Venezuela Turns to Flashy Casinos, SUVs and U.S. Dollars for an Economic Boost

Via The Wall Street Journal, a report on how the Venezuela’s economic liberalization puts this Socialist country on path for growth after seven-year free fall:

A dozen casinos are opening here in a country where the Socialist government had banned gambling as a capitalist vice. And stores that were barren just a couple of years ago are now flush with imported goods, ranging from $8,000 bicycles to frozen desserts from the Cheesecake Factory.

After seven years in which the economy contracted 80%—what economists call the biggest collapse in decades for a country not at war—Venezuela’s economy may have bottomed out. Gross domestic product will rise anywhere from 5% to 10% in 2021, the first year of growth since authoritarian leader Nicolás Maduro took office in 2013, business consultants and economists estimate.

The bounce is largely attributed to the scrapping of an ossified state-led economic model in exchange for an anything-goes version of capitalism that Mr. Maduro started to introduce, little by little, in 2019. Critics, among them opposition leaders and economists, say the influx of cash also stems from money laundering in a country where billions in oil proceeds were looted to create a 1990s-era Russian-style oligarchy now taking advantage of economic liberalization.

“Maduro is never going to be able to get the economy to recover,” said exiled opposition leader Julio Borges, calling Mr. Maduro’s economic plans tasteless efforts to mask Venezuela’s dire state.

But both detractors and government loyalists are benefiting from the lifting of price controls on basic goods, tariff-free imports and virtually no tax enforcement on businesses and individuals. Most important, the U.S. dollar, which was long scorned by the ruling regime as a tool of imperialist control, is now considered the de facto national currency.

Mr. Maduro’s foray toward market economics hangs over local and state elections that Venezuela is slated to hold Sunday. Political scientists say the ruling Socialist party is seeking to reinvent itself, offering economic liberties while maintaining its authoritarian grip on the country. At the same time, polls show Venezuelans are increasingly apathetic about politics, as they focus on how to survive in a cutthroat economy.

“Entrepreneurs here, entrepreneurs there,” Mr. Maduro said in a televised address, as he celebrated new food trucks selling lunches to workers in the capital. “We are on the path to economic growth. What lies ahead is going to be better for everyone. Count on me.”

Among the businesses finding new life are gambling casinos. Mr. Maduro’s predecessor, Hugo Chávez, had closed all of the country’s gambling houses, saying they were rife with vice and only enriched “the bourgeoisie.”

But under Mr. Maduro, a National Casinos Commission overseen by army generals has sold licenses—for $350,000 each—to 30 new casinos around the country with names such as Baywatch, Bellagio and Hotel Dubai.

“This is a bet toward the future,” said Soraya Roye, a former gambling executive. A decade ago, she led protests against Mr. Chavez for closing casinos. Now, she trains workers for the revamped industry after having moved back to Venezuela from Mexico, where she had advised casino operators. “The government realized that they had to change and diversify the economy.”

From wealthy districts to the sprawling barrios of the capital city, the experiment with capitalism has breathed life into commerce that, by 2019, had nearly ground to a halt after restaurants, shops and stores closed. And Venezuelans battered by hyperinflation that at one point reached 2 million percent say they are feeling a rare sense of stability earning and spending in U.S. dollars.

“I can’t say things are going great,” said Brayan Riera, a 32-year-old resident of the east Caracas slum, Petare. “But I finally feel like the earth isn’t collapsing under my feet.”

Mr. Riera had fled Venezuela in 2019, like millions of his compatriots, but decided to return after struggling to make ends meet in Ecuador during the pandemic. Now he earns a few hundred dollars a month driving a cab, more than 20 times what the same job paid before he left the country.

Ruby Melendez, who sells socks and underwear imported from China at Petare’s bustling central market, said her business will make its first profit in three years. “I was sure I was going to close down,” the young merchant said on a recent day.

Nearby, currency traders, whose business had long been banned in the country, stood beside windows pockmarked with bullet holes, waving fists full of greenbacks to customers entering the market, where prices are marked in U.S. currency.

For much of Venezuela’s 28 million people, it is still too early to celebrate. The benefits from the economic changes are largely limited to the capital and a couple of other big cities, said Henkel Garcia, director of the business consulting firm Econometrica. Citizens outside these few big cities remain condemned to scant power and water supply, gasoline shortages and the presence of armed criminal groups.

More than 90% of Venezuelans lived below the poverty line in 2020, according to Encovi, an annual study on living standards by researchers at three universities. That is well above the poverty rate in neighboring South American countries and the 30% rate that Venezuela registered a decade ago.

The government, reeling from diminished oil revenue, no longer subsidizes food, fuel or services. Private internet companies, importers and healthcare providers are slowly trying to fill the holes left by the collapse of the once sprawling public sector. It has sharply downsized in a country where the state’s role in the economy had been omnipresent.

Shortages of food and medicines have been eased, namely because vendors, who used to be burdened by rigid state-set price caps, can now charge hefty prices for their goods and services. A medium-size pizza costs $20. A short cab ride is $10. A mechanic will charge $50 just to look at your broken refrigerator. Such prices are a shock to most Venezuelans, who until recently had been earning the equivalent of a few U.S. dollars a month because of the plummeting value of the local currency, the bolivar.

Venezuela’s central bank never imported U.S. currency and coins as counterparts did in countries that have adopted the U.S. dollar. The improvised dollarization, therefore, is dependent on bank notes sent by the six million Venezuelans who fled the country, the laundering of illegal proceeds from drug trafficking and the repatriation of savings from wealthy Venezuelans abroad, said Asdrubal Oliveros, director of Ecoanalitica, an economic research firm in Caracas. That means there is a dire shortage of $1, $5 and $10 bank notes, leaving stores unable to make change.

Still, the dollar flow has helped boost Venezuelan imports. They jumped nearly 33% from January to August 2021 compared with the same period in 2020 and nearly 50% higher compared with the same period in 2019, according to economist Francisco Rodriguez, who tracks trade data from 31 countries that export to Venezuela.

Data from ImportGenius, which monitors port traffic, show Toyota SUVs from Dubai, refrigerators from China and liquor from Panama’s free-trade zone flowing into the country throughout the pandemic.

How much further Venezuela’s economy will be able to grow largely depends on whether the U.S. loosens the financial and oil-industry sanctions meant to choke off the Maduro regime. It has been widely accused of graft and human rights abuses.

A nearly three-year effort by Juan Guaidó, the opposition politician recognized by the U.S. as Venezuela’s rightful leader, failed to oust Mr. Maduro and has left most of the population exhausted from political confrontation, said Luis Vicente Leon, head of the polling firm Datanalisis.

Three out of four Venezuelans want to get rid of Mr. Maduro, but only 4% of people believed that would happen in the near term, according to a Datanalisis poll last month. A third of voters said they planned to cast a ballot in Sunday’s elections.

This entry was posted on Monday, November 22nd, 2021 at 11:27 am and is filed under Venezuela.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

Comments are closed.

About This Blog
Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.