The year 2020 will remain in the memory of thousands of entrepreneurs, regardless of their size, sector, or country. It was the year of unexpected events, change, transformation, fear in many cases; but it was also a year of opportunities and growth.
In the case of Venezuela, it encountered the COVID-19 pandemic while facing its seventh consecutive year of recession, with an accumulated drop of over 70% in its Gross Domestic Product (GDP).
However, during the last years, the size of the drop has reduced and some people estimate that the GDP will grow between 2021 and 2022.
Venezuela is a new country, with a smaller economy, but especially a different economy. Despite the difficulties, there are signs of improvement.
- Less dependence on Petroleum as a main source
Venezuela has ceased to depend on petroleum, highly valued in the world, which has represented its main source of income during the last 30 years. But it is no longer such a main source, in spite of the fact that the government has referred to the possibility of receiving foreign investment in this sector.
Petroleum may be displaced for different reasons, such as the fall in international prices, the drop in Venezuelan production, or the application of a restriction regime by the USA. These restrictions are sanctions directed at the “Government of Venezuela” and the Specially Designated Nationals and Blocked Person List.
However, the sanctions do not constitute a total prohibition against doing business in or with Venezuela, but they are directed at specific individuals and connections.
- Rise of Private sector with the rise in foreign currency
Then, during the last years, the private sector has managed to go ahead, mainly because of the widespread use of foreign currency and the loss, de facto, of the value of the national currency. In fact, the “Bolivar” at present does not even meet the characteristics required to be considered money.
In view of such a situation, the National Executive had no alternative but to recognize the factual situation and allow the US Dollar to legally circulate, decriminalizing the use of the same after more than 15 years of exchange control.
In such circumstances, the use of foreign currency immediately began. It is estimated that by the end of 2020, between 60% and 80% of the transactions in the country were made in US dollars.
- Favourable investment due to less Price control
Another factor that has favored the slow cure of our recuperating economy is the Administration entities’ failure to apply the “fair price” regulations, which sought to rule the prices of a group of commercial products. When implemented, the price control resulted in serious scarcity, now overcome. It also brought an unleashed hyperinflation that has shown signs of improvement during the last months.
- Placated tax and labor administration
Finally, a placated tax and labor administration, with less disorganization, less arbitrariness, and a less predominant role has allowed companies to go through this complex situation.
In general, after the control and criminalization of foreign exchange ceased, after foreign currency became available, after price control was left out and investment was favored, a strengthening of the private sector may be noted in light of a number of necessities of the people that were not satisfied for months and are now generating business niches and job opportunities.
- Economic growth due to natural product abundance
In this situation there are products and sectors with natural advantages for national production; products such as rum, cocoa, and different food products have even gained an advantage from the designation of origin, while other products and sectors have benefited from importation.
- Rise in Electronic commerce
During the pandemic, electronic commerce has also grown in the country, as well as delivery service. The Venezuelan Chamber of Electronic Commerce has recorded an increase of over 2000% in electronic commerce. Among other reasons, this might be the result of almost absolute deregulation of electronic commerce and obsolescence of the regulations on commerce.
- Increased acquisition of companies
The acquisition of companies already established in the Venezuelan market has arisen as another business possibility when, for different reasons, the original owners decide to sell them. Thus, new capital is received, national and international capital.
All crises generate opportunities and in the case of Venezuela, an interesting opportunity has been created for the acquisition of assets, with investments that, after overcoming the crisis, will allow a solid position in the market. Acquisitions have been a constant factor in the last years and foreign and national investments have been more frequent in recent months.
- Wide tax and investment treaty network
In the investment protection ambit, Venezuela has executed a total of 19 bilateral investment treaties, specifically: Argentina, Barbados, Brazil, Canada, Czech Republic, Chile, Costa Rica, Denmark, Ecuador, Spain, France, The Netherlands Paraguay, Peru, Portugal, United Kingdom, Sweden, Switzerland, and Uruguay.
Venezuela has also executed 31 double taxation treaties, specifically: Germany, Austria, Barbados, Belarus, Belgium, Brazil, Canada, China, Korea, Cuba, Denmark, United Arab Emirates, Spain, United States of America, France, Indonesia, Iran, Italy, Kuwait, Malaysia, Norway, The Netherlands, Portugal, Qatar, United Kingdom, Czech Republic, Russia, Sweden, Switzerland, Trinidad and Tobago, Vietnam.
- Favourable labor law
In the labor area, Venezuelan minimum salary is one of the lowest in the world, which is to be considered at the time of investing, taking into account that after a protectionist trend, the Government has gone from granting salary increases every two months to allow a leading role to the employers in the determination of salaries; thus entrepreneurial autonomy and the parties’ bargaining power may be regained.
- Alternative forms of Dispute resolution
As to dispute resolution, the trend has been to migrate to arbitration and various alternative methods of dispute resolution. This has resulted in greater confidence on the part of the investors, which will not have to subject their interests to the Venezuelan judiciary.
In addition, Venezuela has a commercial arbitration law inspired by the UNCITRAL Model Law and adapted to modern arbitration trends. Also, other methods are now available, such as dispute board, which has found room in the construction sector and new regulations have been recently issued by the principal national arbitration centers providing the mechanisms to resort to such method.
Finally, the Venezuelan market means in practice risks and opportunities. Society has stepped forward to find solutions, regain lost territories, and transform the crisis into benefits for the present and in a challenge for the future
Yeoshua Bograd Lamberti – Partner at Travieso Evans Arria Rengel & Paz (T&E)
Alejandro Ramírez Padrón – Legal Assistant at Travieso Evans Arria Rengel & Paz (T&E)