Venezuela has been an oil economy for more than 80 years. That’s unlikely to change because the country has the second-largest proven oil reserves in the world. The petroleum industry is responsible for a fifth of the country’s economic output. Despite attempts at diversification, Venezuela’s economy remains dependent on oil; it is a critical source of government revenue, foreign exchange and foreign direct investment.
From 1999 until 2013, President Hugo Chavez put the principles of his “Bolivarian Revolution” socialist movement into action; the government had significant control over the country’s economic activity. Venezuela has suffered through political and economic uncertainty since Chavez died in 2013 and oil prices began sliding in 2014.
Skyrocketing inflation—a result of the scarcity of goods, growing government debt and a depreciating currency—is a persistent problem. Economic forecasting firm Oxford Economics expects inflation to remain above 70% in Venezuela until late 2017. And there’s no sign of an end to the country’s 2-year-old recession. Venezuela’s economy contracted by 7.5% in 2015, and Oxford Economics estimates it will shrink by another 4.5% in 2016 as oil prices remain low.
Business travel industry insight
Venezuela attracted 1.2 million international visitors in 2015, ranking 17th among Latin America’s travel markets (excluding the Caribbean). It’s the third-biggest business travel market in the region, with US$8 billion spent in 2015. Much depends on domestic travelers, who make up 84% of spending (compared to 63% in Brazil). Currency devaluation will force a drop in total business travel spending in 2016 and 2017, predicts Oxford Economics, which expects Venezuela to be Latin America’s only declining travel market.
Business travel and tourism sectors fluctuated sharply in the country over the last 15 years, even as the broader region enjoyed mostly steady growth. Few international hotel chains are active in Venezuela, and there appears to be little interest in future investment. Caracas and the resort of Isla Margarita are best served with four international hotels each. Other major destinations are served by a single international hotel and locally operated independent accommodations.
Foreign airlines have had difficulty repatriating revenue earned in the country. Many have reduced service, despite threats of reprisals. Several now accept only U.S. dollars for fares paid in Venezuela.
- Opposition politicians are pushing reforms that could deliver a better functioning democracy and restore economic growth.
- The country’s petroleum reserves continue to be attractive to international businesses. They are certain to increase investment in the oil sector when Venezuela’s political and economic conditions improve.
- The government’s debt is a major concern. Debt payments totaling US$10 billion are due in 2016. Unless oil prices recover, there’s a significant risk of default.
- Currency depreciation has pushed up the price of imported goods that consumers and industries depend upon.
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