Black Economy

 Everyone knows the term “black market”, right? Even though I knew what “black market” was I never bought anything on the “black market” until I lived in Venezuela. I soon learned that you needed the “black market” to get, not something here or there that, for some reason or another was hard to find, but for day to day items that simply disappeared from stores. I also, along with everybody else, exchanged currency on the “black market” as the rate was usually 10 times better than the government rate (or more). But this piece from Caracas Chronicles was not about that “black market”. It was about the “black economy” in Venezuela.

 Transparency International Venezuela and Ecoanalytica conclude drug, gold, and gasoline trafficking as well as port smuggling made up 21.74% of Venezuela’s GDP last year. Other illicit trades not included in these numbers : certain types of food smuggling, diesel smuggling, cooking gas trafficking, human trafficking, and lately timber trafficking.

 The Executive Director of Transparency International says “Illicit trades are not external to the state, they are organized and promoted from within the state.” The “black economy”, as the illicit trades are called, has been increasing since 2014. (just after Maduro took power) In 2016 the “black economy” was 10% of GDP. It’s now more than twice that size. By benefiting the elite that control these activities and the large number of people involved it decreases the possibility of political change. The “black economy” is a central element to understanding the economic, political, and social dynamic in Venezuela. With all the people making money, businesses benefit as well.

 In 2018, before Maduro began raising gasoline prices, Venezuelans were paying 99.9% less than they were paying in 1986. Gasoline was basically free. I could fill up my gas tank with a couple of coins from my console, which usually amounted to less than a nickel per tankful. This led to a lot of smuggling from Venezuela to Colombia. When drastic shortages hit a couple of years ago (and prices began to rise) smugglers reversed course and brought gasoline from Colombia into Venezuela.

 Another facet of the gasoline smuggling scene is Venezuela’s (Maduro’s) “two gasoline prices” policy. Venezuelans can purchase government subsidized fuel for their needs up to about 120 liters a month. After that they pay the “international price” which is about 10 times higher. The subsidized fuel is diverted and smuggled across the border where it’s sold for approximately $3.50 per liter. The practice exacerbates the shortages as it is estimated that 60% of domestic gasoline production is diverted. Why provide gasoline to the Venezuelan people when you can get rich smuggling it to Colombia?

 And then, of course, we have the drug business. Venezuela, as a cocaine transit hub, generated an estimated $4.9 billion gross margin in 2021.(they’re also becoming a producer)

 Between 20% – 30% of shipments of all merchandise to Venezuela ports don’t declare value and pay taxes (quite a hit to the tax base), they pay corrupt government officials. After merchandise is in the country there is a 25% chance of roadside checkpoint extortion.

 The illicit gold trade generated $1.8 billion in 2021 while only $500 – $580 million went to BCV (Venezuela Central Bank) from Maduro’s “Mining Arc”. 45% of the gold from the “Mining Arc”is trafficked by corrupt government officials. 30% of the gold is trafficked by irregular groups, a mix of ‘sindicatos’ (gold mafia), paramilitaries, guerrillas, cartels, criminal gangs, and others.

 Many expropriated businesses, everything from sugar mills to hotels, is transferred to private “strategic alliances” (so that’s where that much-used Chavista term came from) and even includes PDVSA (government-owned oil company) gas stations, none of which benefits the public.

 Another ominous trend, although not illicit, is the huge increase in scrap metal exports. Venezuela industry, including the oil industry, is not repairing equipment and infrastructure, it is cannibalizing itself, which will have drastic future consequences when (if) the country tries to rebuild (post- Chavismo)

 It seems that without the opportunity for free and fair elections, you know…the one’s that get governments that mismanage an economy thrown out, the “Black Economy” is much more important to 12st Century Bolivarian Socialism’s hold on power than the real economy.

 And as long as we’re talking about the economy, we have a few numbers from JD Supra. Venezuela inflation for the first half of 2022 was 53.8% (high in real-world terms but low for Venezuela). The bolivar (local currency) lost 17% of it’s value in the first half of 2022 (compared to a drop of 50% in the first half of 2021…not bad). And FYI…OPEC reports Venezuela oil production for the first half of 2022 at an average of 755,000 bpd (barrels per day).

 Then we have WBKO News reporting that the family of former US Marine, Matthew Heath, who recently tried to commit suicide in a Venezuela prison, says he’s still being tortured. He’s been wrongfully detained for almost two years. Oh, and just so you know, there is really no such thing as a “former Marine”…”Once a Marine, always a Marine”.

 And we have Iran Wire telling us that the Iran/Venezuela Tourism Cooperation Implementation Program is off to a strange start. The same day the Emtrasur Boeing 747 cargo flight and crew were detained (and still are) under suspicious circumstances previously detailed, a plane carrying 23 Iranian “tour operators and influencers” landed on Margarita Island, Venezuela.

 After their arrival nothing more was heard from the group, no social media posts, no local media coverage, no public statements from the Venezuela government nor the Iran government, and nothing from the group. This is hardly typical behavior for a conference “promoting tourism”. It’s widely known that Margarita Island is a safe zone for Hezbollah (Lebanese terrorist organization with ties to the Iran and Venezuela governments) and that they operate a training center for Venezuelan recruits on Margarita Island. Maybe it’s nothing…or then again, maybe not?

 Then we have Caracas Chronicles telling us that Venezuela oil analyst, Luis Pacheco, says Venezuela won’t benefit from opportunities in the oil market presented by the war (it’s not a “special military operation”) in Ukraine. They have no spare production capacity (we told you) and would need 18 months (without international help) just to increase production by 200,000 bpd. The investment needed to recover the oil industry (destroyed by the Chavistas) would be billions of dollars per year (most estimates put it at $10 billion per year).

 And we have the Venezuela Observatory of Finance telling us that the average salary in Venezuela (not just the minimum wage but all salaries) is $118 a month.

 And we have economist, Asdrubal Oliveres, telling us that growing Venezuela’s economy by any significant amount (it’s lost 80% of GDP under the Maduro regime) will be difficult as 53% of the economy is now informal (not legitimate businesses or industry).

 Then we have NGO – Alianza Gavi telling us that Venezuela could receive support from international organizations to provide vaccines for children but the lack of government figures prevent knowing how much help is needed. Remember that Health Minister that only held her job for a couple of weeks? She was fired because she reported epidemiology numbers to the WHO (World Health Organization).

 And on the lighter side we have Vietnam Plus telling us that Vietnamese Film Week was launched last week by the Vietnamese Embassy in Venezuela to facilitate improvement of political, economic, cultural, and societal relations. I didn’t know the Vietnamese even made films.

 More tomorrow….

©Copyright 2021 all right reserved.