Saturday, January 12, 2008

Stuck in reverse when they should be in overdrive 

The final number for automobile sales in Venezuela are in and 2007 was another record year - by a mile.

Auto sales skyrocketed by more than 43% to 491,000 units. This could be viewed by some as a sign of economic strength.

Certainly it is one more indication of what we already knew, that the Venezuelan economy is booming.

Still, some, such as development economist Ha-Joon Chang, would point out that spending on luxury consumer items such as private automobiles is wasteful and detracts from the investment a poor country desperately needs in order to grow. That alone is reason enough to not feel like celebrating these numbers.

But the worst and most unforgivable aspect of all this is to be found in the detail of the numbers. It turns out that of all those cars only 155,000 were produced in Venezuela and that is actually a decline of 1.5% from the previous year. Further, exports suffered an even more precipitous decline of 38%, declining from 22,000 to a paltry 13,000 units.

So while the Venezuelan auto market is experiencing an unprecedented boom Venezuelan automobile production is actually declining!!!

Now I suppose someone could try to make the argument that it doesn't matter how many actual cars are manufactured in Venezuela - that maybe now more components used in those cars are made in Venezuela and that therefore the Venezuelan automobile industry is in better shape after all.

Unfortunately there is no luck there either. According to Coindustria and the Venezuelan Automobile Manufacturer Association Venezuelan production of auto components declined 2% last year:

So on every front this key industry is going backwards at the same time that its market is booming. If this isn't a clear indication of the fact that something is wrong with Venezuela's economic policies I don't know what is.

Of course, as readers of this blog will know, it's not that difficult to figure out what is wrong. And while the Chavez government may be clueless on this the people who wrote the above report had no difficulty figuring it out - the Venezuelan currency being way overvalued stymies exports, undercuts domestic production, and makes imports artificially cheap.

Of course, if oil prices remain as they are 2008 will certainly be another year of economic growth in Venezuela. Unfortunately for the long term welfare of Venezuelans the benefits of that boom will largely accrue to foreign manufacturers, not Venezuelan ones, and oil will continue to being the be all and end all of the Venezuelan economy.


This page is powered by Blogger. Isn't yours?