Raul Larios

Venezuelan Democracy 9, Business 1

The Coat of arms of Venezuela

The Coat of arms of Venezuela (Photo credit: Wikipedia)

Just as I predicted 6 months ago (in my blog post of April 2012), Hugo Chavez won his fourth presidential election in Venezuela, marking this the 9th victory for democracy. The score is now Democracy 9, Business 1.

What? How dare I claim that Democracy has been such a clear winner in Venezuela? Well, yes, just look at the overwhelming numbers in the last 15 years. Chavez has won four presidential elections, most of them by landslide victories. Even in the most recent election last month (which by all accounts is the best performance scored by the opposition, after uniting under 1 single candidate), Chavez won 55% of the vote, taking all but 2 of the 24 Venezuelan provinces.  Turnout was a massive 80.6% of the electorate.

Furthermore, Chavez has won every single referendum (a total of six since his first presidency). The only exception was the 2007 referendum, which sought to amend a whopping 69 articles of the 1999 Constitution, including the abolishment of presidential term limits and the autonomy of the Central Bank. This referendum also sought to grant the President the power to declare an unlimited state of emergency. In other words, President Chavez was seeking to become the first elected Monarch of Latin America, with absolute power.

The people of Venezuela wisely rejected the referendum, but just barely (51% to 49%), and in my opinion, it’s the only victory scored by Venezuelan Business since Chavez came to power. However, this victory was partially reversed in the 2009 referendum, which was far more focused — on the abolishment of term limits for President, State Governors and City Mayors. With a huge turnout of 70.3% of the electorate, it passed 54.9% vs. 45.1% against.

I know what you’re thinking…that Chavez won by voting fraud. Well, this has been the claim since his very first election. However, it doesn’t really matter that most elections and referenda since Chavez’s rise to power were observed and ratified by the Organization of American States and the Carter Center, negating the allegations of voting fraud.

Far more important to you (the foreign investor seeking investment opportunities in Latin America) should be the realities of modern-day Latin American politics. The poor, the masses (Chavez’s political base) no longer need to rely on a military revolution Cuban-style to rise up against their perceived oppressors. They can now do it democratically, Chavez-style.

The impact to your investments could be disastrous. Just take a look at Venezuela, where nationalization and expropriations are quite common. In fact, the business climate has gotten so bad that Venezuela now ranks nearly in last place (#180 out of 185 nations) in the World Bank’s Ease of Doing Business rankings.  You stand a better chance at successfully managing a subsidiary in Iraq (#165), or even Afghanistan (#168).

Worse yet, Chavez is committed to exporting his revolution (think back to Bolivia, Ecuador, Nicaragua and Honduras during his previous terms) — and he will try to do so again during the next six years.

His political movement (“Chavismo”) is real and democratically legitimate, and it will be with us for many years to come. Your foreign direct investment will be at risk in any Latin American country where its elected government is not serious about social justice. Therefore, in addition to the usual business metrics that you use, your due diligence must also include a thorough analysis of the country’s political parties after they have come to power in recent history. Besides favorable business policies, did they also invest in affordable housing and in high-quality, low-cost health care & education for the masses? What policies did they actually implement towards alleviating income inequality? What was the level of corruption during their administrations? Etc., etc.

The answers to these public policy questions will tell you whether your investment will be safe short AND long-term, as government reigns change hands. Even if the current political party in power is good to foreign investors, you want to know whether the socio-economic conditions that they leave behind could give rise to a Chavez-type revolution in the near future…at the ballot box…in the very next presidential election.

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November 1, 2012 - Posted by | New York | , , , , , ,

2 Comments »

  1. Raul, your stats are correct, but I have to doubt to call this 9 wins ‘Democracy’. I would attribute this to mere manipulation of the data and the masses, a person that keeps the country as uneducated as possible to manage them like puppets. Yes his movement is real and also at a closer look not a Democratic movement. Maybe it is only us who have lived and experienced it know, and those that are still there fighting for an educated, positive country also know better.

    Comment by Adriana Romero | November 19, 2012 | Reply

  2. Adriana, thank you for your comments. I can certainly understand why you would call Chavez’s victories “mere manipulation of the data and the masses…” There is much truth (and power) in your words.

    In fact, it is the relative ease with which Chavez has been able to manipulate Venezuela’s democratic institutions that should worry every foreign investor in Latin America. Could his success (as a power-hungry politician manipulating the masses) be replicated by others in the region?

    After all, the very same social injustices that gave rise to a Chavez in Venezuela are painfully evident in almost every country of Latin America. This adds an additional layer of complexity and risk to any foreign investment, and the investor better pay close attention…

    Comment by Raul Larios | November 20, 2012 | Reply


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