Hugo Chavez made some sweeping headlines this weekend when he announced the expropriation of several companies within the metals and mining industry. Included in his latest operative (in which he failed to come to terms over a fair valuation for said companies) are: Materiales Siderugicos Matesi an hot iron ore briquette manufacturer along with Orinoco Iron who claim to be the largest hot iron ore briquette merchant in the Americas. Mineweb also reported the company Norpro de Venezuela C.A. an affiliate of the U.S. company Napro as part of the expropriation announcement on Saturday.
Chavez defended his actions by proclaiming domestic and international capitalists as “benefiting from Venezuela’s natural resources.”Â Instead, Chavez justified his actions by saying, “it is necessary to reduce the high levels of exports of raw materials, iron, briquettes, aluminum, and use them for national development.” Right, except national demand expressed as GDP will contract anywhere from 2-5% this year. Some believe and we’d concur that the economic contraction has to do with the slow-down of private sector activity. The World Bank’s chief economist for Latin America, Augusto de la Torre, recently told the Washington Post, “The reason Venezuela is contracting is because private activity is contracting. What we’re seeing in Venezuela is a phenomenon where productivity, private activity and private business is falling.”
It doesn’t take a rocket scientist to point out that when industry faces economic uncertainty (e.g. fear of expropriation would qualify as economic uncertainty) activity slows down (in this case, Matesi stopped its operations half way through last year). Certainly any new hiring and plans for additional capital improvements moved to the back burner for all of these companies. Will nationalization ensure that workers produce products cost effectively and sell them into the national market? Maybe but here is one thing I can’t understand. If Chavez devalued his currency back in January as we reported earlier to stimulate exports and has now nationalized several large exporters to better “serve the domestic market, how does one reconcile these two competing policies? Oh never mind. This will never make sense. I just need to study this country to understand Chavez’ strategy.