On the occasion of the 112th anniversary of Venezuela’s independence, this article discusses key factors that can contribute to the country’s reconstruction once the opposition achieves power.
Improve Fiscal Transparency
To start, Venezuela needs to establish a solid public financial management framework that, with a set of economic and political reforms, will be more conducive to the domestic and foreign investments necessary to support long-term growth. According to USAID’s Debt Transparency Monitor 2022, prepared by DevTech Systems Inc. under its Fiscal Accountability and Sustainable Trade (FAST) contract, Venezuela completely lacks fiscal transparency; Venezuela was among the 12 countries in the study that met none of the requirements for debt transparency, achieving a zero score. In comparison, the average score for the sample of 102 countries was of 0.58 out of 1. This means that the government does not disclose information about its finances, budget, and debt to the public, making it difficult if not impossible for citizens and investors to understand the country’s economic and fiscal situation. In recent years, Venezuela has been notorious for not publishing reliable and timely information. The Venezuelan Government does not issue regular reports on its budget execution or provide timely information on key economic indicators such as GDP growth. In fact, the last official GDP statistic was released by the Central Bank in October 2019. This makes it hard to assess the government’s fiscal performance and to detect the magnitude of the many economic problems the country faces.
Address Corruption, especially in the Oil Industry
Lack of transparency in Venezuela also exists the oil industry, making it extremely difficult to accurately assess its capacity to contribute to any reconstruction efforts in the country. Since the election of the late leader Hugo Chávez in 1999, the government’s relationship with the state oil company, Petróleos de Venezuela, S.A (PDVSA), has been characterized by disregard for the meritocratic system that previously existed at the company; the imposition of military personnel with no experience in managerial positions; excessive increases in the payroll of workers who do not have the necessary training to work at the company; and the use of the company as the financial arm of the government’s patronage-oriented policies focused on social spending, in turn diverting investments from its primary commercial activity in favor of creating companies in unrelated sectors. Also, even before the Trump Administration imposed sanctions on oil imports in 2019, crude oil production in Venezuela had been in free fall since April 2017 when it registered an average of 2,020,000 barrels per day (already 9.8 percent lower than at the end of 2016). By September 2020, the country produced a record low of 336,000 barrels per day. Since October 2020, oil production has experienced a slow but sustained increase, due mainly to relaxations in the application of sanctions imposed by the United States through licenses and special exemptions, and the decrease in Venezuelan crude inventories thanks to agreements with the oil companies Reliance and Repsol, which has made it possible to reactivate the extraction of crude oil in the country. As of May 2023, Venezuela was producing an average of 735,000 barrels per day – but corruption and mismanagement continue to plague its oil industry.
The U.S. sanctions on the Maduro regime (including on PDVSA) and the Central Bank, prevented them from accessing international financial markets; and from exchanging crude oil for refined products (diesel and gasoline). However, these measures did not prevent the continuation of corrupt practices by the Maduro regime. Instead, the regime responded by diversifying its sources of financing through illegal mining in the Orinoco Mining Arc (a resource-rich area in Venezuela) with significant negative environmental implications as well as through business with independent Chinese refiners that buy Venezuelan crude oil at a 25 percent discount price, which reduces revenue generation from oil export.
Recently, new corruption scandals have emerged at the highest level of the PDVSA. In fact, the Maduro regime has arrested 62 people to date who were directly or indirectly responsible for cases of corruption at the company. However, these efforts do not seem to be completely honest or transparent given that only low to mid-rank PDVSA directors have been arrested, instead of members of the ministerial cabinet of Nicolás Maduro.
The most recent embezzlement scandal at PDVSA originated in March 2023, when the news agency Reuters released a report stating that the Venezuelan state oil company had 16 percent of its shipments (totaling approximately US$3.6 billion) considered “potentially unrecoverable” because they are related to buyers who left without paying for their shipments, despite the fact that they had contracts in place.
Corruption in Venezuela is explained in part by certain institutional incentives that are in place that make it possible. For example, the Anti-blockade Law, approved in 2020, allows firms to use any financial and/or commercial operation available in the foreign market, and protects the confidentiality of such operations; this has allowed the PDVSA to enter into supply contracts with transnational companies (including many Chinese and Iranian companies), without the need for authorization by the National Assembly of Venezuela, as is required by Article 150 of the current Venezuelan Constitution.
With this in mind, cases of corruption in PDVSA could further damage Venezuela’s credit reputation in international financial markets, especially its efforts to obtain fresh financial capital to reactivate oil companies and beyond. To reactivate the Venezuelan oil sector, experts have indicated that an investment of at least US $58 billion is required, which would allow oil production levels to approach levels of close to 3,400,000 barrels per day, approximately the same production levels as during the oil crisis of 1998, a year before Hugo Chávez came to power.
Address Mismanagement and Prepare for the Global Energy Transition
The management of the oil industry during the Maduro regime has been characterized by rising oil prices, reaching a peak of US$/bl. 97.98 in 2013 and an average production of 2,400,000 million barrels per day, which translated into an inflow of large amounts of money for the regime. However, as noted above, the PDVSA has been unable to meet its own production goals. According to the PDVSA Socialist Strategic Plan 2016-2026, the goal was to raise oil production to 6,000,000 barrels per day. Yet per the monthly Report on the OPEC World Oil Market, for the month of June 2023, the country reached an average production of just 735,000 barrels per day, 87.75 percent less than the target proposed by the regime.
It is important to note that in addition to the corruption scandals that plague Venezuela’s state oil company, the future of oil may be constrained as the world’s major economies have committed to a decarbonization strategy, issuing regulations to stop production by 2050, when the growth of greenhouse gasses emissions is expected to be reduced to a minimum. On the other hand, OPEC has stated that world demand for oil will increase to 110 million barrels per day by 2045, which translates into an increase of 7.83 percent as compared to world demand for oil in May 2023, and it will represent about 29 percent of all energy sources. This leads us to think that although renewable energy will play a key role in the world economy in the future, it is not possible to completely dispense of fossil fuels.
Nonetheless, it is important for fossil fuel producing countries to have some form of an energy transition policy in place. Venezuela does not. In fact, the country ranks 103rd in the global energy transition index published by the World Economic Forum, due to its inaction on policy implementation. This rank can be explained by the State’s lack of interest in working with the private sector to develop the necessary legal framework and carry out the activities required to facilitate the changes in economic consumption and energy generation patterns that will be required as the world moves, gradually but inexorably, to reliance on more environmentally friendly sources of energy.
 The other 11 countries were Algeria, Comoros, Djibouti, Eritrea, Haiti, Iraq, Kiribati, Libya, Micronesia (Federated States), Sudan, and Turkmenistan.
 In February 2003, after a general strike that had started in December of the previous year, Chávez dismissed some 18,756 company employees (both managers and qualified and unqualified employees), resulting in the disproportionate increase in the payroll, which went from 28,841 employees in 2003 to 189,858 in 2018 (Sources: PDVSA Management Reports; National Institute of Statistics of Venezuela).
 Source: OPEC, Thomson-Reuters, own calculations.
 Source: OPEC.
 See: https://devtechsys.com/insights/2021/06/10/fiscal-situation-of-the-maduro-regime-could-become-even-more-compromised-china-imposes-new-taxes-on-venezuelan-crude-imports/. https://www.aljazeera.com/news/2021/1/19/trump-administration-imposes-venezuelan-oil-related-sanctions.
 See: Idem.
 See: https://devtechsys.com/insights/2020/10/21/anti-economic-blockade-law-the-most-recent-desperate-measure-of-nicolas-maduro-in-the-venezuelan-crisis/. https://talcualdigital.com/ley-antibloqueo-abrio-rendija-a-pdvsa-para-recibir-criptomonedas-en-ventas-de-crudo/.
 Source: Energy Information Administration; OPEC.
 By May 2023, world oil demand reached an average of 102 million barrels per day, which meant an increase of 200,000 barrels per day compared to last April (Source: International Energy Agenci Oil Market Report – May 2023; own calculations).