Venezuela Conversation​

The Director of the Brenthurst Foundation, Dr Greg Mills and the Senior Director of the Johannesburg Business School (JBS), Prof Lyal White visited Venezuela on March 2018 to study Venezuela's political and economic landscape. Please click here to access a more detailed Discussion Paper on Venezuela's parallels and lessons for Africa.

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Populist Armageddon: Venezuela’s Parallels and Lessons for Africa’

Venezuela is living a man-made humanitarian emergency. Five years since the death of Hugo Chavez, Venezuela is collapsing on all fronts. A combination of hyperinflation, economic free-fall, violent crime, political repression, hunger and social catastrophe is the end result of the Bolivarian Revolution; and has exposed the true colours of a populist regime.  Venezuela is set to become the first failed state in modern Latin American history.

The crisis in Venezuela could have been avoided and, by most counts, should never have happened. Once the wealthiest country in Latin America, boasting a per capita income more than double the regional average up until the mid-1980s, Venezuela's fantastic endowment of natural resources include the world's largest reserves of oil, and significant stores of gold, coltan, copper, bauxite, and nickel. Venezuela is an example of a rich country that has simply gone wrong through poor choices and decisions.  

Controversy surrounded Chavez's Bolivarian Republic from the start in 1998. But popular support of the movement lasted just about as long as Chavez, who died in office in 2013, and the oil boom that had propped up its social programmes for a decade. Thereafter his successor, Nicolas Maduro, lacking Chávez's rough charm and charisma, not to mention the guile of the former military officer, has ridden roughshod over institutional niceties.

Maduro has systematically eradicated, often by force, any remnants of democracy or economic governance. He has transformed the country from Chavez's authoritarian democracy to a 'hegemonic' state, crushing the opposition and commanding loyalty through the distribution of a monthly box of basic goods contained in the CLAP (Conité Local Abastecimiento Popular) distributed to holders of an electronic party card, the Carnet de la Patria. This culminated in an unprecedented tri-factor presidential, state and municipal election on 20 May, which the opposition has refused to contest, and is widely criticised by the country's Latin American neighbours. 
 
But political democracy and economics aside, crime is one true measure of the country's collapse. The Venezuelan Observatory of Violence calculates that 28,479 people were killed in 2016, translating into a murder rate of 91.8 per 100,000 inhabitants countrywide. In the capital Caracas, there are 140 homicides per 100,000 people. South Africa, regarded as one of the more dangerous countries in the world, has a homicide rate of 34 per 100,000 people. Rising crime has made Venezuela the most dangerous place in the world.

The situation in Venezuela has sparked a regional migration crisis akin to the civil war in Colombia that displaced millions of people over a 52-year period. Between 1998, when the late Hugo Chavez came into power, and the end of 2017, three million Venezuelans (10% of the population) left the country.

In February 2018, neighbouring Colombia deployed an extra 3,000 soldiers to Cucuta, bordering Venezuela. Over 1.3 million Venezuelans are registered for Colombian day passes allowing them to transit the border to buy food, medical supplies and other basic necessities. With 20,000 Venezuelan's leaving the country every day, socioeconomic tensions between these two countries is bound to escalate. By June 2018 an estimated six million Venezuelan's are expected to be living abroad. The country has literally been hollowed out as a 'diaspora nation'.

Most agree this is a result of the country's economic meltdown, hastened by the 2014 fall in the global oil price. Between 2013 and 2017 Venezuela's economy contracted by 38.7%. This is expected to plummet by a further 50% by 2019.

Although government stopped providing official figures in 2016, monthly inflation reached 100% in February 2018. This will translate into an annual rate of inflation of more than 1,000,000% in 2018. The official exchange rate of 14 Bolivars (Bs) to the US dollar is impossible to relate to the openly used black-market rate of Bs240,000: US$1.

Day-to-day life is surreal. Venezuela is either the cheapest or the most expensive place on earth. It all depends on your access to foreign currency. At the unofficial rate, it costs just $0.02c to fill up a vehicle's 50 litre fuel tank. A meal for five at a family restaurant is either $500,000 or $30,000, depending on the exchange rate. University professors earn $6 dollar per month, a police superintendent with 17 years of experience, the same. Times are impossibly tough for ordinary Venezuelans, but especially the poor.

The percentage of the population living in poverty is well above 80% and extreme poverty has leapt from under 24% of the population in 2014 to more than 61% three years later. In a country that produces just 12% of its food consumption, relying almost entirely on unaffordable imports, supermarket shelves are bare. Zero production and the inability to import basic goods is the most obvious example of how populist policies negatively impact the poor. It is little surprise that Venezuela is ranked top on Bloomberg's Misery Economy Index for the fifth straight year in a row.

While hyperinflation and debt defaults are not uncommon in Latin America, at the start of 2018 Venezuela was one of the few countries worldwide with a shrinking economy, and the only one with hyperinflation. It has the dubious honour of being the only petroleum exporter simultaneously to suffer hyperinflation while defaulting on its international debt.

Hints of Zimbabwe

Venezuela's situation draws parallels, inevitably, with the most recent case of hyperinflation, that of Zimbabwe, which suffered a rate of 79 billion percent before it was dollarised in 2009. The parallels don't end there since the ruling Zimbabwe African National Union (ZANU) party has established a similarly extractive and corrupt political economy to Chavez, and poverty has mushroomed as a result.

There are of course differences. For one, the majority of Latin American states, as represented by the 17-nation Lima Group, is unsupportive of the Maduro government's 'democratic' tactics. In Southern Africa, the region – with the notable exception of Botswana – closed ranks around Robert Mugabe's rule, preferring a soft landing in the form of the creation of a Government of National Unity when he lost the 2008 election, or indeed no landing at all. Whereas the Zimbabwe government has used humanitarian food assistance to reduce its responsibilities to its own population, and its distribution to maintain political control, Venezuela has refused such assistance, despite dire circumstances, to maintain its own distribution and control networks. Perhaps harshly, Venezuelan activists have been very willing to take their fight to the streets, more so than Zimbabweans. No fewer th! an 120 were killed in the Caracas uprising of 2017.  

There are other similarities: For one, these crises go on for much longer than imagined sustainable. Both cases have involved the ruling party's control of natural resources. Both possess a mythology of liberation politics, blended over time with repression, intimidation and fear. They have engineered a dependency on the state, using access to resources as a tool of loyalty. There is a relatively low cost to repression, and a high cost to the elite of losing power, which maintains the disincentive for change. Both have had targeted sanctions imposed on the ruling elite, who employ this as an excuse as to why the economy has melted down, even though this has nothing to do with the folly of their decisions and illegal actions which is the real root of the crisis.

While the outcome in Venezuela is unclear, the lessons it offers African countries, including South Africa, are relevant well beyond the parallels with Zimbabwe. Populism is not only costly, but devastating in the medium-to-long term. This holds true for both policy and rhetoric, as both have a direct impact on investor confidence and economic performance. Crucial ingredients for development in resource rich but capital poor Africa.

Venezuela is an ongoing, live broadcast of a humanitarian emergency, not based on a natural disaster or external events, but a crisis of politics and an outright policy catastrophe. It is an example of what African countries, and especially South Africa, must avoid at all costs.