Economy of Venezuela

The Government of Venezuela has 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. The Venezuelan national oil company Petroleos de Venezuela, S.A. (PDVSA) and foreign oil companies have signed 33 operating contracts for marginal fields in three bidding rounds. New legislation dealing with natural gas and petrochemicals is further opening the sector. A new domestic retail competition law, however, disappointed investors who had been promised market-determined prices.

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 joint ventures targeting extra-heavy crude oil production. Under the new Hydrocarbons Law, private investors can own up to 49% 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 almost ceased. Despite the strike, these activities eventually were substantially restarted. Out of a total of 45,000, 19,000 PDVSA management and workers were subsequently dismissed because the government asserted they had abandoned their jobs during the strike.

A range of other natural resources, including iron ore, coal, bauxite, gold, nickel, and diamonds are in various stages of development and production. In April 2000, Venezuela's President decreed a new mining law, and regulations were adopted to encourage greater private sector participation in mineral extraction.

Venezuela utilizes vast hydropower resources to supply power to the nation’s industries. The national electricity law is designed to provide a legal framework and to encourage competition and new investment in the sector. After a 2-year delay, the government is proceeding with plans to privatize the various state-owned electricity systems under a different scheme than previously envisioned.

Agriculture accounts for approximately 5% 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. In 2002, U.S. firms exported $347 million worth of agricultural products, including wheat, corn, soybeans, soybean meal, cotton, animal fats, vegetable oils, and other items to make Venezuela one of the top two U.S. markets in South America. The United States supplies more than one-third of Venezuela's food imports.

Thanks to petroleum exports, Venezuela usually posts a trade surplus. In recent years, nontraditional (i.e., nonpetroleum) exports have been growing rapidly but still constitute only about one-fourth of total exports. The United States is Venezuela's leading trade partner. During 2002, the United States exported $4.4 billion in goods to Venezuela, making it the 25th-largest market for the U.S. Including petroleum products, Venezuela exported $15.1 billion in goods to the U.S., making it our 14th-largest source of goods. Venezuela has taken a very cautious approach toward the proposed Free Trade Agreement of the Americas.

In December 2000, international labor authorities declared that the Chavez administration violated freedom of association by using a public referendum to decide internal labor leadership issues. Since then, however, the government has consulted regularly with the International Labor Organization (ILO) in its ongoing effort to reform and reorganize the country's labor structure, including a multi-union dialogue and the preparation of a new labor law.

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.