Venezuela - Market Challenges Venezuela - Market Challenges
Venezuela’s 2012 departure from the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID) may leave firms with less recourse to international arbitration.
In January 2014, the GBRV passed the Fair Prices Law that created the Superintendence for the Defense of Socio-Economic Rights (SUNDDE) to establish price controls and limit profits, inspect businesses, and enforce penalties that include up to 14 years in prison. Venezuela has inadequate intellectual property rights (IPR) protection. Simultaneously, increasingly strict labor laws make it very difficult to dismiss or fire employees, even for cause, making it difficult to use independent contractors in place of fulltime employees. Additionally, businesses are regularly impacted by both electricity rationing and water shortages. High crime rates remain a significant concern and security cost to many businesses – not only for personnel safety, but also due to losses of shipments, parts, equipment, and infrastructure.
Businesses operating in Venezuela continue to lose talented professional and English-speaking employees to emigration. Meanwhile, frequent minimum wage increases, currency devaluations, and lack of transparency in the bottlenecked FX regime system make budgeting and daily business operations challenging. Many companies have experienced significant difficulties repatriating bolivar (VEF) earnings as the GBRV has virtually stopped authorizing dollar sales for those earnings. Meanwhile, the value of unrepatriated earnings continue to erode due to skyrocketing inflation. Additionally even authorized payments by the GBRV are often delayed, adding significant time and costs to shipments through demurrage while vessels remain anchored outside of Venezuelan waters until payment is received. Inefficient port operations can further slow the process. As a result, many businesses have difficulty obtaining primary materials or spare parts for all types of business activities. Furthermore, declining oil exports and reduced GBRV dollar sales to the private sector slowed Venezuela’s economy which had negative growth the BCV estimated at -16 percent in 2017, although figures were not published. According to estimates from the Venezuela’s National Assembly in absence of official Central Bank numbers, annual consumer price inflation finished 2017 at 2,700 percent and will likely finish 2018 well over 100,000 percent. Analysts forecast the economy will continue to contract in 2018.
Beginning in August 2017, the United States applied a series of financial sanctions against the Venezuelan government and its subsidiaries as a consequence of the government’s anti-democratic conduct. As of July 2018, those sanctions were still in place. Some but not all commercial transactions with the government are prohibited. An overview of U.S. sanctions on the Venezuelan government and its officials is available here. Additionally, the Financial Crimes Enforcement Network (FinCEN), a Department of Treasury bureau, issued an Advisory on Widespread Public Corruption in Venezuela on September 20, 2017 that warned U.S. businesses of methods Venezuelan senior political figures (and their associates and front persons) may use to move and hide corruption proceeds.