Venezuela Economy Facts
Venezuela has the world’s largest oil reserves and was previously the most prosperous country in Latin America. But in recent years, the economic downturn of the Socialist government in combination with falling oil prices has caused the worst crisis in the country’s history. Negative growth, hyperinflation and acute commodity shortages have triggered a humanitarian disaster.
The collapse of Venezuela has few counterparts in the world – the economy does not usually implode in democratic states where peace can afford. The oil normally accounts for over 95 percent of export revenue, half of the state’s revenues and a quarter of GDP. During good economic times, the oil has given the state money to invest in welfare and infrastructure, but the dependence on oil makes Venezuela vulnerable. When the oil price suddenly halved in 2014, the economy went from an ongoing crunch to a free fall.
- Countryaah.com: Major imports by Venezuela, covering a full list of top products imported by the country and trade value for each product category.
Oil production has fallen sharply and in early 2020 was around a quarter of what it was in 2008. In early 2020, a combination of corona pandemic and price war between major oil states also led to a new fall in world market prices. The fuel crisis in Venezuela was acute and the country was forced to import gasoline from Iran (see Calendar). In May 2020, oil production was down to the lowest level in 77 years, according to statistics from Opec.
Growth since 1999 has been below average in the region and since 2014 it has been negative. The economy has shrunk more and more every year. When the central bank published figures for the first time in three years in May 2019, estimates from the IMF confirmed that the economy was halved in five years, between 2013 and 2018. The decline has continued and is expected to reach 70 percent a few years later.
Inflation also galloped and is estimated by the IMF to have exceeded 900,000 percent in 2018, while the central bank stated it 130,000 percent. The pace then slowed down, but data on the size still varied greatly: according to the IMF, inflation in 2019 was about 200,000 percent, while the official figure in Venezuela was 10,000 percent.
- Abbreviationfinder.org: Check this abbreviation website to find three letter ISO codes for all countries in the world, including VZS which represents the country of Venezuela. Check findjobdescriptions to learn more about Venezuela.
Clearly, the rate of price increase has long been problematic; it was an average of 23 percent annually in 1999–2011. The government took control of the exchange rate in 2003 and the currency has been written down several times. In an attempt to curb inflation, in 2008 a new currency, Bolívar Fuerte (VEF), was introduced. But prices continued to rise and the commodity shortage to rise. In 2018, it was time again: five zeros were cleared and the currency now became bolívar soberano (VES). The new currency was linked to a so-called cryptocurrency, petro, which was introduced earlier in the year but which did not receive any major impact. At the same time as the new currency, minimum wages were raised by more than 3,000 percent. Despite this, a new increase came before the year was over.
In 2019, the government eased the regulations, which in practice has led to a dollarization of the economy. This has contributed to some stabilization and that the supply of goods has improved again – for those who have money.
Attempts have been made to develop other industries than the oil, but the country has failed to break its dependence on “the black gold”. In the 1960s, the government tried to streamline agriculture, in the 1970s the country invested in heavy industry and in the 1990s, it sought to attract private investors through deregulation and privatization. Hugo Chávez, who took office in 1999, tried to make it easier for small and medium-sized enterprises, cooperatives and small-scale farmers with socialist indications. Together with social initiatives, it provided new opportunities for previously marginalized groups. But the programs are characterized by inefficiencies and corruption and dependence on oil revenues has increased rapidly.
Chávez also embarked on a comprehensive nationalization of the economy – state ownership and influence increased in the oil sector, agriculture, banks, mining, telecommunications, electricity supply, transport and tourism. Hundreds of foreign-owned companies were nationalized. Economic policy scared away investors, reduced productivity and shrunk exports of anything other than oil.
When oil revenues were not enough to provide the population with cheap basic goods, state price controls were introduced on many goods. This led to a shortage of goods, as prices were set so low that it did not pay to sell in Venezuela. Instead, goods were smuggled out of the country where they were sold on the black market at a higher price. In order to secure food supply and prevent smuggling, the state took over a number of companies, including rice, coffee and sugar companies.
During the “Bolivarian Revolution”, the country’s wide stock of peoples initially began to access the income from the oil resources, to a greater extent than before. This led to reduced poverty. But the state-owned companies and the currency and price controls created shortages of goods and capital flight. Twenty years after Chávez’s entry into power, Venezuelans’ everyday lives are marked by an acute lack of everything – food, toilet paper, medicines, etc. At the same time, electricity and water rationing have been introduced.
The state oil company PDVSA borrows millions of money from the central bank to finance the social investments while extremely low subsidized fuel prices cost the state large sums. Oil production has fallen sharply, partly because of backward investments. Problems with refining capacity also mean that the oil giant Venezuela is forced to import gasoline at market prices.
FACTS – FINANCE
GDP per person
US $ 16,054 (2014)
US $ 482 359 million (2014)
-3.9 percent (2014)
Agriculture’s share of GDP
5.0 percent (2014)
Manufacturing industry’s share of GDP
12.1 percent (2014)
The service sector’s share of GDP
51.7 percent (2014)
200,000.0 percent (2019)
Government debt’s share of GDP
182.4 percent (2018)
US $ 105,598 million (2017)
bolívar soberano 1
US $ 27,399 million (2016)
US $ 16 338 million (2016)
– US $ 3,870 million (2016)
Commodity trade’s share of GDP
24 percent (2014)
Main export goods
crude oil and oil products
Largest trading partner
USA, China, Colombia, Brazil
- replaced in August 2018 bolívar fuerte, which in turn replaced bolívar in January 2008
No to constitutional change
In a referendum, voters say no to a proposal for amendments to the constitution, which would have allowed unlimited re-election for a president. President Hugo Chávez thus suffers his first defeat in an election since he took office in 1999.
Chávez is allowed to govern by decree
The National Assembly gives President Hugo Chávez the right to adopt laws for 18 months without Parliament’s involvement in eleven different areas. Chávez wants, among other things, to nationalize the large electricity and telecommunications companies. During the spring, the state oil company PDVSA will take over four oil fields operated by foreign companies.
Sitting President Hugo Chávez is re-elected for a third term with 63 percent of the vote against 37 percent for second, Manuel Rosales. Chávez then announces that all parties supporting the “Bolivarian Revolution” will be merged into one party, Venezuela’s United Socialist Party (PSUV).