Guayaquil, Ecuador, May 27, 2021 (venezuelanalysis.com) – President Nicolás Maduro praised the upcoming Organic Law of Special Economic Zones (SEZ) as an opportunity to boost national production with local and foreign investment.
Participating in a public audience with the National Assembly’s Economy, Finance and Development Commission on Wednesday, Maduro explained that the legislation aims to create new sources of foreign income beyond dependence on oil exports.
"This law is here to organize and open investment opportunities for the country’s development; it is important in our search for new paths," he affirmed. The National Assembly (AN) approved the first bill drafts on April 27 and the final text is slated to be voted on in July. The law contains five chapters and 26 articles.
Maduro added that special economic zones are a successful formula applied in some of the world's fastest-growing economies such as China, Vietnam, Singapore and South Korea.
"This law is the daughter of the Anti-Blockade Law because it puts together all our efforts to reorganize the country’s most productive zones," said the president during the broadcasted public meeting.
Maduro recalled that Venezuela already has several SEZs but with low development levels, “which have been severely hit by (US-led) sanctions and financial persecution in recent years." The Venezuelan government created eight SEZs in 2014-2015, and Maduro mentioned the Paraguaná (Falcón state) special economic zone, which is now set to be ramped up with the new law, as a reference for others.
Maduro showed the Paraguaná special economic zone as a model for future ones, regulated under the SEZ legislation. (Twitter/@NicolasMaduro).
In that regard, the president announced La Guaira state, Margarita Island and Puerto Cabello city would be the first special economic zones activated after the law's approval.
“I propose we think very well on how to develop these areas to generate wealth, technology, an alternative to oil, a new economic model adapted to a post-blockade and post-sanctions Venezuela," the president emphasized.
For his part, Jesús Farías, president of the AN’s Economy, Finance and Development Commission, clarified that special economic zones would remain under the state's regulatory norms. “This is not about free markets or the application of neoliberal policies. The state will always be vigilant."
The upcoming legislation has generated debates nationwide, with award-winning Venezuelan writer Luis Britto García warning about the proliferation of “sweatshops,” the suspension of regulations and the creation of tax havens for investors to the detriment of the Venezuelan treasury and workers' rights.
Vice Minister for Special Economic Zones Development, Juan Arias, countered Britto's arguments stressing the law was designed to bring capital to developing areas with tax incentives but denying it would lead to tax havens or the relaxation of national legislation within the SEZs.
Venezuela has been mired in a years-long economic crisis triggered by the 2014 worldwide oil price drop. The crisis was worsened by US financial sanctions against state oil company PDVSA, an oil embargo in 2019 and a host of other restrictions which cut off the country’s access to international markets and decimated its crude production.
In a bid to overcome US sanctions, the Maduro government has looked to offer increasingly favorable conditions for private investment aided through deregulation, tax breaks and other incentives.
One of the areas prioritized for foreign investment has been the oil industry, with new legislative plans potentially reversing policies under former President Hugo Chávez which saw the state assume the central role in the sector. A document seen by media outlets revealed that PDVSA has reportedly signed agreements with some 20 companies to increase crude extraction in 106 fields. The unconfirmed deals are protected by confidentiality as determined by the Anti-blockade Law passed in October 2020.
According to the reports, PDVSA chose the “offtaking” modality, under which the state “receives everything related to royalties, taxes and special contributions primarily,” while the investor gets a share of crude production to commercialize.
The country’s main export sector has seen production fall precipitously in recent years as a result of mismanagement, a brain drain, corruption and especially US sanctions. Output fell to historic lows in late 2020 before recovering in early 2021, with Caracas aiming to produce 1.5 million barrels per day (bpd) before the end of the year. PDVSA produced a reported 445,000 bpd in April.
However, Venezuela's oil industry might soon face new obstacles to export crude after China imposes on June 12 a new $30 per barrel tax import on diluted bitumen, the category under which Venezuela's 16°API Merey blend is imported. Merey is PDVSA’s main export grade. The South American country has relied on China to place its crude production after US sanctions severely limited its market alternatives.
Chinese companies do not purchase cargoes directly from PDVSA due to secondary sanctions threats, buying oil rerouted from intermediaries instead. According to Argus Media, Venezuelan authorities are looking to load extra cargoes before the measure takes effect.
Edited by Ricardo Vaz from Mérida.