LOOKING FOR DIFFERENT COUNTRIES?D&B Country Risk Services provide analysis on over 130 countries worldwide which are available to be purchased online. If you wish to order individual reports using your D&B contract subscription please click the link and follow the on screen instructions, alternately please contact Customer Services at your local D&B office. For further information please e-mail us at CountryRisk@dnb.com |
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The 'DB' risk indicator provides a comparative, cross-border assessment of the risk of doing business in a country and encapsulates the risk that country-wide factors pose to the predictability of export payments and investment returns over a two year time horizon. The 'DB' risk indicator is a composite index of four over-arching country risk categories:
Political risk - internal and external security situation, policy competency and consistency, and other such factors that determine whether a country fosters an enabling business environment;
Commercial risk - the sanctity of contract, judicial competence, regulatory transparency, degree of systemic corruption, and other such factors that determine whether the business environment facilitates the conduct of commercial transactions;
External risk - the current account balance, capital flows, FX reserves, size of external debt and all such factors that determine whether a country can generate enough FX to meet its trade and foreign investment liabilities;
Macroeconomic risk - the inflation rate, government balance, money supply growth and all such macroeconomic factors that determine whether a country is able to deliver sustainable economic growth to provide further expansion in business opportunities.
The DB risk indicator is divided into seven bands, ranging from DB1 through DB7. Each band is subdivided into quartiles (a-d), with an 'a' designation representing slightly less risk than a 'b' designation and so on. Only the DB7 indicator is not divided into quartiles.
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Country Overview:Venezuela is situated on the northern coast of South America, sharing borders with Brazil, Colombia and Guyana. Despite efforts to diversify the economy, it is dominated by the oil sector, which accounts for a third of GDP, 90% of export earnings and over 50% of federal budget revenues. Falling oil production owing to a lack of investment in the industry and volatility in oil prices have highlighted Venezuela's vulnerability to trends in the oil sector. President Hugo Chavez has been in power since 1999. Despite high levels of spending on populist programmes to alleviate poverty, his anti-American rhetoric and radical policies aimed at creating ‘21st Century Socialism’ have polarised opinion domestically and internationally. Political instability has increased sharply, foreign investment has fallen dramatically and the country’s political institutions are growing weaker. Furthermore, underinvestment in infrastructure has caused significant power shortages. |
| Minimum Terms: | CLC |
The minimum form of documentation or trading method that D&B advises its customers to consider when pursuing export trade with the stated country.
| Recommended Terms: | CiA |
D&B's recommended means of payment. The use of recommended terms, which are generally more stringent than minimum terms, is appropriate when a customer's payment performance cannot be easily assessed or when an exporter may wish to limit the risk associated with a transaction made on minimum terms.
| Usual Terms: | 30-60 days |
Normal period of credit associated with transactions with companies in the stated country.
| Local Delays: | 0-2 months |
The time taken beyond agreed terms for a customer to deposit money in their local bank as payment for imports.
| FX/Bank Delays: | 2-4 months |
The average time between the placement of payment by the importer in the local banking system and the receipt of funds by the exporter. Such delays may be dependent on FX controls, FX availability and the efficiency of the local banking system.
Gross FX reserves stood at USD27.7bn as of mid-December, down from USD28.2bn in mid-November but sufficient to provide import cover of around 4.0 months. Access to FX is still difficult for many firms given the country’s cumbersome FX regulations and dual exchange-rate system. Payment risks are high: the government’s recent decision to repatriate its gold reserves (which account for nearly half of Venezuela’s gross FX reserves) is worrying, as it will prevent the use of these reserves as collateral for international financing operations. Overall, the commercial environment remains very high risk due to elevated levels of corruption, crime, an ineffective bureaucracy and a biased judiciary. We continue to recommend CiA trade terms.
| US Eximbank | No cover available |
| Atradius | No cover available |
| ECGD | Full cover available |
| Euler Hermes UK | Restrictions will apply |
| 2009 | 2010 | 2011 | 2012f | 2013f | |
| Real GDP growth, % | -3.2 | -1.5 | 3.8 | 3.5 | 3.7 |
| Inflation, annual ave, % | 27.2 | 28.2 | 28.8 | 30.2 | 35.0 |
| Govt balance, % GDP | -6.1 | -4.5 | -1.5 | -2.0 | -1.8 |
| Foreign debt, % GDP | 24.4 | 39.3 | 40.7 | 48.0 | 50.3 |
| C/A balance, % GDP | 2.6 | 6.2 | 6.5 | 4.8 | 5.0 |
Local Currency: a principal rate of VBF4.3:USD applies on imports; a rate of VBF5.3:USD applies under the Transaction System for Foreign Currency-Denominated Securities
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Exchange Rates
(London, 19 Dec 11)
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Local Currency
(Bolivar Fuerte [VBF]: USD)
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Crude Oil Production
(million barrels per day)
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| Data Table | ||||
| 2009 | 2010 | 2011 | 2012f | 2013f |
| 2.31 | 2.28 | 2.23 | 2.2 | 2.1 |
The short-term outlook for Venezuela’s country risk environment continues to be weakened by unfavourable economic developments. Positively, real GDP has been growing at a reasonably good pace, up by 4.2% year on year (y/y) in Q3 2011, helped by a 10% y/y surge in construction activity. Moreover, with economic growth of 2.5% y/y in Q2 2011 and 4.8% y/y in Q1, overall real GDP expansion is expected to have reached 3.8% in 2011 as a whole, a good recovery from the 1.5% contraction recorded in 2010.
Despite this, the outlook for 2012 is less encouraging. In the budgetary sphere, the government’s finances are showing signs of strain, not to mention continued fiscal irresponsibility for the sake of winning political support in the run up to the October 2012 presidential election. The latter was demonstrated in mid-December when President Hugo Chavez announced that USD2bn would be spent in 2012 on alleviating poverty amongst the elderly. This followed a November government decision to allocate USD2.3bn this year to the poor, irrespective of age. If Chavez is able to make a full recovery from cancer, he will almost certainly be re-elected, significantly helped by the state handouts that he has approved. That said, it appears that the government is far from awash with money, despite high international oil prices: in early October, Venezuela was given a USD4bn credit line by Moscow to enable it to buy Russian military equipment. Meanwhile, the high rates of money supply growth resulting from handouts are pushing inflation up to unsustainable levels: year-on-year inflation equalled 27.6% in November, up from 26.9% in October. Moreover, irrespective of the result of the 2012 presidential poll, the winner will probably be forced, relatively quickly, to devalue the currently over-valued Bolivar fuerte. Given the heavy dependence of the Venezuelan economy on imports, especially food, this will push average inflation up to 35.0% in 2013. In turn, this will lower households’ purchasing power, although a recovery in external economic conditions after what is expected to be a weaker year for the global economy in 2012 will mean that real GDP growth accelerates to 3.7% in 2013.
Finally, Venezuela’s commercial risk profile has been undermined by the results of the World Bank’s Doing Business 2012 survey. Apart from slipping down the overall rankings to 177 out of 183 countries surveyed (from 175 in 2011), the most striking outcome was Venezuela’s performance in the ‘Paying Taxes’ category: of all the countries surveyed, Venezuela was found to be the most difficult in terms of companies’ ability to comply with tax regulations. By way of example, firms have to make 70 different tax payments in Venezuela each year; this compares with an OECD average of just 13.
DEFINITIONS
Minimum Terms:
The minimum form of documentation or trading method that D&B advises its customers to consider when pursuing export trade with the stated country.
Recommended Terms:
D&B's recommended means of payment. The use of recommended terms, which are generally more stringent than minimum terms, is appropriate when a customer's payment performance cannot be easily assessed or when an exporter may wish to limit the risk associated with a transaction made on minimum terms.
Usual Terms:
Normal period of credit associated with transactions with companies in the stated country.
Local Delays:
The time taken beyond agreed terms for a customer to deposit money in their local bank as payment for imports.
F/X Bank Delays:
The average time between the placement of payment by the importer in the local banking system and the receipt of funds by the exporter. Such delays may be dependent on FX controls, FX availability and the efficiency of the local banking system.
C/A (current account) balance, % GDP:
Part of the balance of payments that records a nation's exports and imports of goods and services, and income and transfer payments.
DSR (debt service ratio), %:
Annual interest and principal payments on a country's external debts as a percentage of exports of goods and services.
Govt balance, % GDP:
The balance of government expenditure and receipts.
Real GDP growth, %:
GDP adjusted for inflation.
Inflation, %:
The increase in prices over a given period.
GLOSSARY
CiA Cash in Advance
CLC Confirmed Letter of Credit
CWP Claims Waiting Period
FX Foreign Exchange
LC Letter of Credit
LT Long term
MT Medium term
OA Open Account
SD Sight Draft
ST Short term
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