the judicial system would rule in their favour instead of the newly arrived squatters.

High inflation

The paperwork involved in importing and exporting goods is formidable.

“Whereas I used to have to fill out one or two forms to import a container of goods, I now have to go through roughly 40 different steps to get clearance for that container,” one manufacturer says.

Caracas is notoriously dangerous and business owners are increasingly concerned about security.

But keeping employees, assets and property safe is also costly.

Switching from paying your staff in cash to paying them by transfer, for instance, takes time and money, says Victor Maldonado, executive director of the Caracas Chamber of Commerce.

President Hugo Chavez is proudly left-wing and does not pretend to be a friend of business.

His policies are designed to share the country’s wealth more widely between all Venezuelans. Those who have benefited by moving onto expropriated land, or have received free housing or subsidised food from the government, are extremely grateful.

Opponents, however, say the government’s policies end up affecting everyone adversely.

They point to the country’s sky-high inflation rates, currently over 20% for this year, as proof that the economy is out of control.

Foreign organisations – such as Major League Baseball teams – can always choose to do business elsewhere. Few Venezuelans have that option.

But there is a silver lining to the current difficulties, according to one manager.

“If I can run a factory here in these conditions, I can succeed in any business, anywhere.”