2013 Investment Climate Statement
Bureau of Economic and Business Affairs
March 2013
Report

Openness To, and Restrictions Upon, Foreign Investment

Political and economic uncertainty, state intervention in the economy, and a volatile legal and regulatory framework make Venezuela a difficult climate for foreign investors. President Hugo Chavez’s presidential re-election in October 2012, combined with his questionable health, herald an uncertain political outlook for the coming year. Chavez’s Second Socialist Plan for 2013-2019, embraced by his governing United Socialist Party of Venezuela (PSUV), calls for increased state intervention in the economy and further development of state-owned enterprises and socialist communes as public-sector economic institutions. The government’s project of institutionalizing “socialism for the 21st century” in Venezuela emphasizes state-led economic activity, relies on heavy, if uneven, regulation of the economy, degrades the operating environment for private-sector businesses, and increases risks for foreign investors.

The Venezuelan National Assembly passed legislation in 2010 designed to create a communal state and economy, privileging public-sector economic institutions and reducing the space for private-sector participation. Five “popular power” laws sought to incorporate socialist communes into policymaking at all levels of government, discounting consultation with the private sector in the regulatory process: the Organic Law of Popular Power (Gazette No. 6.011, 2010); the Organic Law of Public Planning (Gazette No. 6.011, 2010); the Organic Law of Communes (Gazette No. 6.011, 2010); the Organic Law of the Communal Economic System (Gazette No. 6.011, 2010); and, the Organic Law of Popular Municipal Power (Gazette No. 6.011, 2010).

Other 2010 legislation increased state power over basic services and retail markets, facilitating government interventions, squeezing margins, and discouraging private investment in the affected sectors. Examples include: the Law of Banking Sector Institutions (Gazette No. 6.015, 2010); the Law for Insurance Activity (Gazette No. 5.990, 2010); the Electricity Service Law (Gazette No. 39.573, 2010); and, the Law for the Defense of People’s Access to Goods and Services (Gazette No. 39.358, 2010) (“consumer protection law”); as well as reforms to the Science, Technology, and Innovation Law (Gazette No. 39.575, 2010) and the Telecommunications Law (Gazette No. 39.610, 2010). On December 17, 2010, the Venezuelan National Assembly enacted an enabling law granting Chavez the power to pass legislation by presidential decree for 18 months. More than 50 pieces of legislation directed at deepening socialism in Venezuela were passed under the enabling law before it expired in June 2012.

The 2010 consumer protection law expanded the authority of the Institute for the Defense of People’s Access to Goods and Services (INDEPABIS), a government agency that polices retail markets and serves as a referral center for consumers with grievances against businesses. The law has empowered INDEPABIS and consumers and exposed businesses to inspections, audits, fines, and closures. INDEPABIS’s president said in November 2012 that her organization had received 31,600 formal complaints January-October 2012—regarding allegations of, among other things, non-performance of contracts, over-pricing, real-estate fraud, and false labeling—of which 22,853 resulted in agency-imposed resolutions, with the remainder being referred to administrative adjudication. INDEPABIS said it had inspected 19,500 businesses nationwide through October 2012 to ensure compliance with Venezuela’s consumer regulations and price controls. With respect to the food and beverage industry alone, INDEPABIS had conducted 4,146 inspections and 267 audits, levied 217 fines, and closed 50 businesses.

Additional legislation passed in 2011 and 2012 further degraded the investment climate, including the Emergency Law of Urban Lands and Housing (Gazette No. 39.599, 2011), which weakened property rights and increased government authority to expropriate urban real estate, and the Law of Social Responsibility for Radio and Television (Gazette No. 39.610, 2011), which expanded government control of the media. A Law of Fair Costs and Prices (Gazette No. 39.715, 2011) was promulgated on July 14, 2011, and entered into effect on November 22, 2011. The law gives the Venezuelan government (GBRV) authority to regulate prices of most goods and services sold to the public, including imported products. The Superintendent of Fair Costs and Prices (SUNDECOP) is the government entity empowered to determine whether prices are “fair” and to identify businesses that make “excessive profits.” As of April 1, 2012, SUNDECOP reviewed and set prices for foodstuffs, personal care and household cleaning products, and construction materials—ranging from soap and shampoo to cement—comprising a total of 19 product lines. SUNDECOP assured manufacturers that prices would be adjusted, but despite industry lobbying SUNDECOP for the changes, prices had not been reviewed as of December 2012. SUNDECOP’s national administrator announced in December 2012 that in 2013 the body would analyze regulating prices in the automobile, construction, and pharmaceutical sectors.

The National Assembly passed the Law for the Regulation and Control of Housing Rents in November 2011 (Gazette No. 6.053, 2011), expanding government power over the residential rental market and weakening the rights of property owners. The law mandated that a new government entity, the National Superintendent of Housing Rents (SUNAVI), would set rental prices and approve rental contracts. It eliminated tenant deposit guarantees and limited landlord profits to margins below inflation. SUNAVI promulgated regulations to implement the law in November 2012 and announced that it would enforce them beginning in January 2013. Combined with a May 2011 Law Against Arbitrary Eviction (Gazette No. 39.668, 2011), these real estate regulations make it difficult for landlords to manage properties.

International non-governmental organizations, think tanks, and financial institutions have cited corruption and state intervention in the economy as key factors deteriorating the investment climate in Venezuela. Transparency International's 2012 Corruption Perceptions Index ranked Venezuela as 165 out of 174, the lowest ranked country in Latin America. In 2012, Venezuela ranked 174 out of 177 in the Heritage Foundation’s Index of Economic Freedom, up one slot from 2011. The World Bank’s 2013 “Doing Business Report” ranked Venezuela 180 out of 185 in terms of the ease of doing business, with an average of 144 days and 17 procedures necessary to start a business. The World Economic Forum’s World Competitiveness Report 2012-2013 ranked Venezuela 126 out of 144 countries.

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

Measure

Year

Index/Ranking

Transparency International Corruption Perceptions Index

2012

165

Heritage Foundation Economic Freedom Index

2012

174

World Bank Doing Business Report

2013

180

Legal Framework for Foreign Investment

Venezuela's legal framework for foreign investment requires equal treatment for both foreign and local companies, with the exception of a few sectors in which the state or Venezuelan nationals must be majority owners, including hydrocarbons and the media. In practice, however, foreign investors encounter hurdles.

The 1999 Constitution

The Venezuelan constitution of 1999 treats investment as a means of promoting the development of the national economy. Article 301 of the constitution adopted international standards for the treatment of private capital, with equal treatment of local and foreign capital. The constitution reserves strategic sectors such as oil and hydropower for the state.

Decree 2095

Decree 2095 of 1992 (Gazette No. 34.930, 1992) established the legal framework for foreign investment in Venezuela. This decree implemented Andean Community Decisions 291 and 292 and lifted most restrictions on foreign participation in the economy. Article 13 of the decree guaranteed foreign investors the same rights and imposed the same obligations applied to national investors “except as provided for in special laws and limitations contained in this Decree.” Decree 2095 also guaranteed foreign investors the right to repatriate 100 percent of profits and capital, including proceeds from the sale of shares or liquidation of a company, and allowed for unrestricted reinvestment of profits. Most investors, however, have been unable to repatriate dividends since 2008 due to Venezuela’s exchange controls (see section 2 regarding Conversion and Transfer Policies). Between April 2006, when Venezuela first withdrew from the Andean Community, and April 22, 2011, when its withdrawal was finalized, the GBRV continued to apply some Andean Community norms in the absence of other regulations. Venezuela’s formal withdrawal from the Andean Community, however, has added to uncertainty regarding Venezuelan laws based on Andean Community decisions.

Under Decree 2095, foreign investors need to register with the Superintendent of Foreign Investment (SIEX) within 60 days of the date of their investment. Foreign companies may open offices in Venezuela without prior authorization from SIEX as long as they do not engage in certain sales or business activities that would require registration. No prior authorization is required for technical assistance, transfer of technology, or trademark-use agreements provided they are not contrary to existing legal provisions. Decree 2095 reserved three areas of economic activity to “national companies”: (1) broadcast media, (2) Spanish-language newspapers, and (3) professional services regulated by national laws. These professional services include law, architecture, engineering, medicine, veterinary medicine, dentistry, economics, public accounting, psychology, pharmacy, and management. A “national company” (as defined in Article 1 of Andean Community Decision 291) is a company in which Venezuelan nationals hold more than 80 percent of the equity. Foreign capital is therefore restricted to a maximum of 19.9 percent in the areas noted above. The Investment Promotion and Protection Law of October 1999 (Gazette No. 5.390, 1999), whose regulations were published in July 2002, maintained the same reserved sectors.

Foreign professionals are generally free to work in Venezuela—provided that they possess a government-issued identity card or government-approved work permit—but they must first revalidate their certification at a Venezuelan public university. Consulting services under contract for a specific project are not subject to this requirement.

At a July 2012 summit in Rio de Janeiro, Venezuela became the fifth full member of the Southern Cone Common Market (MERCOSUR). Under the terms of its accession, Venezuela will have four years to adopt the MERCOSUR common external tariff (CET) and to provide duty-free treatment to its four MERCOSUR partners on all goods, with sensitive products allowed a two-year extension. Venezuela announced in December 2012 that it reached an agreement with MERCOSUR’s other members regarding CET implementation, though negotiations continue regarding some tariffs.

The Hydrocarbons Sector

Some sectors are regulated by “special laws” that supplement the constitution and affect the business environment. These sectors include banking, hydrocarbons, insurance, mining, and telecommunications. Of these, the hydrocarbons sector has the greatest restrictions on foreign investment.

Under Chavez’s administrations the GBRV has made changes in royalty, tax policies, and contracts that have expanded state control of the hydrocarbons sector and increased uncertainty for foreign petroleum companies operating in Venezuela. The 2001 Hydrocarbons Law (Gazette No. 37.323, 2001) did not expressly grandfather contracts executed under earlier legislation. Specifically, it did not include the 33 operating service contracts awarded for "marginal" or inactive oilfields resulting from three bidding rounds in the 1990s, exploration and production profit-sharing agreements awarded in 1996, and four so-called “strategic associations”—legal entities with majority private ownership and minority ownership by state oil firm Petroleos de Venezuela (PDVSA)—formed in the 1990s to extract and upgrade extra heavy oil in Venezuela’s Orinoco Heavy Oil Belt or “Faja” region. The GBRV argued in 2001 that no grandfather provision was necessary because retroactive application of legislative provisions was forbidden by the constitution.

The 2001 hydrocarbons law reserved the rights of exploration, production, “gathering,” and initial transportation and storage of petroleum and associated natural gas for the state. Under this regime, primary activities must be carried out directly by the state, by a 100 percent state-owned company such as PDVSA, or by a joint-venture company with more than 50 percent of the shares held by the state. The law left refining ventures open to private investment as well as commercialization activities under a license and permit regime. It also stipulated that any arbitration proceedings would henceforth be in domestic, not international venues.

In October 2004, the GBRV eliminated a nine-year royalty holiday ceded to the strategic associations, arguing that this action was allowable under earlier hydrocarbons legislation. In 2005, the GBRV informed companies with operating service contracts that they had to transfer their contracts to joint ventures in conformance with the 2001 Hydrocarbons Law. It threatened to seize fields operating under the services contracts on December 31, 2005, if oil companies had not signed transition agreements to migrate their contracts. Sixteen oil companies signed memoranda of understanding, converting their contracts to joint ventures on March 31, 2005. In January 2008, ENI and Total, two companies that had not signed MOUs in 2005, reached an agreement with PDVSA.

President Chavez issued a decree in late February 2007 requiring the four strategic associations to convert to joint ventures in which PDVSA would hold a 60 percent stake. The decree established an April 30, 2007 deadline for completing the conversion. ConocoPhillips and ExxonMobil refused to transfer their investment stakes in the three of the four associations in which they had equity, and the GBRV took control of their investments. Both companies filed international arbitration claims against the Venezuelan government. In 2012 each company received a favorable ruling from the International Chamber of Commerce’s arbitration tribunal: ConocoPhillips was awarded $66.8 million in September, while ExxonMobil confirmed an award of $907.6 million in January. Both firms still have cases pending with the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID); rulings are expected by the panel in late 2013.

President Chavez announced on January 8, 2012, that the Venezuelan government would not recognize any ICSID decision related to ExxonMobil’s claim and stated that his government should withdraw from ICSID. On January 24, 2012, the Venezuelan government withdrew from the ICSID Convention; Venezuela’s exit from ICSID became effective on July 25, 2012. At least 29 ICSID cases against Venezuela are currently pending, making Venezuela the country with the largest number of pending ICSID claims. All cases involving Venezuela pending before ICSID prior to Venezuela’s withdrawal remain in process, notwithstanding Venezuela’s rejection of the body. Investors cannot, however, as of July 25, 2012, file new ICSID claims against Venezuela.

In April 2011, Chavez decreed changes to a windfall profit law first passed in 2008. The new law established a sliding scale payment system that peaks at 95 percent of oil sales revenue when prices exceed $100 per barrel. The changes increased uncertainty about the amount of tax due from crude oil production that had been established in the original 2008 law.

In contrast to the legal framework for petroleum, the 1999 Gaseous Hydrocarbons Law (Gazette No. 36.687, 1999) offered more open terms to investors in the unassociated natural gas sector. This law opened the entire natural gas sector to private investment, both domestic and foreign, and created a licensing system for exploration and production regulated by the former Ministry of Energy and Mines (now the Ministry of Petroleum and Mining). The state retained ownership of all natural gas “in situ,” but PDVSA involvement was not required for gas development projects (although the law allows PDVSA to back into 35 percent ownership of any natural gas project once the private partners have declared commerciality). The law prohibited complete vertical integration of the gas business from the wellhead to the consumer. President Chavez has publicly stated, however, that he would like to modify the terms of the 1999 law to require that the state have a controlling interest in primary unassociated natural gas activities.

On September 18, 2008, an Organic Law on the Restructuring of the Internal Liquid Fuels Market (Gazette No. 39.019, 2008) came into effect. The law mandated government control of domestic transportation and wholesale of liquid fuels and set a 60-day period for negotiations with the affected companies. The law does not define the term “liquid fuels,” which created uncertainty as to whether it applies to products other than gasoline and diesel fuel, such as motor oils or lubricants. This law affected several foreign companies that had investments in the downstream sector.

On May 7, 2009, Venezuela enacted the Organic Law that Reserves to the State the Assets and Services related to Hydrocarbon Primary Activities (Gazette No. 39.173, 2009). The law specifically affected petroleum service companies involved in the injection of water, steam, or gas as secondary recovery methods, as well as services rendered for the performance of primary activities on Lake Maracaibo. It provided for the “extinction” of contracts executed in the past between PDVSA and private companies and stipulated that all contracts and activities governed by the law would be subject to Venezuelan law and to the exclusive jurisdiction of Venezuelan courts. Under the provisions of this law, the GBRV nationalized more than 75 companies, including three U.S. firms. There are no reports that the GBRV has paid any compensation for these nationalizations to date.

Several international and domestic oilfield services companies have agreed since 2009 to create joint-venture oil field services companies with PDVSA. As majority PDVSA-owned enterprises, the new joint ventures do not have to follow many of Venezuela’s public contracting and solicitation regulations, affecting competition in the sector. The number of services companies operating in Venezuela has shrunk considerably due to the problem of late payments from PDVSA that began in late 2008, nationalizations, and internal company risk assessments.

On July 10, 2009, Venezuela's Organic Law for the Development of Petrochemical Activities (Gazette No. 39.203, 2009) entered into force. The Petrochemicals Law reserves basic and intermediate petrochemical activities for the state as well as the assets and facilities required for their handling. It allows the state, through the Ministry of Petroleum and Mining, to create mixed companies in which the GBRV will control at least 50 percent of the shareholder equity and exercise effective control over company decisions. The legislation mandates that certain investment incentives for the GBRV (e.g., technology transfer, incentives for industrial development, infrastructure supply, facility maintenance, social resources, import substitution, price advantages, and estimated profits) will be required for authorization of a mixed company. The petrochemicals law gives priority to the supply of the domestic market and the development of state and socialist companies. Upon the expiration of the term of a mixed company, its works, ancillary facilities, and equipment revert to the state, free of encumbrance and without indemnity.

Conversion and Transfer Policies

Venezuela has strict currency controls that foreign investors generally cite as among their greatest difficulties operating in Venezuela. The official exchange rate overvalues the local currency (bolivar) vis-à-vis the U.S. dollar, creating distortions in the economy and problems for businesses. The Law Governing the Foreign Exchange System (Gazette No. 4.897, 1995) empowers the executive branch to intervene in the foreign exchange market “when national interests so dictate.” President Chavez used this law to create the Commission for the Administration of Foreign Exchange (CADIVI) on February 5, 2003, to regulate the purchase and sale of foreign currency. CADIVI manages transactions at the official exchange rate (currently 4.3 bolivars per dollar), prioritizing the importation of food, medicine, capital goods, and other products determined essential by the GBRV.

A Foreign Exchange Crimes Law (Gazette No. 38.272, 2005, revised 2007) established criminal penalties and fines for transactions outside the official foreign exchange process. The exemption for bond operations in this law led to the creation of a parallel foreign exchange market, known as the “permuta” (swap) market, which was a currency exchange market that operated through the sale, for bolivars, of dollar-denominated public-sector bonds that the purchasers then resold for dollars on the international secondary market. In early 2008, the GBRV prohibited the publication in Venezuela of the parallel exchange rate. The GBRV declared the permuta market to be illegal in May 2010.

The GBRV then instituted a central bank (BCV)-controlled alternative to the permuta market, the System for Transactions in Foreign Currency Assets (SITME), which also operates through the sale of dollar-denominated public-sector bonds. Under SITME banks serve as intermediary bond-purchasers, and firms may buy a maximum of bonds with implicit value of $350,000 per month, but not more than $50,000 per day. SITME currently transacts dollar-denominated public-sector bonds at an implied exchange rate of 5.3 bolivars/dollar. Foreign exchange transactions in an unofficial market continue at rates currently averaging 17 bolivars/dollar.

Many multinational firms say access to foreign exchange for imports, dividend repatriation, and other financial transaction is among their greatest challenges operating in Venezuela. Importers say CADIVI takes 180-270 days to process a request for foreign currency, creating arrears with their overseas vendors. Most private sector analysts forecast some change to the currency exchange regime in 2013 to help the GBRV improve access to dollars and put its finances on a healthier trajectory. Options include a devaluation of the official exchange rate or the SITME rate, increased use of SITME, the reinstitution of a government-regulated, private-sector permuta market, or some combination of these approaches.

Foreign investors in capital markets and foreign direct investment projects are guaranteed the right to repatriate dividends and capital under the constitution and Decree 2095. Since 2008, however, CADIVI has essentially stopped approving foreign firms’ applications for dollars to exchange their bolivar earnings and repatriate dividends. The inability to repatriate dividends exposed foreign investors to a 20 percent devaluation of the official exchange rate in 2010, which reduced the value, in dollar terms, of their bolivar earnings. Foreign investors will be exposed to future devaluations so long as CADIVI limits currency authorizations for dividend repatriation.

CADIVI data indicate the commission authorized nearly $30 billion from January through November 2012, a 5 percent increase over the same period in 2011. Imports represented $23.6 billion of the total, while overseas credit card and other financial transactions made up the remainder. BCV data indicate the bank transacted an additional $9.1 billion in dollar-denominated assets through SITME from January through November 2012, a 15 percent increase over the same period in 2011.

Expropriation and Compensation

The GBRV has nationalized businesses in diverse sectors over the past several years, using such expropriations as a pillar of its project of institutionalizing socialism in Venezuela. The affected sectors have included: agriculture, chemicals, construction, electricity, finance, manufacturing, mining, petroleum, ports, real estate, steel, telecommunications, and transportation. The GBRV has cited the following reasons for its nationalizations: abusive charges for services or products, economic sovereignty, excessive profit margins, food security, monopolistic behavior, public utility, and strategic importance.

The GBRV maintains that it will compensate investors for nationalizations. The process to establish compensation has been slow and opaque, however, leading some companies to seek settlement through international arbitration. The legal framework used to carry out nationalizations includes the Law of Expropriations (Gazette No. 37.475, 2002), the Land and Agricultural Development Reform Law (Gazette No. 5.771, 2005), the Urban Land Law (Gazette No. 5.933, 2009), and the Emergency Law of Urban Lands and Housing (Gazette No. 39.599, 2011).

In January 2007, President Chavez announced his intent to nationalize strategic sectors. Shortly thereafter, the GBRV took over an electric company and cable television company owned by U.S. companies and investors. These investors received compensation. In 2008, the GBRV announced nationalizations of several multi-national cement companies, a steel maker (SIDOR) and the Banco de Venezuela.

According to Venezuelan trade association Conindustria, the GBRV has expropriated more than 1,170 private businesses since 1998. Nationalizations and expropriations slowed in 2012, as GBRV election-year government spending focused on supporting mass consumption. The government did, however, take control of several firms, including steelmaker Siderúrgica del Turbio (Sidetur), whose expropriation it had decreed in 2010 but did not execute until October 2012. The GBRV has not paid Sidetur for its assets.

Venezuela's 2005 land law calls for the redistribution of “unproductive” land. The GBRV continues to nationalize large tracts of land, including farms, which has hurt agricultural production. At the end of August 2012, the GBRV claimed to have seized over 8.9 million acres of land in the seven years since the law entered into force. Many owners have not received compensation. Homeowners also face the loss of their houses if they are located on land the GBRV determines to be of public use. These actions discouraged investment in key agricultural subsectors and have reduced their output. The GBRV has also conducted “inspections” of plants to determine if they were in violation of Venezuelan law. These inspections have also led to occupations and nationalizations.

On February 21, 2007, the GBRV published the Special Law Against Hoarding (Gazette No. 38.628, 2007), which has become another basis for state intervention in production, wholesale, and retail markets. The law defines all stages of the production cycle for regulated foods as within the ambit of “public utility and the social interest.” It also empowers the government to expropriate any business throughout the production cycle to protect “food security and sovereignty.” The GBRV announced in January 2013 plans to create a nationwide plan to inspect and audit food producers and distributors to police against hoarding.

Dispute Settlement

Venezuela's legal system is available to foreign entities seeking to resolve investment disputes. The legal system, however, is generally slow and inefficient, and critics, such as Human Rights Watch and Amnesty International, have said it suffers from corruption and a lack of independence from the executive branch. Venezuelan lawyers say routine commercial disputes take up to five years to litigate in Venezuelan courts, limiting foreign investors’ legal recourse for protecting their interests.

Decree 2095 allows for the arbitration of disputes as “provided by domestic law.” The Commercial Arbitration Law (Gazette No. 36.430, 1998) eliminated previous requirement for judicial approval of arbitration; arbitration agreements involving national or international firms can therefore be automatically binding. The law also allows state enterprises to subject themselves to arbitration in contracts with private commercial entities, but requires that they first obtain the approval of the “competent statutory body” as well as the “written authorization” of the responsible minister. As noted above, however, the 2001 hydrocarbons law prohibits PDVSA from entering into agreements providing for international arbitration, although the company appears to have done so in recent years with certain partners.

Performance Requirements and Incentives

Foreign companies receive the same tax treatment as domestic companies, with the exception of the non-associated natural gas sector where foreign investors receive preferential tax treatment. Performance requirements related to workforce composition are discussed in the labor section below. The state oil company, PDVSA, seeks to maximize local content and hiring in its negotiations with foreign companies: new deals require technology transfers and also social contributions from companies.

The Law for Communal Management of Responsibilities and Services (Gazette No. 39.945, 2012) outlined preferential treatment for companies that cooperate with the “communal state,” including: access to the government’s distribution and commercialization network; guarantees of technical assistance; access to GBRV’s direct purchasing plans (i.e., closed bidding); access to credits and funds for production encouragement; preferential rates and conditions on manufacturing credits; access to technology; tax exemptions; and exemption from the “Law of Public Contracts” (Gazette No. 39.503, 2010)—which, among other things, gives the GBRV the right to expropriate a government contractor’s equipment if the firm breaches its agreement.

Public procurement is governed by the Partial Tender Reform Act (Gazette No. 5.556, 2001) and the Law of Public Contracts (Gazette No. 39.181, 2009). The 2001 tender law sought to increase participation by small- and medium-sized enterprises. The 2009 law of public contracts sought to enhance the role of communal councils in public procurement. Public contracts executed pursuant to international agreements are exempt from the requirements of the public contract law.

Right to Private Ownership and Establishment

There are legal limits on foreign ownership in certain sectors, such as banking, insurance, and media, and as noted in the constitution, Decree 2095, and “special laws” (see above).

Protection of Property Rights

Real Property Rights

Foreign investors may pursue property claims through Venezuela's legal system. See also the Expropriation and Compensation section for discussion of expropriation of real property rights and the Dispute Settlement section for a discussion of the legal system.

Intellectual Property Rights (IPR)

Venezuela’s IPR regime provides limited protection for foreign investors. The World Economic Forum’s World Competitiveness Report 2012–2013 ranked Venezuela 143 out of 144 countries in strength of IPR protection.

Article 98 of the 1999 constitution guarantees state protection for intellectual property rights “in accordance with the conditions and exception established by law and the international treaties executed and ratified by the Republic in this field.” Under the 1999 constitution, intellectual property rights are classified as cultural and educational rights rather than economic rights as they were previously.

Venezuelan legislation generally distinguishes between IPR and industrial-property rights. IPR include protections for literature, graphic arts, audio and visual productions and fall under the August 1993 Copyright Law (Gazette No. 4.638, 1993). Industrial property rights include patents and trademarks and fell under Andean Community Decision 486 (and Decision 345 for plant varieties) until Venezuela withdrew from the bloc. In September 2008 the Autonomous Intellectual Property Service (SAPI) issued a press release reinstating Venezuela’s 1955 Industrial Property Law (Gazette No. 25.227, 1955). Most independent observers believe the 1955 law is outdated and inconsistent with the WTO’s Trade Related Aspects of Intellectual Property Rights (TRIPs) agreement. In December 2010, the National Assembly passed the Law on the Crime of Smuggling (Gazette No. 6.017, 2010), which aims to combat piracy by criminalizing and punishing acts relating to smuggling goods in or out of the country with higher penalties of 10-14 years.

Venezuela is a signatory to the Berne Convention for the Protection of Literary and Artistic Works, the Geneva Phonograms Convention, the Universal Copyright Convention, and the Paris Convention for the Protection of Industrial Property. Venezuela is also a member of the World Intellectual Property Organization (WIPO).

Since 2002 Venezuelan authorities have permitted the manufacture and sale of copies of patented medicine, if manufacturers can demonstrate that their medicine is the bioequivalent of the existing patented medicine. This rule in effect allows manufacturers to copy medicines. SAPI does not permit companies to obtain so-called second-use patents for innovations.

Venezuela was listed on the Priority Watch List in the U.S. Trade Representative’s 2012 Special 301 Report. Key concerns cited in the report relate to the deteriorating environment for the protection and enforcement of intellectual property rights (IPR) in Venezuela. The reinstatement of the 1955 industrial property law created uncertainty with respect to patent and trademark protections. In 2012, the Supreme Court accepted a request from the Venezuelan pharmaceutical chamber (presented in 2009) to decide if ten articles from the 1955 industrial property law are not in conflict with existing international treaties in effect (such as the Paris Convention and World Trade Organization). As of November 2012, the case was under consideration.

Patents and Trademarks

Venezuela’s 1955 industrial property law provides that patents of an invention, improvement, model, or industrial drawing can last five or ten years, depending on the will of the filer. Patents for technologies developed abroad may last five years or until the original foreign patent term expires, whichever is shorter. Patent durations under the 1955 law violate the 20-year patent-term standard provided under the TRIPs agreement. Article 15 of the 1955 industrial property law excludes the following items from patent protection: food and drink, including animal feed; medicine; financial systems and plans; naturally occurring substances or forces; second-uses for known objects, substances or elements; industrial processes; speculative or theoretical inventions; the juxtaposition of elements already in the public domain; published inventions.

The return to the 1955 law codified the GBRV's de facto policy of refusing to issue patents, particularly in the area of medicines. The GBRV has not awarded a patent for new pharmaceuticals since 2004. Since 2002, Venezuela's food and drug regulatory agency has approved the commercialization of generic drugs without requiring unique test data. These drugs are the bioequivalent of innovative drugs that have already received market approval. This practice thereby denies innovative drug companies protection against unfair use of their test data as required by the TRIPs agreement. In 2009, the GBRV nullified two patents for an antibiotic produced by a pharmaceutical company after the company protested the local production of two illegal copies of the drug. Regarding trademarks, the 1955 law changes the registration procedure and adds the requirement of publishing trademark applications in a local newspaper before they can be published in the Industrial Property Bulletin.

Venezuela does not automatically recognize foreign patents and trademarks or logotypes, so foreign investors must register patents and trademarks in as many categories as may be applicable. It is advisable not to have agents or distributors do so because the agent can then claim that he/she is the registered owner of the trademark in question. Following the nationalization of a well-known Venezuelan coffee company in 2009, the GBRV also expropriated the trademark and brand name.

Copyrights

Venezuela’s 1993 copyright law provides the legal framework for the protection of copyrights. The 1993 copyright law is modern and comprehensive and extends copyright protection to all creative works, including computer software. A National Copyright Office was established in October 1995, and is responsible for registering copyrights, as well as for controlling, overseeing, and ensuring compliance with the rights of authors and other copyright holders.

Enforcement

IPR protection is also hindered by the lack of adequate resources for the Venezuelan copyright and trademark enforcement police (COMANPI) and for the special IPR prosecutor's office. Due to a shortage of personnel, limited budget, and inadequate storage facilities for seized goods, COMANPI has had to work with the National Guard and private industry to enforce copyright laws. COMANPI can only act based on a complaint by a copyright holder; it cannot carry out an arrest or seizure on its own initiative. In the past, the GBRV's tax authority (SENIAT) has been more successful enforcing IPR laws. It has taken action against some businesses importing or selling pirated goods based on presumed tax evasion. While such actions on the part of SENIAT have decreased over the past few years, it does continue to take action against pirated goods. The 2010 law against smuggling has also been enforced, including provisions that impose penalties for smuggling violations and provided for the seizure of goods that infringe IPR. Copyright piracy and trademark counterfeiting remain widespread, however, including piracy over the Internet. Pirated software, music, and movies are readily available throughout the country.

Transparency of the Regulatory System

Venezuela’s regulatory system lacks transparency and suffers from corruption. The World Economic Forum’s 2012-2013 World Competitiveness Report ranked Venezuela 142 out of 144 countries in transparency of government policymaking. The World Bank’s 2013 “Doing Business Report” ranked Venezuela 180 out of 185 countries in terms of the ease of doing business, with an average of 144 days and 17 procedures necessary to start a business. The World Bank ranked Venezuela 185 in terms of corporate taxation, noting that businesses must make 71 separate tax payments per year and spend an average of 792 hours preparing their corporate taxes. Transparency International's 2012 Corruption Perceptions Index ranked Venezuela as 165 out of 174, the lowest ranked country in Latin America.

The GBRV’s ruling PSUV party and its allies control the National Assembly and the judiciary. Proposed laws are generally presented for two rounds of discussion in the National Assembly, but opposition parties are limited in their ability to influence legislative outcomes. Ministries and executive agencies generally develop and promulgate implementing regulations without consulting private-sector representatives of the affected sectors.

The GBRV adopted two laws in the early 1990s to promote free competition and prevent unfair trade practices: a Law to Promote and Protect Free Competition (Gazette No. 34.880, 1992) and an Antidumping Decree (Gazette No. 4.441, 1992). In 1997, the government created an agency, Pro-Competencia, under the Trade Ministry, to implement the 1992 competition law. Pro-Competencia’s current stated mission is to democratize economic activity and promote social and economic equality.

Efficient Capital Markets and Portfolio Investment

Venezuela’s financial services are heavily regulated. In 2010 the GBRV passed several laws to reform the financial sector, including: the Organic Law of the National Financial System (Gazette No. 39.447, 2010), which is the regulatory framework for banks, insurance companies, and the capital markets; the Law for Insurance Activity (Gazette No. 5.990, 2010); the Capital Markets Law (Gazette No. 39.489, 2010), a law to create a state-run securities exchange, the Bicentennial Public Securities Exchange (BPVB) (Gazette No. 5.999, 2010); and the Law of Banking Sector Institutions (Gazette No. 6.015, 2010).

The Venezuelan financial services sector accounts for a relatively small but growing share of GDP. According to BCV data, financial services represented 4.3 percent of GDP in 2011, and 5.4 in the first three quarters of 2012. Much of the growth has been driven by increasing liquidity resulting from government spending and increasing volumes of public-sector debt circulating in the economy. Total financial assets as a percentage of GDP reached an estimated 178 percent in 2011, comparable to the regional average, but below levels in larger economies such as Brazil (251 percent), Chile (298 percent), and Mexico (210 percent), according to the Economist Intelligence Unit (EIU).

Capital Markets

Venezuelan capital markets are underdeveloped. The EIU estimated that Venezuelan’s stock-market capitalization was 1.6 percent of GDP in 2011. The leading Caracas stock market index, the Caracas Stock Exchange Index (IBVC), was up roughly 297 percent, year on year, in November 2012, but private analysts attribute the rise to government-spending generated liquidity. Activity in Venezuela’s stock markets has decreased in recent years due to nationalizations of previously listed firms and the GBRV’s seizure of 51 brokerages, since 2010, mostly on charges of illegal trading in the permuta market (see Conversion and Transfer Policies).

Venezuela’s primary stock market is the Caracas Stock Exchange (BVC). On January 31, 2011, the GBRV launched the BPVB, under the November 2010 securities market law, to sell government and corporate bonds and compete with the BVC. The BPVB was empowered to trade both bolivar- and dollar-denominated securities, but as of November 2012 it had only traded bolivar-denominated debt. Private brokerages have not been allowed to participate in the BPVB, and as of November 2012 only nine of the BPVB’s own employees were licensed to act as brokers.

Foreign investors can buy or sell stocks and bonds in Venezuelan capital markets as long as they have registered with the stock market regulator, the Superintendent of Securities (SNV). Foreign investors may also buy shares directly in Venezuelan companies. No prior registration is generally required before making foreign investments, but subsequent registration with the Superintendent of Foreign Investments is required.

Credit Markets

Venezuelan credit markets are also heavily regulated. The BCV and the Superintendent of Banks (SUDEBAN) regulate Venezuela’s banking sector. The 2010 law of banking sector institutions describes banking as a public service and banks as public utilities, permitting the GBRV to nationalize financial institutions without National Assembly approval. The public sector’s share of total bank assets has grown in recent years, primarily through GBRV nationalizations. According SUDEBAN data, in November 2012 there were 35 banking institutions—25 private and 10 public—down from 59 in November 2009. Public-sector banks held an estimated 35 percent of total banking sector assets in November 2012.

The BCV sets maximum and minimum interest rates banks can charge. Recent limits included 24 percent on commercial and personal loans, 29 percent on credit cards, and 16 percent on car loans. With inflation ranging between 20 and 30 percent since 2009, real interest rates have generally been negative. Banks are required to allocate roughly 51 percent of their portfolio for loans to the housing, agriculture, small business, manufacturing, and tourism sectors, in most cases at preferential rates. Universal and commercial banks are prohibited from making commercial loans for terms longer than three years.

The majority of banking sector assets is concentrated in the country's six largest banks. Total banking assets, at roughly $206 billion (at the official exchange rate), were 52 percent greater in November 2012 than in November 2011. The three largest private banks were: Banesco, with 13 percent of total system assets in August 2012; Banco Provincial, with 12 percent; and, Banco Mercantil, with 11 percent. Banesco and Banco Mercantil are Venezuelan-owned, while Banco Provincial is majority-owned by BBVA of Spain. Citibank is the only U.S. universal bank with a presence in Venezuela. The two largest state banks are Banco de Venezuela and Banco Bicentenario. The government nationalized Banco de Venezuela from Spain-based Banco Santander in May 2009. Banco de Venezuela is now the country’s largest bank, with 16 percent of total sector assets in November 2012. Banco Bicentenario was formed in 2010 through the nationalization of four private banks; it held 11 percent of assets as of November 2012. Public and private universal and commercial banks control 99 percent of the banking sector’s assets.

The BCV promulgated regulations in September 2012 (Gazette No. 40.002, 2012) outlining conditions under which businesses and individuals may open dollar-denominated bank accounts at Venezuelan universal and commercial banks. The regulations are designed so that the accounts will be used to facilitate imports and other overseas transactions. Account holders, for example, may not withdraw dollars from the accounts while within Venezuela; they may only withdraw bolivars at the official exchange rate of 4.3 bolivars/dollar. Account holders may use the accounts for transfers to other accounts overseas or for debit-card transactions effected abroad. The accounts earn interest at BCV regulated rates, but they are not designed as savings vehicles: dollars acquired via SITME, for example, may not be held in the accounts for longer than twelve months; any dollars remaining from a disbursement via CADIVI may not be deposited in the accounts at all and must be sold back to the BCV. Document requirements for opening dollar-denominated accounts are comparable to those for opening bolivar-denominated accounts. Major public and private universal and commercial banks may offer these accounts, including: Banesco, Banco Provincial, Banco Mercantil, Banco Occidental de Descuento, Banco Exterior, Banco del Caribe, Banco Nacional de Crédito, Citibank, Banco de Venezuela, Bicentenario, and Banco del Tesoro.

Competition from State-Owned Enterprises (SOEs)

Private firms are at a disadvantage when competing with public enterprises, specifically in terms of accessing foreign exchange at the official exchange rate. SOEs, in some cases, do not need to go through CADIVI to request hard currency at the official exchange rate, while private companies struggle with CADIVI’s limitations and process delays (see section 2 regarding Conversion and Transfer Policies).

In March 2012 the GBRV amended its customs and tax regimes to favor government imports over those of the private sector. The new rules exempt SOE importers from providing certain customs documentation and grant waivers on value-added taxes, customs duties, and fees on a broad range of imported products. The exemptions do not apply to the private sector.

SOEs are active in diverse sectors of the Venezuelan economy, including agribusiness, hydrocarbons, media, mining, telecommunications, and tourism. The CEO of PDVSA is also the Minister of Petroleum and Mining, and the rest of PDVSA’s board members are appointed by the President. GBRV direct appointment of SOE executives is commonplace, such as in the Venezuelan Corporation of Guayana (CVG), a state holding company that includes firms in basic industries such as aluminum, iron ore mining, electricity generation, and steel.

Corporate Social Responsibility (CSR)

Article 135 of the Venezuelan constitution declares a general duty for all non-state actors to respect laws regarding social responsibility. Various Venezuelan laws set forth requirements intended to advance principles generally included under the rubric of CSR. GBRV regulation and enforcement of these laws is, however, uneven. For example, the Law of Social Services (Gazette No. 38.270, 2005) sets out broad protections for human, civil, economic, cultural, religious, educational, environmental, and other rights for all persons; the Law for Disabled Persons (Gazette No. 38.598, 2007) requires businesses to reserve at least 5 percent of their payroll for the disabled; the Organic Law of Science and Technology (Gazette No. 39.575, 2010) requires businesses to devote between 0.5 percent and 2 percent of revenues to training, research, and development or to contribute to social projects; the Income Tax Law (Gazette No. 38.628, 2007) provides for tax deductions for donations to social responsibility projects; the Law Against Illicit Traffic in Narcotic and Psychotropic Drugs (Gazette No. 38.377, 2005) requires companies with more than 50 employees to contribute to anti-drug social programs; and the Organic Environment Law (Gazette No. 5.833, 2006) requires businesses to develop and implement projects to promote sustainable development and the prudent use of natural resources.

The Venezuelan-American Chamber of Commerce (VenAmCham), for its part, promotes CSR though its “New Social Contract” (Nuevo Contrato Social) program. In 2012 VenAmCham hosted 22 CSR workshops and held its eighth annual university competition entitled “Promoting Socially Responsible Leaders,” co-hosted with the Rotary Club. The Venezuelan Federation of Chambers of Commerce (Fedecamaras) promotes CSR through a standing working group devoted to the dissemination of best practices and an annual award to recognize CSR excellence.

Political Violence

Venezuela's political climate is polarized between supporters and opponents of President Chavez and the policies of the PSUV. There were, however, no major incidents of political violence that specifically targeted foreign-owned companies or installations in 2012.

Corruption

Transparency International's 2012 Corruption Perceptions Index ranked Venezuela 165 out of 174 countries, the lowest ranked country in Latin America. Venezuela has anti-corruption laws, and accepting a bribe is a criminal act. A proposed amendment to the existing corruption law passed a first reading in the National Assembly in May 2011 but was pending further discussion as of December 2012. Venezuela singed the UN Convention Against Corruption on December 10, 2003, and ratified it on February 2, 2009. Venezuela has not adopted the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

The National Assembly approved on January 31, 2012, a new Organic Law Against Organized Crime and Terrorist Financing (Gazette No. 39.912, 2012). The law empowers prosecutors to obtain detailed information on accounts subject to investigation. The law requires banks to share detailed financial information with a new National Financial Intelligence Unit (Unidad Nacional de Inteligencia Financiera or UNIF) or face penalties. The law also requires banks to develop mechanisms to identify suspicious transactions.

Bilateral Investment Agreements

Venezuela has concluded the following bilateral investment agreements as of June 1, 2011:

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Partner

Date of Signature

Date of entry into force

Argentina

16-Nov-93

1-Jul-95

Barbados

15-Jul-94

31-Oct-95

Belarus

6-Dec-07

13-Aug-08

Belgium and Luxembourg

17-Mar-98

29-Apr-04

Brazil

4-Jul-95

---

Canada

1-Jul-96

28-Jan-98

Chile

2-Apr-93

25-May-95

Costa Rica

17-Mar-97

2-May-01

Cuba

11-Dec-96

15-Apr-04

Czech Republic

27-Apr-95

23-Jul-96

Denmark

28-Nov-94

19-Sep-96

Ecuador

18-Nov-93

1-Feb-95

France

2-Jul-01

30-Apr-04

Germany

14-May-96

16-Oct-98

Indonesia

18-Dec-00

23-Mar-03

Iran, Islamic Republic

11-Mar-05

7-Jun-06

Italy

14-Feb-01

---

Lithuania

24-Apr-95

1-Aug-96

Netherlands*

22-Oct-91

1-Nov-93

Paraguay

5-Sep-96

14-Nov-97

Peru

12-Jan-96

18-Sep-97

Portugal

17-Jun-94

7-Oct-95

Russian Federation

7-Nov-08

---

Spain

2-Nov-95

10-Sep-97

Sweden

25-Nov-96

5-Jan-98

Switzerland

18-Nov-93

30-Nov-94

United Kingdom

15-Mar-95

1-Aug-96

Uruguay

20-May-97

18-Jan-02

*Effective November 1, 2008, Venezuela revoked its Bilateral Investment Treaty with the Netherlands. Revocation did not have immediate consequences for investments made prior to the date of revocation. The BIT remains in force for these investments for a period of 15 years.

OPIC and Other Investment Insurance Programs

OPIC programs in Venezuela were suspended in 2005 as a result of Venezuela's decertification for failure to cooperate in suppressing international narcotics trafficking. The certification process is an annual event, and in 2012 President Obama determined that Venezuela “failed demonstrably” to make sufficient or meaningful efforts to adhere to its obligations under international counternarcotics agreements and conventions. However, President Obama also issued a national interests waiver in 2012, determining that support for programs to aid Bolivia, Burma, and Venezuela is vital to the national interests of the United States. Under this waiver, Venezuela is eligible for OPIC programs.

The Export-Import Bank has not provided new financing for projects in Venezuela since formally placing Venezuela "off cover" for new lending in April 2003. Both OPIC and the Ex-Im Bank still have significant exposure in Venezuela contracted prior to suspending operations.

Labor

Several factors make human resources a challenge for domestic and foreign investors alike: heavily regulated labor markets; talent flight, as skilled Venezuelans have sought employment abroad due to domestic political and economic uncertainty; government programs that support poorer Venezuelans making it more difficult for companies to attract unskilled labor; and declining traditional trade unions, as the GBRV has supported the establishment “parallel” unions aligned to government interests. Roughly 9 to 11 percent of the total workforce is unionized. The GBRV extended in December 2012 a firing freeze in place since 2002 that shields most private-sector workers from termination through December 31, 2013.

In April 2012, President Chavez used his decree law power to pass a long-pending Organic Law of Labor and Workers (Gazette No. 6.076, 2012). The law replaced a 1997 labor law, expanding workers’ rights and benefits. The law prohibits employer discrimination on the basis of race, sex, age, civil status, religion, political beliefs, social class, nationality, sexual orientation, union membership, criminal record, or disability. The law prohibits termination without legal justification and requires employers to consult labor courts regarding the lawfulness of a termination. The law also prohibits employers from hiring third-party contractors to perform ongoing, regular duties as a means of avoiding legal obligations owed to those on one’s payroll. The law guarantees a retirement pension for workers in both the formal and informal sectors. The law reduced the legal work week from 44 to 40 hours and guaranteed workers 15 days of vacation, plus one day for each additional year of employment, up to a total of 45 days per year. The law also introduced new rights for female workers with children, including: 26 weeks of paid maternity leave for mothers (six pre- and 20 post-natal); two breaks per day for mothers who are breastfeeding their babies; and access to a lactation room, if they work for an employer with more than 20 employees. The Superior Labor Council, which is empowered to oversee implementation of the labor law, said in December 2012 that by May 2013 it would further develop regulations to put the law into effect and reform the Labor Ministry.

In 2012, Venezuela saw continued protests and work stoppages by unions across the public and private sectors. Union protests—in some cases resulting in deaths—have disrupted operations at many companies since 2009, including auto assembly plants owned by General Motors, Toyota, and Mitsubishi, and forced the temporary shutdown of various oil drilling operations and oil service companies. In addition, the union protests in the state of Guyana have stopped operations at the Venezuelan Corporation of Guyana (CVG), the largest state-owned industrial conglomerate in the country. The GBRV has delayed negotiations over collective bargaining agreements for workers in the public sector, leaving more than two million public employees without collective contracts, including teachers and electrical workers. In July 2012, PDVSA and unions representing oil and gas industry employees agreed on a new collective bargaining agreement for the period of 2011-2013.

The Venezuelan government’s National Institute of Statistics (INE) estimated in December 2012 the unemployment rate at 6.4 percent. The INE estimated informal and formal sector employment at 42.5 and 57.5 percent, respectively.

Foreign Trade Zones/Free Ports

The Free-Trade Zone Law (Gazette No. 34.772, 1991) provides for free-trade zones and free ports. The three existing free-trade zones, created in subsequent Gazette decrees, are located in the Paraguana Peninsula on Venezuela's northwest coast, Atuja in the State of Zulia, and Merida (but only for cultural, scientific, and technological goods). These zones provide exemptions from most import and export duties and offer foreign-owned firms the same investment opportunities as Venezuelan firms. Venezuela has two free ports that also enjoy exemptions from most tariff duties: Margarita Island (part of Nueva Esparta state) and Santa Elena de Uairen in the state of Bolivar.

Foreign Direct Investment and Foreign Portfolio Investment Statistics

Neither the Venezuelan authorities, nor independent analysts separately publish foreign direct investment (FDI) or foreign portfolio investment data for the country. The BCV, however, publishes on a quarterly basis Venezuela’s international investment position (IIP), generally following the IMF’s Balance of Payments Manual. FDI and foreign portfolio investment data may be extracted from the BCV’s IIP data. Third quarter 2012 data were the most recent available as of January 2013.

Foreign Direct Investment

BCV data on FDI data were the following.

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FDI

($ millions)

3Q2012

2Q2012

1Q2012

4Q2011

3Q2011

Total Assets

20,841

20,003

19,630

18,565

18,391

Public Sector FDI

17,701

16,865

16,493

15,422

15,365

Equities

5,135

5,129

5,126

5,118

5,103

Reinvested Earnings

8,125

8,022

7,914

7,797

7,692

Other capital

4,441

3,714

3,453

2,507

2,570

Private Sector FDI

3,140

3,138

3,137

3,134

3,026

Equities

2,042

2,040

2,039

2,036

2,003

Reinvested Earnings

1,098

1,098

1,098

1,098

1,023

Other capital

0

0

0

0

0

Total Liabilities

45,955

46,321

45,040

44,645

44,406

Public Sector FDI

12,411

11,958

11,733

11,578

12,309

Equities

372

372

372

372

372

Reinvested Earnings

5,686

6,040

5,624

5,055

4,874

Other capital

6,353

5,546

5,737

6,151

6,763

Private Sector FDI

33,544

34,363

33,307

33,067

32,097

Equities

9,442

9,889

10,003

10,308

10,203

Reinvested Earnings

14,635

14,542

13,874

13,755

13,330

Other capital

9,467

9,932

9,430

9,004

8,564

Net Position

(25,114)

(26,318)

(25,410)

(26,080)

(26,051)

Venezuela recorded a total of $5.3 billion in net foreign direct investment (FDI) flows in 2011, according to the UN’s Economic Commission for Latin America and the Caribbean (ECLAC). ECLAC observed, however, that Venezuelan net FDI flows in 2011 (and in 2010) derived primarily from reinvested earnings among in-country affiliates of foreign-owned firms. According to ECLAC, Venezuela’s net FDI flow as a share of GDP, at 1.8 percent, was among Latin America’s lowest in 2011. The EIU estimated Venezuela’s net FDI flow for 2012 at zero.

U.S. FDI in Venezuela is concentrated in the petroleum, manufacturing, and finance sectors. In 2011, according to the U.S. Trade Representative, the stock of U.S. FDI in Venezuela was $ 12.1 billion, down 17 percent from $14.5 billion in 2009.

Foreign Portfolio Investment

BCV data on foreign portfolio investment were the following.

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Foreign Portfolio Investment

($ millions)

3Q2012

2Q2012

1Q2012

4Q2011

3Q2011

Total Assets

8,761

8,616

8,214

9,400

9,742

Public Sector Portfolio Investment

8,258

8,009

7,623

8,789

9,087

Equities

38

35

34

34

29

Securities

8,145

7,899

7,589

8,680

8,983

Money Markets

75

75

75

75

75

Private Sector Portfolio Investment

503

607

591

611

655

Equities

13

13

18

19

19

Securities

441

542

512

542

598

Money Markets

49

52

61

50

38

Total Liabilities

41,643

36,598

38,455

31,114

27,193

Public Sector Portfolio Investment

40,983

35,990

37,968

30,786

26,816

Equities

71

71

71

71

71

Securities

40,912

35,919

37,897

30,715

26,745

Money Markets

0

0

0

0

0

Private Sector Portfolio Investment

660

608

487

328

377

Equities

660

608

487

328

377

Securities

0

0

0

0

0

Money Markets

0

0

0

0

0

Net Position

(32,882)

(27,982)

(30,241)

(21,714)

(17,451)

GBRV and PDVSA issuances of dollar-denominated debt securities in 2011 and early 2012 drove the recent growth in Venezuela’s negative net position in foreign portfolio investment. BCV data indicate, however, that Venezuela’s overall net IIP was positive, despite negative net FDI and foreign portfolio investment positions, due to large positive net positions in commercial credits, loans, currency, and deposits.

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