“We are going to offer 5% to 10% of the shares of some public companies for national investment.”
With these words, Wednesday, May 12andMaduro announced that Venezuela perestroika was well and truly under way (or seems to be, anyway). Maduro, champion of Hugo Chávez’s “21”st Century Socialism” has long been committed to a policy that is in contradiction with what the revolution has been preaching since coming to power in 1998.
In short, the government would offer shares of public companies on the stock market, allowing anyone to become a shareholder of companies like CANTV, Movilnet, and even, according to Maduro, companies in the oil and gas industry (which we don’t give now if it refers to JVs, PDVSA, or what). For now, let’s focus on what this means for the government, what it stands to gain, who might possibly want shares in failing companies, and what might end up happening.
The economic collapse of Venezuela, coupled with the imposition by the United States financial penalties, has made it harder (but not impossible) for the regime to sustain itself. the discourse around sanctions is complicated and will likely become more toxic, but the fact remains: the Maduro government has been forced to tighten its belt. As such, they sought alternative financing. Seeking to inject money into struggling public companies through the stock market is one such way.
However, there is more than just a financial decision.
The Maduro government is at an interesting crossroads. They need sound democratic in an attempt to trick the United States and the European Union into believing that their tough approach is failing and that they are therefore considering easing sanctions. But chavismo cannot be democraticbecause if they open too much, they could lose power.
The recent regional elections of 2021 are an example of this. While the government party colored the electoral map in bright red, it had its worst electoral result in terms of turnout, already. The party did not even manage to reach 4 million favorable votes and even more voices versus.
Yet they know that actions speak louder than words, and we have seen actions. Whether it’s the removal of barriers to dollarization (despite some regressive taxes) or the lack of tough regulation on new industries like online platforms and delivery services, the government is trying to sell itself as a new product. But old habits die hard.
So how could this benefit them, and who would dare touch public companies? Let’s look at three scenarios.
The network of sanctions can have very interesting effects, counter productive, consequences. For example, those under sanctions may dig their boots into the ground and decide to see it, rather than refrain from helping Maduro’s government. This contributes to the growth of the ever more powerful Venezuelan oligarchy, which owes everything it has to the regime. Likewise, foreign investors may be afraid to approach state-owned assets for fear of falling foul of existing sanctions.
The end result is that only those who have nothing to fear will buy the shares offered, knowing full well that if the sanctions are ever lifted, they will gain hugely, as the main obstacle for foreign investors would disappear, increasing demand. for the asset they control. Or, more interestingly for the regime, these shares can be used as a ticket to play. Want to be in the King’s good graces? Get some Movilnet and mix it with some of Guayana’s basic industries. Sprinkle it with Pequiven.
Even if the sanctions remain, the oligarchs know that they would still be in a good position. First, they would have won favor with Maduro, who will be grateful to his allies for helping him when he needed it. Second, if the government finds itself in need of buying back shares, it will do so at a premium, which will result in a good windfall for those who entered early – probably the people already closest to the regime.
In other words, it could become a sort of tax on those who are engaged (or seek to engage) with the scheme, and any benefit, if any, is likely to be held by the new class of bolibourgese.
Hell, those who still held the few CANTV-Shares which remained in the hands of private investors when the company went public in 2007 have already seen a real upside: CANTV’s stock closed Friday with a 38.56% price increase thanks to recent news.
One would expect greater transparency from publicly traded companies due to legal requirements set forth in laws and regulations overseen by SUNAVAL, the stock market watchdog, a rough equivalent of US Securities. Exchange Commission. Therefore, some may be optimistic that the government will need to be more transparent about the activities of companies offering shares to the public. However, this government is rather notorious for his shady business dealings behind closed doors.
The Caracas Stock Exchange (BVC) was quite positive after Maduro’s comments on TV, even posting this public statement, with its chairman Gustavo Pulido adding to the sentiment in a interview for Tal Cual. In the interview, Pulido highlights CANTV’s “transparency” and tells the outlet that he wrote to the company after its stock price rose to ask if it was doing anything that could have led to the ‘increase. Of course, CANTV replied that they had done nothing and that the price increase was probably due to Maduro’s announcement. This is a basic thing, but one to be welcomed by Pulido given that the BVC is likely to make a profit if the government chooses it to host the offer.
It’s true, we still have no idea or actions will be proposed. It could be the BVC which could result in some level of transparency, but the government could also end up doing it through its own exchange, the Bolsa Publica de Valores Bicentenaria (BPVB).
Read more: The Caracas Stock Exchange: investment oasis or mirage?
Establishment 2011 originally promised to “democratize” investment by lending a hand to small investors. Alas, the exchange eventually became a trading venue for PDVSA debt securities. As a government entity, one can see how it could end up scaring off investors, while being the sweet spot for corruption behind the impenetrable curtain of regime Kafkaesque bureaucracy and Orwellian secrecy.
Pulido criticized the BPVB’s online system, which he said would not be able to handle the online traffic produced by a public offering from companies like PDVSA or SIDOR. But of course he would say that.
Among those not too worried about US sanctions are some of Venezuela’s biggest allies, countries like Russia, Iran and China. The first two are obviously well acquainted with American financial reprisals, the second being reputed to dodge the consequences. All of them, China in particular, know how to leverage investments in political power.
In June 2019, Senegal announcement construction of a new data center just outside Dakar. The data center has been touted as a victory for strengthening the country’s ‘digital sovereignty’, which is odd considering it was built using funds lent by the Export-Import Bank of China, and with equipment and support provided by Huawei.
Similarly, Huawei provided $75 million to build a data center in Zambia in 2017, reportedly used a “soft loan” strategy whereby loans are offered on significantly better terms than other competitors in an effort to secure contracts. The plan isn’t to make a quick buck, it’s to accumulate political power that can then be exercised on the investment objective. Their strategy was used in Nepal in 2016, when the nation swapped dependence on India for dependence on China, with Cuba, Cameroonand Kenya being other targets.
China’s telecommunications investment strategy is so famous that it’s the plot of the 2017 propaganda film “China Salesman” (starring Myke Tyson and Steven Seagal, among all) where a Chinese businessman risks his life to win his company a telecommunications investment contract in Africa. nation, defeating an evil French company that is just trying to control the mineral resources of the African country. Really moving stuff.
Now 5% to 10% of CANTV, Movilnet or PDVSA could be good appetizers for China, maybe this initial offering is just a trial run, the first step of something bigger. Many laws (and even the Constitution) prevent the government from deciding whether to sell 100% of PDVSA or allow international competition. Some Orthodox Chavista deputies in the National Assembly (AN) are wary of economic reforms. But the laws are just ink on paper, they can be easily relaxed by those who have no respect for what they represent, and with a blank check like the “Anti-blockade lawwho is alive and well after being transferred from the National Constituent Assembly to Maduro’s NA, we could still see radical movements in the not so distant future. For now, let’s keep an eye out for those profiting from it and keep skepticism high.