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Mercosur Opens New Economic Opportunities for Venezuela

Punto Fijo, December 6th, 2012 (Venezuelanalysis.com) – Venezuela’s recent entry into the South American trading block Mercosur has opened new opportunities for the country’s private and public sector firms, including alliances with multinational firms such as Samsung and Renault for export to the region.

Venezuela’s Minister of Industry Ricardo Menéndez announced several new initiatives this week with the objective of increasing exports to Mercosur countries in the coming years.

Most notable among the initiatives is the creation of a joint venture between the Venezuelan government and South Korean electronics giant Samsung for the export of electronic components to South America.

The firm will be 51 percent owned by the Venezuelan state, and 49 percent by the Samsung company, and has been called a “strategic alliance” by government officials.

Changes will be made to the country’s tariffs on telecommunications components in order to benefit the initiative. Menéndez explained that the government will lower tariffs for imported components that are used for assembly by about 5 percent to promote the local assembly of the finished goods.

“This is important because finished goods had a lower tariff rate than the assembly components. Reversing this will promote the local assembly of telecommunications products,” he said.

According to the minister, the tariff change will also increase opportunities for existing Venezuelan firms such as Orinoquia and Vtelca, both joint ventures with China that produce cellular phones for the local market.

“At the moment, we already have two [telecommunications] plants that are currently producing a significant amount. This year we have produced almost 3 million units in those two plants,” Menéndez said.

The Samsung initiative is one of several announced in recent weeks as private and public Venezuelan firms look to take advantage of the new common market. Officials also announced last week a plan to build in Venezuela an automobile assembly and auto parts plant with French automaker Renault, as well as joint initiatives with Venezuelan private firms to export CD, DVD, and BlueRay multimedia components.

“We’ve signed agreements that, like in the case of Renault, will be implemented in Venezuela as a result of the relationship that we have [with France]”, said Menendez last week.

The minister noted that the Mercosur common market opens the possibility for other non-traditional exports as well, citing an increase in glass exports by the state-owned Venvidrios, which will reach 160 thousand tons by May of next year, as well as aluminium exports to Brazil.

“These are the doors that are opening for our country,” he said.

Venezuela’s Private Sector

Although so far the exports have come mostly from the state sector, Venezuela’s private sector firms are also studying the prospects they might have in Brazilian, Argentine, or Uruguayan markets.

“We didn’t enter Mercosur just to be importers. We can’t let Venezuela be seen as just a potential market for Brazilian firms to come sell their products,” said Venezuelan businessman Eugenio Mendoza.

One Venezuelan computer company, Siragon, has already begun exporting computer components to Argentina, while other private sector firms appear to still be studying the possibilities.

Some possible export products are petroleum derivatives such as fertilizers, as well as various types of paint.

“We have a high-tech line of paint for vehicles, boats, and airplanes that was developed here and we don’t pay any royalties to foreign brands,” said the director of Quimicolor, an industry in the central state of Carabobo.

However, private sector representatives have also called on the government to make certain changes in order to improve the possibilities for industrial growth and increased exports.

Currency controls and an overvalued exchange rate have been a common complaint of the private sector since controls were put in place in 2003.

President of the Venezuelan Confederation of Industries (Conindustria) Carlos Larrazábal recently called for the government to devalue the currency from 4.3 Bs. per dollar to 7.48 Bs. per dollar.

“As long as our currency is this overvalued we will have limited possibilities to compete in international markets. Everything we import comes at 4.3 Bs./dollar, which is much cheaper than things produced in Venezuela because inflation is not being taken into account,” said Larrazábal.

Some business representatives claim the industrial sector has shrunk in recent years, and has lost competitiveness.

A recent Conindustria survey showed that only 18 percent of firms had made major investments last quarter, whereas 58 percent had only maintained operative investments, and 24 percent did not invest at all. Larrazábal interpreted this as a product of the “socialist model” adopted in Venezuela, and the expropriation of various firms by the Chavez government.

“As long as the situation doesn’t improve there won’t be significant investments like the ones taking place in the rest of our Latin American trade partners,” he said.

Business leaders have also cited the need for more flexible import and export regulations, as well as the modernization and expansion of the country’s seaports.

However, Venezuelan officials assure that measures are being taken to convert the country into a major exporter of goods to the Mercosur common market.

“A series of actions are being taken to break with this conception that Venezuela has always imported everything,” said United Socialist Party of Venezuela (PSUV) parliamentarian Ricardo Sanguino.

“We have to break that economic structure, and we can do it by giving incentives to small and medium-sized industries and forming alliances with the industrial sector in Brazil, Argentina, and Uruguay,” he said.

“We have to raise our production… because just producing oil isn’t enough.”

Venezuela was officially granted entry to Mercosur last July when Argentina, Brazil and Uruguay all voted in favour. Paraguay, temporarily suspended due to the overthrow of former president Fernando Lugo, has been the only Mercosur nation opposed to Venezuela’s entry.

Published on Dec 7th 2012 at 11.49am