The latest news from Venezuela, the oil producing country run by Hugo Chavez for the past 12 years: he has succeeded in running his economy backwards during an oil boom.
AP, quoting Venezuela’s Energy and Oil Minister Rafael Ramirez, reported on Friday that profits at state-run oil company Petroleos de Venezuela fell 28.8 percent to $3.8 billion (R27bn) last year compared with 2009, despite the increase in international oil prices.
And the Economist Intelligence Unit (EIU) estimates Venezuela’s gross domestic product (GDP) contracted nearly 2 percent last year – quite an achievement in view of the performance of the oil market.
Average crude oil prices were between $70 and $80 a barrel last year, compared with $59 the previous year, according to an estimate on Nasdaq.com. And oil makes up between 90 percent and 95 percent of Venezuela’s export revenue.
In South Africa, Chavez is seen as a role model by his fans and a guru on nationalisation. In April last year, ANC Youth League president Julius Malema led a delegation to Venezuela, which is wedged between Colombia, Brazil and Guyana.
Malema has been urging the nationalisation of South Africa’s mining sector. Though there are differences among members of the ruling party on the merits of nationalisation, it is a hot topic on the political agenda.
In his State of the Nation address, President Jacob Zuma said that the government had “endorsed the African Exploration, Mining and Finance Corporation as the state-owned mining company that will undertake the mining of minerals of strategic significance”.
Malema saw the speech as a sign that the nationalisation of mines is in the bag. Others put a different interpretation on the announcement. But, whatever the outcome of the nationalisation debate, the government is intervening actively in the sector and a state mining company is in the pipeline. Hopefully it will fare better than Venezuela’s state-run oil company did last year.
Low growth is not Venezuela’s only problem. Inflation rose above 27 percent last year, the EIU says. But that was last year. There’s more to come. Chavez devalued the currency at the end of the year to boost economic growth.
The devaluation increases oil revenues in local currency terms. But it also boosts the price of domestic goods.
The government said at the time the devaluation would add about 3 percentage to 5 percentage points to inflation this year. But US bank Morgan Stanley predicts this year inflation will reach a 14-year high of 45 percent. The central bank has predicted GDP growth of 2 percent this year and a reduction in inflation.
But its view may not be persuasive.
A sign of how investors view the country comes in the cost of its debt.
Bloomberg reported last week that only Venezuela and Pakistan pay more for debt than Greece – which was last year snatched from the jaws of default by its neighbours and the International Monetary Fund.
A Barclays Capital Research note, quoted in the Wall Street Journal last month, said the high-risk premiums demanded by investors were due to uncertainties over economic policies, as well as unpredictable moves by Chavez.
Malema has obviously learnt from the master. He is becoming an expert in creating uncertainty about economic policies. But whether the ANC will see this as an asset remains to be seen.