Overseas business risk for Venezuela

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Information on how UK companies can control risks when doing business in Venezuela.

1.Political

Venezuela’s most recent presidential election took place on 20 May 2018, where Nicolás Maduro claimed victory. The UK’s position is that the 2018 presidential election was not held in accordance with international democratic standards. The UK does not accept the legitimacy of the administration put in place by Nicolás Maduro.

On 6 December 2020, fraudulent legislative elections were held where the ruling party, Maduro’s PSUV, claimed over 90% of the seats. The UK does not consider the elected parliament legitimate and continues to consider the National Assembly elected in 2015 as the last democratically elected National Assembly in Venezuela.

On 30 December 2022 the 2015 National Assembly of Venezuela democratically voted to disband the interim Government and the position of constitutional interim President held by Juan Guaidó, with effect from 5 January 2023. The UK respects the result of this vote and considers the 2015 National Assembly the last democratically elected institution in Venezuela. Primary elections are due to be held in October 2023 followed by Presidential elections in 2024.

The Foreign, Commonwealth & Development Office (FCDO) advises against all but essential travel to Venezuela, due to ongoing crime and instability.

2.Economics

2.1 Major economic facts

Venezuela’s economy experienced a sustained recession from 2014 to 2020, shrinking around 70% in 7 years and rebounded since 2021, mainly due to the easing of constrains imposed by the COVID-19 pandemic and rising oil prices. The IMF estimates GDP growth to be 5% in 2023 and 4.5% in 2024.

The country experienced hyperinflation from December 2017 until December 2021. The IMF’s April 2023 report outlined that annual inflation reached its peak at 65,374% in 2018. In 2022, the annual rate was 310.1%, the lowest since 2016. The report forecasts that inflation is likely to reach over 400% in 2023 and 200% in 2024.

Soaring inflation and low wages for the vast majority of the population have reduced Venezuelans’ purchasing power significantly throughout the years.

Venezuela’s economy is heavily dependent on oil production. Oil exports represented at least 83% of total exports in 2022. According to OPEC’s direct sources, average oil output was 717,000 barrels per day (bpd) in 2022. This represents a 73% decrease when compared to the output of around 3 million bpd produced in 2014. This is mainly due to a significant underinvestment and lack of maintenance.

Basic services have crumbled for over a decade. Despite regular blackouts and main water shut-offs, prices of water and electricity have soared since 2022, as subsidies were significantly reduced.

In 2019, the legal reserve requirement for banks was increased to 100% in efforts to contain inflation. In 2022, it decreased to 73%. Such high requirements have resulted in severe liquidity problems for the banking sector and a practical halt to credit lines in the country.

Since 2019, the United States has established a sanctions regime on Venezuela. These include state-owned oil company PDVSA and the Central Bank. For more information visit the OFAC Venezuela site.

The UK has also imposed certain financial, limited trade and immigration sanctions relating to Venezuela. Further information and guidance is available regarding UK sanctions relating to Venezuela. Businesses should review the UK Sanctions List which identifies entities and individuals designated under the Regulations, and details of the sanctions regimes in respect of which they have been designated.

Businesses operating in Venezuela should remain aware of developments in relevant sanctions.

2.2 Exchange rate system

In 2018, the Exchange System and its Illicit Activities Law were repealed. Most exchange controls in place since 2003 were removed and a new system was established through which foreign exchange transactions are carried out through local commercial banks. However, the Central Bank continually intervenes as the main source of foreign currency in the official market to stabilise prices.

Since 2019, it has been common for businesses and individuals to conduct transactions in foreign currency (particularly US dollars). This transactional dollarisation has allowed the private sector to reduce its exposure to price increases in local currency.

Even though prices in local currency have fallen, inflationary pressures still prevail. As the dollarisation has been partial and informal, the economy’s multicurrency ecosystem has stimulated Venezuelansto price their goods and services in foreign currency in a way to curb price volatility. However, this has increased the cost of living in foreign currency.In 2022, the cost of living in dollars had an estimated annual increase of 52%, and a 3% tax on transactions in foreign currency was implemented.

2.3 Foreign direct investment

Since 2006 the Venezuelan government has pursued a policy of assuming State control of strategic sectors in the economy to promote national development. Such sectors include oil, power, metals and mining, and cement, among others. Foreign companies, including some British-owned businesses, have been affected by this policy.

2.4 Trade

We advise that UK businesses currently operating in Venezuela may continue to do so while the political, economic and societal environment allows and that businesses should comply with standards of responsible business conduct, including respecting human rights. The UK government is clear that UK businesses must fully comply with relevant UK sanctions.

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