Thursday, May 24, 2007

Rumors of the private sectors death are greatly exaggerated 

In the previous post I showed how, contrary to what is commonly asserted by the opposition and in the media, investment in Venezuela is doing quite well. So well in fact that it is significantly higher than when Chavez first came into office.

However, objections were raised that while this may be true it is likely that most of this investment is by the government and that private investment is not doing well. Leaving aside the question of whether private investment is somehow supeior to public investment I thought it would be interesting to see if indeed investment by the private sector is moribund as claimed.

However, in the quest to answer this question we run into a problem - the Venezuelan Central Bank doesn't seem to break out investment by public sector versus private sector any more. Therefore, we can't get a straightfoward and complete answer.

Fortunatley, there are other numbers which we can use as proxies to determine how private investment is doing. One is how much the private sector is importing into Venezuela in capital goods. The reason that this number might be telling is that Venezuela has to import a lot of its capital goods. These capital good would be things like machine tools, control systems, computers, construction equipment, electrical machinery, etc, etc.

As you might imagine an awful lot of this equipment is not manufactured in Venezuela and therefore has to be imported. These imports are easy to track and fortunately the Venzuelan government does just that and has published them here.

The table lists all imports divided into different categories. It breaks imports into finished goods (TVs to be sold in stores for example), intermediate goods (fabric to be used to makes clothes for example, and capital goods (machine tools for example). As we want to look at capital goods this is helpful. Further, it breaks goods into whether they are for the oil or non-oil sector of the economy - we will look at non-oil numbers. Lastly, it breaks all of that down by public sector versus private sector.

So from this table we can tell how many capital goods are being imported by the Venezuelan private sector. This is not exactly equivalent to knowing what private sector investment is but it should give us a very good snapshot at what the private sector is doing in terms of investment and if it is going up or down. And what do we see? Here it is:

Fortunately this image doesn't need a lot of interpretation as it shows a pattern we've seen time and again. Imports of capital goods by the private sector were about $2.5 to $3 billion dollars per year before Chavez came to office. During his first several years in power they declined somewhat. Then came the coup and oil strike and they dropped to less than half of what they were when he took office.

Yet since then they have exploded going up to almost $8.5 billion last year. That is more than triple what they were before Chavez came to office.

Lets be clear on what this means - imports of machine tools, construction equipment, computer sytems, capital equipment, etc. by the PRIVATE SECTOR have about TRIPLED in the since Chavez came to office. Given that all the things they would have to import to stock new factories and construction sites have exploded how likely is it that, as some claim, private investment is not doing well? Not likely at all. Given that private sector imports of capital goods are way up it is virtually certain that private investment is way up.

To conclude, in the past two days we've seen that investment overall in Venezuela is way up and that private sector investment is almost certainly way up too. If there is something here to complain about it is hard to see what it is.


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