Venezuela country brief
Australia and Venezuela have cordial relations with modest commercial cooperation. Australia’s first Ambassador to Venezuela, F.T. Homer presented credentials in July 1973. The two countries celebrated 40 years of diplomatic relations in 2013.
The Australian Embassy in Santiago is responsible for Venezuela. Venezuela has an Embassy in Canberra, which it opened in July 1978.
The Spanish expedition led by Alonso de Ojeda in 1499, which sailed along the northern coast of South America, gave the name Venezuela (“little Venice” in Spanish) to the Gulf of Venezuela because of its similarity to the bay of Venice.
Spain colonised the north-east coast of Venezuela from 1521. Caracas was established as the capital of the province in 1577, which came under the jurisdiction of the Viceroyalty of New Granada (modern Colombia).
Independence from Spain was declared on 5 July 1811, when the area was included in the Republic of Gran Colombia, with Ecuador, Panama and New Granada. Venezuela seceded from Gran Colombia in 1830.
System of government
Venezuela is a federal republic, made up of 23 states, one Capital District (Caracas) and the Federal Dependencies (Venezuela's islands in the Caribbean Sea and the Gulf of Venezuela).
Under the 1999 Constitution, the Venezuelan government consists of a democratically elected representative system with a strong executive. The president, who is head of state and head of government, is elected for a period of six years (previously five).
Venezuela has a unicameral parliament known as the National Assembly and is comprised of 165 seats, with members elected for five-year terms. In 2009, the Venezuelan constitution was amended by national referendum to remove term limits on all elected officials, including the presidency.
Hugo Chávez was elected President of Venezuela for a third six-year term in October 2012. After winning 55 per cent of the vote and defeating the main opposition contender, Henrique Capriles, President Chávez was subsequently hospitalised in Cuba for cancer treatment, and was not able to attend the formal inauguration scheduled to take place in Caracas on 10 January. He passed away on 5 March 2013. New presidential elections took place on 14 April 2013. President Chávez’s preferred successor, Nicolás Maduro, ran as the candidate for the ruling Partido Socialista Unido de Venezuela (PSUV) against Capriles, and won by a narrow margin (50.7 per cent to Capriles’ 49.1 per cent). Maduro was inaugurated on 19 April 2013, amidst calls for a recount by the opposition Mesa de la Unidad Democrática party. However, the result has been verified by Venezuela’s electoral authority (Censejo Nacional Electoral) and accepted by the international community.
Large anti-government protests occurred between February and June in 2014 over grievances surrounding President Maduro’s government, record high inflation, shortages of basic goods and soaring crime rates.
The foreign policy settings under the Maduro government have shown strong continuity with the previous administration. President Chávez identified with the ‘global south'. favouring a fundamental shift in international political economy and the re-emergence of a multipolar world in order to constrain the United States.
President Chávez strengthened relations with many of Latin America's left-leaning administrations, including Bolivia, Ecuador, Nicaragua and Cuba, through the creation of the Bolivarian Alliance for the Peoples of Our America (ALBA). It was proposed by President Chávez as an alternative to the Free Trade Area of the Americas (FTAA), based on cooperation through social, political and economic integration of these like-minded countries. Venezuela has extended its relations with select Latin American and Caribbean countries through the 2005 signing of an Energy Cooperation Agreement called Petrocaribe. Through the agreement Venezuela aims to provide the 17 additional signatories preferential arrangements to access heavily discounted Venezuelan produced oil.
President Chávez also sought to deepen Venezuela's foreign and strategic relations with states not allied to the United States, such as China, Russia, Vietnam, and Iran. Evidence of this includes Venezuela's offer of support to Russia during its 2008 war against Georgia in South Ossetia and Abkhazia. China has been an important source of financial capital for Venezuela, in the order of US$32 billion since 2007, according to recent estimates. President Chávez also publicly supported Iran's nuclear program, by claiming that Venezuela would ‘not be indifferent' should a pre-emptive attack be launched against Tehran.
In addition to closer political ties, Venezuela has materially benefited from its strategic relationship with Russia. Since 2006, Venezuela has purchased around US$5billion in Russian defence technology. This has included building a factory to manufacture Kalashnikov rifles and conducting joint military exercises with the Russian navy. Russian-Venezuelan talks in July 2013 expressed a common desire to continue strategic bilateral cooperation.
While strains have reappeared in the Colombia-Venezuela relationship under Maduro’s presidency, the two countries have improved considerably their cooperative ties since major diplomatic standoffs in 2008 and 2010. Venezuela has played an important role, for example, in accompanying the peace talks between Colombia and FARC.
At a glance
For latest economic date refer to the Venezuela fact sheet [PDF 29 KB].
Venezuela's economy is largely based on its petroleum sector, which accounts for roughly a third of the country's GDP and over 90 per cent of its export earnings. Like other oil-dependent economies, Venezuela suffered from the rapid reduction in the price of oil, compounded by the global financial crisis and remains susceptible to international volatility.
Venezuela has also experienced high inflation. The government introduced a new currency in January 2008, known as the bolivar fuerte, to replace the old currency, known simply as the bolivar, at a rate of 1 bolivar fuerte = 1000 bolivars to deal with the rampant inflation. Annual inflation reached 56 per cent in 2013 as a result of deteriorating domestic productive capacity, tight currency restrictions, high fiscal spending and several currency devaluations.
In a bid to reduce Venezuela’s dependence on imports and improve the country’s fiscal position, the government has undertaken several currency devaluations since January 2010. The most recent devaluation took place in February 2013, from 4.3 bolivares fuertes to 6.3 bolivares fuertes to the US dollar. This was praised by the International Monetary Fund (IMF) as an important measure to reduce the country’s macroeconomic imbalances, particularly its fiscal deficit of 16 per cent of GDP. However, as was the case with previous currency devaluations, the process will increase the cost of imports, putting pressure on domestic industries and inflation. Due to Venezuela's dependence on oil revenue, the government's economic strategy has been to increase revenue by controlling output, working primarily through OPEC and other oil-producing allies.
In February 2014 Venezuela introduced a dual-rate currency exchange system, which critics describe as a currency devaluation in disguise. The dual system maintains the existing rate of 6.3 bolivares fuertes to the US dollar for essential goods such as food and medicine, but has increased the rate to 11.7 bolivares fuertes to the US dollar for tourists, remittances and US dollar auctions, among other things.
Despite a number of flagship foreign investment projects, restoring and sustaining investor confidence remains an important issue in Venezuela. This is unlikely to occur in the near term however, as a challenging operating environment and uncertainty over contract and property rights persists.
In July 2012, Venezuela joined Mercosur, the Southern Common Market formed in 1991 between Argentina, Brazil, Paraguay and Uruguay. Venezuela’s membership of Mercosur expanded the market to 270 million people with a gross domestic product worth US$3.3 trillion. Venezuela assumed the Presidency of the trading bloc in July 2013.
Venezuela's main source of income continues to be Petróleos de Venezuela (PDVSA), the state-owned oil company. Its revenues give the PSUV the ability to fund wide-scale social reforms such as free health-care clinics, discounted food centres in poor areas and secondary and tertiary education programs.
Venezuela was hit hard by the global financial crisis, with GDP contracting 3.2 per cent in 2009 and 1.5 per cent in 2010. Venezuela’s economy grew by 5.6 per cent in 2012, but was forecast to grow by only 1 per cent in 2013. High inflation, falling public expenditure due to volatile oil prices, a weak investment outlook and deteriorating infrastructure are contributing factors to this slowdown.
The United States is PDVSA’s main full cash export market. Most other exports go to political allies that receive oil shipments on long-term credit agreements at concessionary interest rates (such as Nicaragua or Cuba), or constitute payments for previously received loans (as in the case of China). The company has also revived plans to expand natural gas production for export to Argentina.
Also, while Venezuela boasts one of the region's more developed physical infrastructure, the quality has deteriorated in recent decades because of underinvestment—in spite of a prolonged oil bonanza—stemming largely from a lack of effective administrative capacity. This has been most evident in the electricity sector, where a failure to invest in extra capacity and in improved distribution networks has left the country facing constant electricity rationing, but it is also evident in the deteriorating quality of roads and ports.
The-then Parliamentary Secretary for Foreign Affairs, the Hon Richard Marles MP, visited Venezuela in January 2012.
Though small numbers of Venezuela-born people have migrated to Australia since the 1960s, they are relatively new migrants to Australia. The latest Census in 2011 recorded 3,404 Venezuela-born people in Australia, an increase of 121.2 per cent from the 2006 Census. More information on the Venezuela-born community in Australia can be found at the Department of Social Services Community Information Summary page.
From 2010 to 2014, Australia provided $100 million in official development assistance to Latin America, including 250 Australia Awards scholarships. Venezuela received six Australia Awards Scholarships.
In 2001, the Australian Government established the Council on Australia-Latin America Relations (COALAR) which aims to enhance commercial, political and cultural relations between Australia and Latin America. Since its inception, COALAR has been active in promoting business, education, tourism and cultural links between Australia and Latin America. For updates on COALAR activities and information on the annual grants program, follow COALAR on Facebook.
Bilateral economic and trade relationship
Bilateral trade is modest, although businesses continue to explore possibilities for expanding commercial interaction, particularly in the mining, agriculture and maritime sectors. Two-way trade was $7.7 million in 2013, down from $15.8 million in 2012. Australian exports to Venezuela totalled $6.3 million in 2013, consisting mainly of paper, non-electronic machinery and parts and pharmaceutical products (excluding medicaments). Imports to Australia from Venezuela were $1.4 million, consisting primarily of alcoholic beverages, crude animal matter and cocoa. In 2013, over 800 Venezuelans were enrolled in Australian education institutions.
The mining industry offers some potential for Australian involvement. Despite abundant mineral wealth and some of the world's largest reserves of iron ore, aluminium, nickel and gold, Venezuela's mining industry is underdeveloped and accounts for less than one per cent of GDP. The government has identified the mining industry as a key sector in the diversification of the economy away from petroleum, particularly as a source of export revenue and inputs for domestic industry.
Excel Mining and RFC Finance Corporation are involved in two mining projects in Venezuela: a diamond project in the Guaniamo region and the Cosila coal mine.
A significant Australian investment in Venezuela is Orica's joint venture with Venezuela's Grupo Merand in two explosives manufacturing projects. One project involves an existing plant that supplies on-site bulk explosives for a large coal mining facility in western Venezuela. In the other, Orica Venezuela upgraded an existing packaged explosives plant and operates it on behalf of its owner, CAVIM, the state-owned military industries company.
However, the government's action to nationalise strategic industries in addition to banks and food producers that do not comply with government regulations may give rise to sovereign risk concerns. Government policy is favouring ties with state-owned firms linked to governments that are either close allies of the Chavez administration or countries the administration wants as allies. The imposition of foreign-exchange controls requires all persons in Venezuela to obtain government approval to send any funds overseas. The difficulty in receiving payment in foreign currencies such as the US Dollar or the Euro has discouraged many small to medium sized Australian companies from exporting to Venezuela.
Updated June 2014