Apr
6
2011
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In Anti-Business Venezuela, U.S. Companies Carry an Added Burden

By Francisco Toro of CaracasChronicles

Does Venezuela single out U.S. companies seeking to do business there for worse-than-usual treatment?

At first glance, it might seem like a churlish question. After all, Venezuela ranks 172nd out of 183 countries – and dead last in Latin America – in the World Bank’s Ease of Doing Business Report. Even Haiti, Zimbabwe and Uzbekistan ranked better than Venezuela in the Bank’s report. In terms of investor protection and easing access to credit, Chávez’s Venezuela does even worse, ranking 179th and 181st respectively. The same study finds that, in 2010, Venezuela boasted the most rapidly deteriorating business environment in the world.

Where standard treatment of businesses in general has fallen to such abysmal levels, it takes some doing to treat those from a given country even worse than the rest. Yet, that’s arguably what Venezuela has managed to do to U.S. investors.

In a political climate where the government blames most problems – real or imagined – on the evils of capitalism, no one’s property is safe. But, even among the prevailing hostility towards the private sector, U.S. firms are repeatedly singled out.

American businesses in Venezuela carry the burden of association with the government’s favorite bogeyman: U.S. capitalism. Stable brands, such as McDonald’s and Coca-Cola, are continuous targets of harassment and government intervention. In 2008, both U.S. companies faced 48-hour punitive shut-downs over alleged accounting irregularities that neither was given a chance to refute in a formal setting.

A State Department imposed ban on exports to Venezuela of U.S. weapons – in place since 2006, – has led Venezuela to seek weapons elsewhere. The measure eliminates a potential leverage point for U.S. diplomacy, which may come in handy in advocating for U.S. companies.

Venezuelan businessmen seeking protection from Mr. Chávez’s nationalization binge have been hurriedly exploring ways to register their companies as Spanish. Like Brazil, Canada, Peru and several other countries, Spain signed a bilateral investment protection treaty with Venezuela over a decade ago. The treaty gives Spanish firms a measure of diplomatic representation if and when they become targets of the Venezuelan government. Beyond that, Venezuela’s increasing reliance on Spanish firms for, among other things, naval procurement and electric plants has created a deep bond of interdependence that, at times, serves as somewhat of a “break” on the Venezuelan government’s excesses.

The tangible results of such cooperation are plain to see. For example, when the ownership stake of Spain’s Banco Santander in Banco de Venezuela was a target for forceful acquisition by the State, the Spanish owners were generously compensated, by about $1.05 billion. Moreover, this compensation figure was agreed to quickly, within a year of the takeover announcement, sparing Santander the uncertainty that has plagued similar negotiations with enterprises from other countries.

No sane Venezuelan businessman would consider registering in the United States for diplomatic advantage. Because there is no bilateral investment protection treaty between Caracas and Washington, American firms slated for a State takeover in Venezuela are left to fight their own battles against a deeply hostile government. In those cases, compensation is seldom generous and never agreed to quickly.

In the most well-known case – the government’s takeover of ExxonMobil and ConocoPhillips operations in the Orinoco Belt in 2006 are to this date under negotiation, dragging on for the better part of half a decade. The arbitrators from the World Bank’s International Center for the Settlement of Investment Disputes (ICSID) are not expected to hand down a final settlement agreement any time soon.

That said, a bilateral investment protection treaty does not entirely shield foreign investors in Venezuela, as Swiss cement maker Holcim found out in 2008 when its Venezuelan operations were taken over by the Chávez government despite a 1994 bilateral investment protection treaty. Unable to settle matters with Caracas, Holcim was forced to go to the ICSID. The Swiss company eventually settled its claim privately in 2010 for a relatively modest $650 million. Plenty of other firms from countries allegedly protected by investment protection deals – from Britain’s Vestey Group to Argentina’s Ternium – have faced long, uncertain compensation processes after rushed, unilaterally-decided State takeovers.

In final analysis, the Chávez government has gone out of its way to make Venezuela uncommonly hostile to foreign investors. From exceptionally cumbersome labor regulations to major hurdles in the foreign exchange of currency, Chávez’s policies have resulted in the near total collapse of foreign investment in Venezuela. Under such circumstances, businesses can hardly afford one more competitive disadvantage, but no enterprise is worse off than that with a “Made in USA” label.

 
Apr
1
2011
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In Case You Missed It… Weekly Roundup: 4/1/2011

In this week’s roundup…from a controversial accolade to serious allegations of involvement in drug trafficking and his friendship with the embattled Iranian leader, President Chávez always makes for some interesting headlines.  To check out more on our musings find us on Twitter @whatsnextvz or via StumbleUpon.

U.S. Losing Big Drug Catch The Wall Street Journal
At the height of his power, Makled, a Venezuelan citizen of Syrian descent, smuggled 10 tons of cocaine a month into the US from Venezuela, according to officials. He controlled Venezuela’s most important port and allegedly added to his transport empire by, in effect, stealing an entire airline, according to a lawsuit in Venezuela filed by the airline’s former owner.

Debating the merits of a press prize for Venezuela’s Chávez Christian Science Monitor
Prompting an international debate on journalism philosophy appeared exactly what an Argentine university wanted when it awarded a prestigious press prize this week to Venezuelan President Hugo Chávez.

Venezuela Aims To Pay Less Than $2.5B In Exxon, Conoco Case – PDVSA, The Wall Street Journal
CARACAS (Dow Jones)– Venezuela aims to pay less than $2.5 billion to Exxon Mobil Corp. (XOM) and ConocoPhillips (COP) for assets that the government expropriated nearly four years ago, a spokesman at the country’s state oil company confirmed Thursday.

Williams Files Arbitration Claim After Venezuelan Seizures, Bloomberg
Williams Companies Inc. filed for international arbitration against Venezuela, seeking compensation for two natural-gas compression facilities taken by President Hugo Chavez in 2009. Williams filed for arbitration with the International Centre for Settlement of Investment Disputes on March 25, said Jeff Pounds, a spokesman for the Tulsa, Oklahoma-based pipeline operator. He declined to comment on how much the company is seeking in compensation.

Chavez and Gaddafi — best friends forever?, The Washington Post
I recently wrote an article on the likely exile destinations Col. Moammar Gaddafi would have to choose from if he decides to flee Libya. Venezuela made the list, if for no other reason than President Hugo Chavez has been so outspoken in his support for the Libyan dictator. Even as Gaddafi revealed himself as a murderous tyrant willing to mow down his own citizens in order to cling to power, Chavez continue to voice his support for his “friend.”

Obama freezes out Chavez, while Iran comes courting, The Washington Times
During his five-day tour of Latin America, President Obama covered just about every hot-button topic – Libya, drug violence, immigration, trade – but not once did he publicly mention Venezuelan President Hugo Chavez. The omission stands in stark contrast to the danger that analysts say Mr. Chavez poses to U.S. foreign policy with his ever-deepening ties to Iran and continued support for guerrilla groups across Latin America.

 
Apr
1
2011
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WHAT PEOPLE ARE SAYING

Senate and House Foreign Relations Subcommittees on Western Hemisphere
March 31, 2011 Hearings

“We should immediately focus on replacing the oil from autocrats like Hugo Chávez in Venezuela for that of stable and trustworthy allies like Canada… [The dependence on Venezuelan oil] makes the State Department a hostage when they should be denouncing the Chávez regime for its broad violations of human rights and its support of terrorism.”
Florida Congressman Connie Mack

“My own view and the figures and statistics I have read suggest an explosive growth in the movement, the transit, principally of cocaine and coca-related products through Venezuela on their way to market, a growth of somewhere between 500% and 1,000% over the last seven or eight years. Logic and geography suggest that much of that pushing out through Venezuela heads through Eastern Caribbean and then across the Atlantic to West Africa and to markets in Europe…”

“It is my opinion, which I believe has been expressed by a number of senior U.S. government officials across the last two or three years, that a substantial amount of the senior FARC leadership, three members of its seven-member secretariat, do in fact have near-permanent presence on the Venezuelan side of the border.”
Assistant Secretary of State William Brownfield
U.S. Ambassador to Venezuela (2004-2007

“Venezuela, for example, reportedly has maintained an unofficial friendship with Colombia’s FARC guerrillas who have sustained their struggle to overthrow the Colombian government mostly through drug trafficking. In 2010, much of the suspect air activity departing South America to Central America and the Caribbean came from Venezuela’s southwest border with Colombia, as tracked by the U.S. Joint Interagency Task Force South. Currently, a Venezuelan businessman is being held in Colombia in connection with 5.5 tons of cocaine that turned up in Campeche, Mexico, in 2006.”
Steven Johnson, Director of the Americas Program,
Center for Strategic and International Studies