Published by Minyanville
Second-quarter growth in Venezuela hit 2.5% compared to the same period last year, according to the country’s Central Bank. The news brings first-half growth to 3.6% after 4.8% growth during the first quarter, in promising figures for the maverick nation.
The news signals recovery following a long recession. GDP was down 1.4% in 2010, after a 3.3% drop the previous year. The recovery is thanks in part to an increase in public spending by President Hugo Chávez as he builds up support in time for elections in 2012. For example, the president recently announced the formation of a state public works company.
Armando Leon, the director of the country’s Central Bank, expects growth to continue in the second half of 2011. Chávez has said he expects year-end figures of between 2% and 4%.
However, even high oil prices have not done too much to boost GDP. Second-quarter oil growth was only 0.8%. “(State oil company Petróleos de Venezuela, known as PDVSA) has a problem because it is unable to increase its oil output, as shown in the GDP. Oil activity is narrower; the state-run oil company has a production problem and also is getting absurdly into debt.” Luis Oliveros, a professor of Petroleum Economics at the Central University of Venezuela, told Caracas-based El Universal.
While at least positive, the figures are not quite as high as some predictions. Goldman Sachs expected the country’s economy to grow 3.5% in the second quarter. With regular expropriations and the recent reorganization of reserves, the government is still unpredictable and 25.1% inflation over the last year is not to be scoffed at.
Steel tube-maker Tenaris begins proceedings before the International Center for Settlement of Investment Disputes ("ICSID") against Venezuela for its expropriation of Tenaris's subsidiary Matesi this week. It will be the country’s 18th pending case at the World Bank, writes Benedict Mander in the Financial Times. Only Argentina has more, with 26 pending cases.
The disputes are putting a lot of pressure on the Venezuelan economy. ExxonMobil (XOM) alone is demanding $7 billion after a 2007 expropriation. The billions of dollars at stake are seen as the reason behind Chávez’s recent reorganization of his cash reserves into countries such as China and Russia, where the assets cannot be seized so easily. More than 400 companies have been expropriated this year alone in Venezuela.
Gold Nationalization Pays Off
News that Venezuela’s Guayana region in the south could hold up to 140 million ounces of gold, worth around $250 billion, will please the government following its nationalization of the industry. PDVSA will join forces with state miner Corporación Venezolana de Guayana, or CVG, to develop mines throughout the country.
PDVSA will hold 40% of the new company, with CVG taking control of the major stake. The joint venture will develop the Las Cristinas mine, which is thought to hold up to 27 million ounces of gold reserves. The license for Las Cristinas was originally held by Crystallex, but was cancelled, leaving the Toronto-based company demanding $3.8 billion in compensation.
Rusoro, the country’s only publicly traded gold miner, has agreed to transfer its own assets to a venture with state oil (and now gold) firm PDVSA. The Canadian company will own 45% of the new company, leaving the remainder in the hands of PDVSA.
“We will be compensated, and the formula for compensation will be identical to the way they compensated the petroleum companies in 2006 and 2007. It’s basically book value with some premium,” Rusoro’s Chief Executive Officer Andre Agapov told Bloomberg.
It is hoped that an agreement will be reached before the end of this year. Agapov hopes the new venture will allow an increase in production from 100,000 ounces to 500,000 ounces per year before 2013. Still, the company’s shares fell 7% in Toronto with the news, having fallen 68% this year. Second-quarter production fell 37% from the same period in 2010 leading to a net loss of $9.8 million, compared to net income of $3.3 million in the same period last year.
President's Reassures on Health
Chávez himself is, despite entering his third bout of chemotherapy, in good form. “I’m determined to continue living,” he said as he entered a hospital, this time in Venezuela rather than Cuba. “It’s not time to die.”