By
TBY
| Venezuela | Aug 14, 2024
Once a Latin American powerhouse, Venezuela's economy has spiralled since the 1990s due to chronic mismanagement and political turmoil.
Image credit: Shutterstock /Â StringerAL
Under the leadership of Hugo Chávez and later Nicolás Maduro, rampant corruption and failed policies have led to hyperinflation, severe shortages, and a collapse in oil production.
Despite holding the world’s largest oil reserves, Venezuela’s GDP has plummeted, causing widespread poverty and triggering a mass exodus. The nation’s economic woes persist, with little sign of recovery.
Persistent Political Turmoil: July 2024 Elections
Venezuela is currently embroiled in political turmoil following the disputed presidential election on July 28, 2024.
The National Electoral Council (CNE), controlled by Nicolás Maduro, declared him the winner by a narrow margin over opposition candidate Edmundo González.
However, the CNE has not provided evidence to substantiate this victory.
The opposition claims to have proof that González won, and international observers, including the Carter Center, have criticized the election for not meeting democratic standards. This controversy poses a significant problem for Maduro, as free and fair elections were a key condition for easing US sanctions.
Peru has recognized González as the winner, further complicating the situation, and other countries might follow that path.
The political environment is highly volatile, making it difficult to predict how events will unfold in the coming weeks.
Extended PSUV Rule & Political Instability
Since Chávez’s electoral victory in 1998, Venezuela has been governed by the United Socialist Party of Venezuela (PSUV) for nearly three decades.
Despite this prolonged political control, the country has suffered significant instability, deterring foreign direct investment (FDI).
Chávez’s era marked a turning point with widespread nationalizations, driving away investors crucial for economic growth.
Corruption has plagued the PSUV, with numerous party leaders, including former Oil Ministers Tareck El Aissami and Rafael RamÃrez, facing arrests. This corruption, combined with political instability, has created an environment hostile to FDI.
The main opposition leaders are in exile, leaving the country without significant opposition voices and further destabilizing the political landscape.
The lack of credible opposition and persistent instability have made Venezuela unsuitable for FDI, exacerbating economic challenges and hindering potential investment opportunities.
The PSUV’s inability to stabilize the country continues to impede economic recovery and growth, making the political scene highly volatile and unattractive to international investors.
Plummeting FDI
Venezuela’s FDI was just USD700 million in 2023, a steep decline from the USD 5 billion inflow in 1998 when Chávez came to power.
Historically driven by its vast oil reserves, the sector has suffered due to extensive nationalizations under Chávez and Maduro, deterring foreign investors.
The petroleum industry, once the backbone of Venezuela’s economy, has been hit hard by these policies, along with ongoing political instability and widespread corruption within the ruling PSUV.
Additionally, US sanctions have severely impacted Venezuela’s oil sector by restricting access to international markets and financial systems.
Declining Oil Sector
Venezuela’s oil production has dramatically declined over the past 30 years due to a cocktail of corruption, financial mismanagement, difficulties in accessing international talent, a drop in FDI, and the impact of US sanctions.
From producing 3.5 million barrels per day (bpd) in 1998, the country’s output has plunged to an average of 735,000 bpd in 2023.
This decline has been exacerbated since 2017 when the Trump administration imposed sanctions restricting PDVSA’s access to US financial markets.
At that time, the annual production was 1.916 million bpd. The sanctions were tightened further in 2019, deepening the crisis.
Although some sanctions were eased to encourage agreements between the opposition and Maduro’s government for the July elections, the situation remains precarious, potentially worsening the outlook for Venezuela’s oil sector.
Venezuela’s 2024 Economic Challenges
Venezuela’s 2024 economic challenges mirror those of recent years, compounded by election uncertainty.
Key issues include hyperinflation, oil dependency, food insecurity from economic mismanagement and sanctions, and collapsing infrastructure.
Frequent power outages, unreliable access to clean water, and deteriorating transportation systems exacerbate the crisis. The infrastructure decline significantly impacts daily life and economic stability.
The Rest of the Year
The current situation in Venezuela is highly uncertain, making it difficult to predict the outcome. However, there are a few probable scenarios.
Maduro could remain in power, a likely outcome given that the CNE has declared him the winner of the election, which would further isolate the country.
Another possibility is that the opposition’s claims are substantiated, leading to a change in government, although this is less likely.
A third scenario involves mediation with international observers to resolve the electoral dispute.
