Venezuela

Originally published: Sep-27-2007

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Official Name: Bolivarian Republic of Venezuela

Internet Domain: .ve
International Dialing Code: +58

Table of Contents

Government

Federal republic with 23 states, 1 capital district and 1 federal dependency. Three branches: executive - of which President Hugo CHAVEZ Frias is both the chief of state and head of government, and appoints the cabinet; legislative - unicameral National Assembly of 167 members that are elected by popular vote to serve five-year terms; judicial - Supreme Tribunal of Justice.

Legal System

Open, adversarial court system. Historically, the country has lacked an effective judicial system to provide judicial security for either foreign or national residents. The problem persists today, and is exacerbated by the overt politicization of the judicial system. (U.S. Department of State)

People

• Population: 26,023,528 (2007 estimate)
• Population growth rate: 1.486% (2007 estimate)
• Languages: Spanish (official), numerous indigenous dialects
• Literacy: 93% of population age 15 and over can read and write

Economy

Venezuela is highly dependent on oil revenues, which account for roughly 90% of export earnings, more than 50% of the federal budget revenues, and around 30% of GDP. As the economic prospects of Venezuela are highly dependent on international oil prices and the government’s radical economic policy is centered on strengthening the state-led development model, the business climate will remain unattractive, especially for foreign investors.

Economic Forecast (The Economist): “Having won a strong mandate in 2006, the president, Hugo Chavez, has launched his third term with a drive to deepen “21st-century socialism”. Complete control of the legislature and significant influence over weak and politicized institutions should facilitate this agenda, but obstacles remain, including the gradual decline of fiscal revenue, which, combined with a downturn in private investment, will produce an economic slowdown. This will help to reduce inflation to below 20% in 2008-09, notwithstanding a forecasted devaluation of the fixed official exchange rate in 2009 as the bolivar becomes increasingly overvalued.”

Currency: Venezuelan Bolivar (VEB)

• VEB per USD: 2,148.97 (9/25/07)
• VEB per EUR: 3,030.27 (9/25/07)

Leading Markets (2006): Bermuda 49.5%, US 23.6%, Netherlands Antilles 6.9%

Leading Exports-commodities: petroleum, bauxite and aluminum, steel, chemicals, agricultural products, basic manufactures

Leading Suppliers (2006): US 30.6%, Colombia 10.2%, Brazil 10.1%, Mexico 5.9%, China 4.9%, Panama 4.8%

Leading Imports-commodities: raw materials, machinery and equipment, transport equipment, construction materials

Top Industries: petroleum, construction materials, food processing, textiles; iron ore mining, steel, aluminum; motor vehicle assembly

Economic Indicators

(f) forecast

Comparative Economic Indicators - 2006

* 2007 estimate

Credit and Collections

• Collection Experience: 5 months or less
• Exchange Delays: 2 months
• Preferred Credit Terms: Unconfirmed letter of credit
• Minimum Credit Terms: Unconfirmed letter of credit

Importers are generally slow to pay with the majority two months late or more. Bank delays average three months. Please pay particular attention to the next section for some advice that will help speed up the collection process.

Collectability of Credit Sales

Effective January 1, 2007, a new regulation issued by the Venezuelan foreign exchange control authority - Comision de Administracion de Divisas (CADIVI) - requires a "Certification of Debt" from the seller before releasing foreign exchange on invoices more than 45 days past due. The Certification of Debt must be an original document with a creditor stamp or on letterhead, signed by the creditor, and written in Spanish or accompanied by a Spanish translation. It should also include address and telephone number of the creditor, name and address of the debtor, the amount owed plus copies of relevant invoices.

The document must be certified/legalized with an apostille -- a special stamp issued by a competent authority in each country that is responsible for validating the credentials of Notary Publics in that jurisdiction. In the U.S., it must be notarized and then forwarded to the appropriate Secretary of State for affixation of the apostille. In the case of some states, like New York, the document must be notarized, then sent to the County Clerk for authentication, and then forwarded to the New York Secretary of State. (See our article "Foreign Legalization of Public Documents" for further information on the legalization process.)

ABC-Amega recommends that all creditors placing claims against Venezuelan debtors routinely provide certified/legalized Certifications of Debt.

Dispute Resolution

Information from the U.S. Department of State: Venezuela's legal system is accessible to foreign entities seeking to resolve investment disputes. While the system is slow, inefficient, and has been accused of corruption, foreign entities have not generally been discriminated against in legal proceedings. Arbitration agreements involving national or international firms can be automatically binding.

Risk Assessment

Coface Country Risk Rating: C -- A very unsteady political and economic environment could deteriorate an already bad payment record.

Ducroire Delcredere Political Risk Rating: 4 – moderate risk
Ducroire Delcredere Commercial Risk Rating: C – highest risk

Business Climate

Openness to Foreign Investment: Venezuela officially encourages foreign investment and provides equal treatment to local and foreign companies, though the actual environment is considerably less welcoming. On January 10 of 2007, President Chavez announced that the government would nationalize companies in the electricity, telecommunications and petroleum sectors as well as re-write the country's commercial code. As of this writing, it seems likely that firms and shareholders will be compensated to some degree for their expropriated assets.

Capital Conversion and Transfer: Foreign investors in capital markets and foreign direct investment projects are guaranteed the right to repatriate dividends and capital under the Constitution. However, the Law Governing the Foreign Exchange System permits the executive branch to intervene in the foreign exchange market "when national interests so dictate."

Transparency of Regulatory System: The Government of Venezuela adopted three laws in the early 1990’s to promote free market competition and prevent unfair trade practices. Despite this legal framework, however, there is little transparency in Venezuela and many contracts, if not the vast majority, are awarded without open competition.

Patents, Brands and Copyrights: Venezuela does not automatically recognize foreign patents, trademarks or logotypes, so foreign investors must be sure to register patents and trademarks appropriately and in as many categories as are applicable. Venezuela does provide the legal framework for patent and trademark protection; however, a lack of personnel, coupled with a very limited budget and inadequate storage facilities for seized goods, has forced the enforcement authority to work with the National Guard and private industry to improve enforcement of copyrighted material. Industry experts are concerned about a proposed new copyright law proposal, which would require the mandatory registry of works, reduce protection terms, hamper distribution agreements and increase royalties.

Corruption: Corruption is perceived as widespread. Venezuela ranks 130th out of 158 countries in Transparency International's Corruption Perceptions Index for 2005. This makes Venezuela the second most corrupt country in Latin America and one of the most corrupt in the world.

Political Violence: No major incidents were confirmed against foreign-owned or operated companies, projects, or installations in Venezuela in 2006.

For more detailed information on the above topics, visit the 2007 Investment Climate Statement – Venezuela, of the U.S. Department of State.

Economic Freedom: Venezuela ranks 144th (out of 157) in the Heritage Foundation’s Index of Economic Freedom. The country’s Freedom score of 44.7 places its ranking in the “repressed” category. According to the report: “As a staunchly socialist nation, Venezuela is weak in labor freedom, financial freedom, investment freedom, monetary freedom, freedom from government, property rights, and freedom from corruption. The commercial regulatory process is burdensome and confusing. The judiciary is heavily influenced by the government and does not enforce contracts well. The labor market is rigid, and the financial market, though sophisticated, has become more vulnerable to political interference. Corruption pervades the civil service and, along with the likelihood of expropriation, helps to deter foreign investment. Inflation is extremely high, and the government has the power to set prices.”

Business and Cultural Practices

Appointments: Unlike some other Latin American countries, punctuality is expected on business and social occasions.

Business Cards: Business cards are important in establishing working relationships in this culture. Bring a plentiful supply with one side printed in Spanish. Your title and position should be clearly stated on the card.

Business Attire: Men should dress conservatively, in dark business suits made of lighter wools. Female visitors are advised to bring conservative, stylish business clothes of the highest quality.

Names and Titles: People who do not have professional titles should be addressed using “Mr.”, “Mrs.”, or “Miss”, plus their surnames. Most Hispanics have two surnames: one from their father, which is listed first, followed by one from their mother. Only the father's surname, however, is used when addressing someone. When a woman marries, she usually adds her husband's surname and goes by that surname.

Conversation: Maintaining eye contact is an important way of signaling attentiveness in this culture. Topics to avoid include personal questions, religion, Venezuelan politics, and the influence of the United States on South America.

Gifts: Wait until you have established a cordial relationship with the recipient. Gifts should be considered necessary after you have been invited to dinner or when someone has done something thoughtful for you. Female business travelers should never give gifts to businessmen.

Meetings and Negotiations: Initiate business contacts through local intermediaries, such as the U.S. Embassy, who can make the necessary introductions for you. It is best to send an individual rather than a whole delegation for the first contact with a Venezuelan prospect.

Acceptable Public Conduct: Point with your entire hand, rather than just your index finger. Do not eat and walk at the same time.

For more detailed information on these topics, visit Venezuela, on the Executive Planet web site.

Articles of Interest on Venezuela

Venezuela Country Profile, Business Anti-Corruption Portal

Sources for further information on doing business in Venezuela

Doing Business in Venezuela 2005, Baker & McKenzie (large PDF)

Embassy of Venezuela in the United States

Venezuelan-American Chamber of Commerce

Venezuelan American Association Inc.

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This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries including Venezuela. For further information, contact info@abc-amega.com. This report represents a compilation of information from a wide variety of reputable sources.

Risk Assessment information: Provided with permission by Coface Country Rating. Also Belgian credit insurance company Ducroire Delcredere

Information on credit terms and the probability of prompt payment are provided, with permission, from Overseas Press and Consultants (OP&C) as published in IOMA's Report on "Managing Credit, Receivables & Collections," September 2007.