Nationalizations scaring investors away from Venezuela: analysts

3 hours ago

CARACAS (AFP) — The recent nationalizations of strategic sectors in Venezuela are frightening away foreign companies and turning the country into South America's worst destination for foreign investment, analysts say.

President Hugo Chavez's decision to take over electricity, oil, steelmaking, cement and telephone enterprises over the past year may strengthen the "revolutionary" drive towards building a socialist nation, but it also drives off multinationals which have the funds to boost economic activity.

Several groups, notably US energy companies ExxonMobil and ConocoPhilips, have simply abandoned operations there.

Others, such as cement makers LaFarge of France and Holcim of Switzerland, have quietly accepted discounted compensation for their expropriated Venezuelan subsidiaries.

On Monday, Venezuela's government said it was resuming negotiations with the Mexican cement group Cemex in an effort to reach a settlement over its seized subsidiary.

The state domination of the country's economy -- which also extends to controls on prices and foreign currency exchanges that limit corporate competition and profitability -- is severely dampening investment from outside, the analysts say.

"Foreign investment should be at least three percent of gross domestic product, around six billion dollars. We're only at 10 percent of that figure," one economist, Orlando Ochoa, told AFP.

According to the UN Conference on Trade and Development (UNCTAD), direct foreign investment in Venezeula amounted to 400 million dollars last year -- the lowest amount recorded for any country in South America.

In comparison, neighboring Colombia had investment of 8.2 billion dollars, and Brazil had 37.4 billion dollars.

In fact, out of a list of 34 countries evaluated by UNCTAD, Venezuela comes second-last, only above Hungary, in terms of direct foreign investment.

Experts say the wave expropriations have left a sense of legal insecurity for companies, making them feel their investments are vulnerable.

The biggest companies left in the country are subsidiaries of the food groups Nestle of Switzerland and Cargill of the United States, Spanish telephone company Movistar, the US pharmaceutical groups Pfizer and Merck, the US automobile giant General Motors, and the Spanish bank Banco Bilbao Vizcaya, according to Venezuela's National Investment Promotions Council.

For Luis Vicente Leon, head of the Datanalisis polling firm, foreign corporate chiefs "develop investments with a view to expected returns and to being protected in terms of being able to repatriate the capital and to generate profits in the future."

In Venezuela, "the companies are exposed to the risk that the state could at any time declare them a public utility, and take them over or buy them," he said.

Companies looking to invest in Venezuela also take into account the country risk evaluation, which according to finance ministry data has risen to 648 points -- more than double that attributed to Brazil or Colombia, and the worst level of any South American country except Argentina.

But some in the country see a positive side to the changing business environment.

Alejandro Uzcategui, president of Venezuela's Business Leaders' Federation, said the exit of some international companies has left an opportunity for others to take their place.

"One group of transnationals are going away so another group of transnationals come in," he said, noting investment projects Venezuela is planning with Iran, Belarus, Argentina and Brazil.

Ochoa, though, dismissed those ventures as purely "symbolic" and asserted they would make no impact on investment levels in the country.