‘The darkest hour is just before the dawn’ – (Fuller, 1650)
Anyone following recent news of Venezuela will know it is in a dire state, the world’s highest inflation, looting, two day working week to save energy and high susceptibility to oil price shocks – a truly exciting future. Knowing this I would not blame anyone for thinking this piece was part of the ramblings of a madman, and perhaps they are, but, please withhold judgement as we examine Venezuela’s outlook in the long run.
In this short piece, I aim to outline why Venezuela is full of opportunity, and why investors should be watching the country with keen eyes through a brief examination of Venezuela’s likely future and current resources.
The Venezuelan story is not atypical; it is one that has occurred a number of times considering Latin America has often been described as a testing ground for public policy with varying results. What Venezuela is facing is the result of irresponsible macroeconomic and trade policy along with the general themes that individuals tend to associate with Latin America, corruption, insecurity and the like. Yet this does not necessarily inhibit its potential for future success, on the contrary it makes it more likely.
Returning to the quote at the beginning of the piece, Venezuela is near collapse and is likely to undergo significant structural reform, with a new government, a new president, and a tremendous amount of public will to undergo change. In this sense Venezuela is a burning house for sale in a fantastic location, lots of land, and planning permission already granted by the local authorities; all that needs to be done is to wait for the house to burn down and rebuild. While the situation may look dire, the potential for reform is there.
This leads to the resources and opportunity available post-reform. A new more pro-trade and capitalist government will likely take hold, opening potential for global trade, foreign direct investment, and beckoning the return of Venezuelan professionals from across the globe. In addition to this we must consider how weak the Venezuelan currency will be post-reform, giving access to cheap goods, services, and commodities. Continuing with the new government and the weakness of the Venezuelan economy, they will be in need for investment and will likely be highly receptive to business looking to enter the economy, which with the right institutions and approach could yield fantastic returns. In conjunction with this we must consider that Venezuela is awash with natural resources that they could exploit to diversify and empower the economy, bringing greater stability and opening further lines industry such as tourism.
While prospects are ostensibly weak, looking at the vast amounts of natural resources available, the great possibility for positive reform with more dynamic policy, and the need for investment there is great potential for Venezuela’s future.