Prelim Examination in:

Political Economy

Submitted by:

Mahinay, Pamela N.

Submitted to:

Ms. Vibeli Hermano

 One of the most urbanized nations in Latin America which have wide access to natural reserves

when it comes to nonrenewable resources is the country of Venezuela. In terms of the economic system,

Venezuela comprises a central government that controls the country’s economy in terms of the

production and distribution of goods. Venezuela is also a member of the Common Market of the South,

a trade alliance that seeks to strengthen the regional economy by moving goods, people, manpower, and

capital among itself. The state has extensive control over the financial industry and frequently

distributes funding according to political interests. For more than a decade, the nation has been among

the least economically free in the world. Concerning open markets, there are 3 exclusive trade

agreements in service for Venezuela. 134 nontariff policies are now in place, with an exchange average

tariff rate of 12.6%. State involvement in the economy continues to hinder private investment, and there

is still opposition against international investment and expropriation threat according to the 2022 Index

of Economic Freedom. Venezuela is listed 32nd out of 32 countries in the American region, and its

overall ranking is significantly lower than the regional and global standards. Let’s figure out the

different factors that affect the dynamics of the economic line of Venezuela.

During the 1990s, changes in international oil prices and global economic downturns hampered

the country’s "sowing the oil" strategy in which they reinvest oil profits in agriculture and other

industries. Along with this are domestic issues including inflation, inadequate administration,

corruption, and the lack of skilled and trained manpower. As a result, a vast foreign debt, severe

unemployment, rapidly growing populations, and illegal immigration all weighed heavily on the

Venezuelan economy. However, early in the twenty-first century, the economy began to rebound to the

point where, by 2007, the nation had repaid its foreign debt.
 For the past 25 years, the drop from the state’s peak GDP in 1977 was more severe and

prolonged than it was throughout the majority of the region. In 1997, Venezuela's oil-driven

economy expanded rapidly while its oil exports declined dramatically. The nation is abundant

in an access of natural gas, petroleum including coal, gold, diamonds, hydroelectricity, and

many other minerals thus Venezuela's economy is dominated by the oil sector.

The figure above shows Venezuela's economic history represented by its oil revenues

against inflation from the period of 90s. As we can see, through 1997, the Venezuelan oil

revenue expanded by an estimated of 5%, driven largely by the oil industry. Venezuela's

economy grew strongly in 1997, but experienced a decline in 1998 due to economic problems

in Asia and a downfall in oil prices. The economy had significant instability in 1998 as real

GDP per capita dropped by around 1% annually. As per the Organization of the Petroleum

Exporting Countries (OPEC) 95% of Venezuela's exports, mainly depend on oil, thus any

changes in the price of oil might make uncertainties in the economy of the state.
 Particularly in 1997, there was a rise of 5% in the GDP compared to the previous year

due to the increase of revenues from government, agriculture, manufacturing, and services

sectors. However, the excessive government spending and an expansion of the money supply

have worsened high inflation. The government during 1997 reduced inflation to 37.6 percent

however, the government set a target of 20% inflation in 1998. According to current estimates,

inflation reached 32.5 percent by the end of 1998 which caused a dramatic fall of country’s

GDP to negative 5% as presented on the data above.

To sum it up, 25 years ago from now there is a visible significant increase and decrease

in the Venezuelan GPD due to the impact of inflation and the country's revenue particularly in

terms of oil industry because it is one of their major exports.

 This figure presents the three (3) primary sector of Venezuelan economy that contributes to
the GDP of the country during 1990 to 2000. Source from: U.S. Department of Commerce,
Bureau of Economic Analysis.

Industry

The economy of Venezuela is mainly dependent on oil and it is significantly influenced

by the price of oil on the global market. There are abundant mineral resources in Venezuela

and a huge access in terms of petroleum hence Venezuela's industries are mostly focused in

transporting oil, shipping, and chemical operations. Obviously, the oil industry serves as the

nation's main economic pillar and generates 80% of its tax revenue. Based on the graph above,

there was a drop due to the Asian economic crisis in late 1997 and during the inflation in 1996

which peaked to a 99.9% rise of oil prices in international trade. However, the recovery of oil

prices helped fuel economic growth in the 2000s and revived the sector of the Venezuelan

economic industry.
Agriculture

In 1998, the primary sector's output, which involves agriculture contributed 4.7% of the

nation's GDP and employed 13% of the labor force. The Venezuelan government has supported

the agricultural sector since 1990 by implementing protective tariffs for agricultural goods and

encouraging the expansion of agriculture in semi-urban areas and providing the agricultural

sector loans at low-interest rates and subsidies, yet its contribution to GDP has decreased until

2000 based on the graph above.

Services

Venezuela's economy began to depend progressively more on tourism, which was

centered on the nation's cultural landmarks, beaches, and natural treasures before the 2000s. In

terms of transportation and trade services, Venezuela brought significant development as its

GDP jumped to almost more than 50% in service production from 1990 to 1998 which paved

the way to the beginning of a more progressive economy in terms of the service sector.

This data shows the GDP annual growth rate of Venezuela in the beginning of 2000’s up until
2022. So far, this is the latest data update by the Banco Central De Venezuela.
 The services industry constitutes a large portion of Venezuela's economy. In the period

of 2000s, 60 percent of the GDP is made up of the following sectors: community, public

services, banking, healthcare, property investment, and business services such as

transportation, trading, and other institutions. Estimated 28% of the nation’s wealth is come

from manufacturing and the combined mineral and oil extraction contributed to the 2022 GDP

annual growth rate of Venezuela.

To sum it up, the GDP sector composition goes through changes that make the rise and

fall of the country’s economy 25 years ago. From 1998 to 2017, Venezuela's annual growth

rate in GDP averaged 1.62 percent, with a peak of 36.10 percent in the first quarter of 2004 and

a low of -26.70 percent in the first quarter of 2003. Based on the latest data from World Bank,

currently, Venezuela's GDP value exceeds 0.05 percent of the global economy since its GDP

was about 111.81 billion US dollars in 2021. According to the Trading Economics global

macro models and analyst forecast, Venezuela's GDP is expected to reach 200.00 USD billion

by the end of 2023.

Venezuelan Natural Resources: The Effects on the Industrial Structure of the State

Venezuela's natural resources include petroleum, natural gas, and other minerals. It is

considered as the world’s second-largest oil producer and top exporter as it makes up about 6%

of the world's oil reserves and 14% of global production. As one of the world's top oil

producers, Venezuela's economy is centered on the oil industry such as exporting

internationally thus the growth of Venezuela's oil sector is intrinsically linked to its overall

economy.
 The figure above shows the share of Venezuelan exports as a percentage of the

petroleum sector from 2010 to 2020. Natural resources in Venezuela offer the nation a

substantial economic potential and the petroleum sector dominates central government

revenue. As we can see, over the years, there is a change in the percentage of the export value

due to the rate of petroleum exports. Due to the fact that oil contributes for 25% of Venezuela's

GDP and 95% of its exports, rising oil prices are beneficial for the nation's economy. Meaning

to say, Venezuela encounters prosperous economic conditions when oil prices are high. Just

like what happened in 1998 wherein due to the Asian economic crisis and the drop of oil prices,

the country suffered a downturn. Different factors affect the rates of oil prices in the global

market hence it also impacted the access on the natural resources of Venezuela. The data

reveals that the high export of petroleum also results in an increase in the revenue of

international trade and the income of Venezuelan economy.

References:

BFI. Manifold. (n.d.). Retrieved March 3, 2023, from https://manifold.bfi.uchicago.edu/read/the-case-of-

venezuela/section/c652a540-410d-4ec7-bf6b-7b5d62546e49

Encyclopædia Britannica, inc. (n.d.). Economy of venezuela. Encyclopædia Britannica. Retrieved March 3, 2023,
from https://www.britannica.com/place/Venezuela/Economy

Desjardins, J. (2017, September 6). From richer to poorer: Venezuela's economic tragedy visualized. The Money
Project. Retrieved March 3, 2023, from https://money.visualcapitalist.com/richer-poorer-venezuela-economic-
tragedy/

Venezuela. Venezuela Economy: Population, GDP, Inflation, Business, Trade, FDI, Corruption. (n.d.). Retrieved
March 3, 2023, from
https://www.heritage.org/index/country/venezuela#:~:text=Venezuela's%20economic%20freedom%20sc
ore%20is,the%20regional%20and%20world%20averages

Venezuela - bolivarian republic of venezuela. GECF. (n.d.). Retrieved March 3, 2023, from
https://www.gecf.org/countries/venezuela-bolivarian-republic-of-venezuela

Venezuela. Venezuela - Place Explorer - Data Commons. (n.d.). Retrieved March 3, 2023, from
https://datacommons.org/place/country/VEN?utm_medium=explore&mprop=amount&popt=EconomicA
ctivity&cpv=activitySource%2CGrossDomesticProduction&hl=en

Venezuela GDP annual growth RATE2022 data - 2023 forecast - 1998-2021 historical. Venezuela GDP Annual
Growth Rate - 2022 Data - 2023 Forecast - 1998-2021 Historical. (n.d.). Retrieved March 3, 2023, from
https://tradingeconomics.com/venezuela/gdp-growth-annual

Venezuela. Venezuela - Place Explorer - Data Commons. (n.d.). Retrieved March 3, 2023, from
https://datacommons.org/place/country/VEN?utm_medium=explore&mprop=amount&popt=EconomicA
ctivity&cpv=activitySource%2CGrossDomesticProduction&hl=en

Sawe, B. E. (2018, November 9). What are the biggest industries in Venezuela? WorldAtlas. Retrieved March 3,
2023, from https://www.worldatlas.com/articles/what-are-the-biggest-industries-in-venezuela.html

de la Cova, C. (1958, February 16). Oil Industry of Venezuela - its strategic and economic significance. OnePetro.
Retrieved March 3, 2023, from https://onepetro.org/SPEAIMEAM/proceedings/58AIME/All-
58AIME/SPE-1003-G/155059

This text provides general information. Statista assumes no liability for the information given being complete or
correct. Due to varying update cycles, statistics can display more up-to-date data than referenced in the
text. (n.d.). Topic: Oil industry in Venezuela. Statista. Retrieved March 3, 2023, from
https://www.statista.com/topics/8140/oil-industry-in-venezuela/#editorsPicks

Published by Jessica Aizarani, & 25, J. (2023, January 25). Venezuela: Petroleum industry as share of exports.
Statista. Retrieved March 3, 2023, from https://www.statista.com/statistics/1241042/venezuela-petroleum-
industry-share-exports/

DePersio, G. (2022, September 27). How does the price of oil affect Venezuela's economy? Investopedia.
Retrieved March 3, 2023, from https://www.investopedia.com/ask/answers/032515/how-does-price-oil-
affect-venezuelas-economy.asp