Wednesday, January 8, 2014

Venezuela: Maduro Plans to Triple Tourism by 2019...Really?

According to The Latin American Tribune, President Nicolás Maduro’s government has set a goal of tripling the tourism sector’s contribution to Venezuelan gdp.

Of course, President Maduro is looking long-term for such a tripling of tourism, which will not occur until 2019.

At the moment, tourism in the country at is 3% of gdp, which translates into 700,000 tourists, which is astoundingly sparse considering that Venezuela has a population of 30 million.

COMMENT: On Monday (January 6), Tourism Minister Andrés Izarra said that to increase the tourism industry by 6% would require “big investments... from the private sector,” he told state-run television.

Izarra subsequently said in his statement on Monday that a “master-plan” would soon be revealed as the Maduro government specifically identifying the areas with tourist potential and the level of investment needed. 

Why not wait until the "master-plan" has been written and provide the details all at one time, rather than teasing citizens with useless promises?

I hate to rain on Minister Izarra’s parade, but 700,000 tourists in a country of 30+ million people is nothing to rave about, particularly a country roughly the size of

“We have tourism in Venezuela that is not the kind where people visit museums... but... is based on the (country’s) natural beauty and the only way it can be sustained is for it to be "eco-socialist"– that is, sustainable, which allows us to respect the environment and the communities and the impact of which will be the least possible,” said Izarra several weeks ago.

A small comparison of countries similar in size to that of Venezuela may be helpful:

Perú                Tourists per year: 3 million
Venezuela    Tourists per year: 700,000
Morocco       Tourists per year: 1.5 million
Canada         Tourists per year: 16 million
Malaysia     Tourists per year: 25 million  

Although Minister Izarra touts his country's socialist form of government the reality is that Venezuela is cash-strapped and has ben forced to drop out of a number of energy-related regional projects of late.

The truth be told, the real reason that the Venezuela’s state-run Petróleos de Venezuela SA (PDVSA) oil and gas company and other companies in the oil and gold sectors have received government approval to sell foreign currency, including US dollars, at the preferential exchange rate known as the SICAD.

The SICAD exchange rate, set by the sale of foreign currency at weekly auctions, is currently close to 11.30 bolívars to the US dollar, which is significantly higher than the fixed official rate of 6.30 bolívars. The change came into effect on December 30, 2013.

The SICAD system allots foreign exchange to companies that need to import items into Venezuela and was inaugurated in March, 2013, as a way for the government to bypass and weaken the black market. The exchange rate within the SICAD system is set using a modified Vickrey auction method and was matched with regulations that limited the importers’ access to cash.

Minister of Tourism Andrés Izarra also announced yesterday that the government is to expand the system by which tourists can buy and sell foreign currecy in the country, by admitting hotels, private and public banks and currency traders to the system.

The Venezuelan Central Bank brought in the scheme for tourists, allowing transactions only at official state offices at the Simón Bolívar international airport serving Caracas and a second airport in Valencia. The rate for tourists was also set using on the SICAD system.

Izarra denied that permitting the expanded use of the SICAD rate represents a de facto devaluation and said that for all other foreign exchange transactions the official rate is still in effect.

According to the BBC, However, Ronald Balza, economics professor and researcher at the Andrés Bello Catholic Universtiy in Caracas said the “multiple exchange rate” system implies a “devaluation by sectors.” Professor Balza considers this change a “fiscal measure” as it will grant the government a needed infusion of bolívars and it will also release some of the pressure on PDVSA, which has had to request large loans from the Central Bank in the last two years in order to meet the executive branch’s thirst for cash.

Balza continued by adding that the additional bolívares will increase pressure on the parallel foreign exchange market and on prices, thus having an impact on inflation.

Angel García Banchs, Director of the Econométrica consulting firm, advised that the exchange rate modification is a “very small devaluation” and indicated that it is very possible that further changes will be enacted in the next few months.

Venezuela has an influential black market where the US dollar changes hands at an exchange rate ten times greater than the official exchange rate. The black market has become a reference for price-setting and thus exerts great pressure on the inflation rate, which reached an annual rate of 56.2% at the end of 2013. Strict currency controls have been in place in Venezuela since 2003.

With a private sector that is wary of the Maduro government's erratic changes in public policy, particularly where foreign tourism is concerned, a sector that has generally been ignored, largely because Venezuela has a bad reputation as having a very corrupt, underpaid and dysfunctional police force.

For some years now, the US Department of State has designated violent crime in Venezuela as being "Critical," which is the Department's highest level of threat on its four-tier system of "Critical, High, Medium and Low."

Worse, with a population of 30 million in a country TWICE the size of the US state of California, there are an estimated six million illegal guns in use country-wide which places all Venezuelans and foreigners at  risk of injury or death.

At this time, I discourage tourists from traveling to Venezuela and urge that ONLY essential travel be considered providing that:

1. Foreign travelers exercise a well-honed sense of personal security awareness;

2. Comfortably speak Spanish;

3. Are intimately comfortable with the "critical" threat level in Venezuela;

4. Don't drive after dark, particularly in rural areas; 

5. Consider accommodations only at an "all-inclusive" resort; 

6. Meet strangers only in public places; and

7. Avoid contact with Venezuelan police.