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Venezuela's CVG: iron and aluminum exports halted

By Veneconomy

01.08.05 | This week, in a statement to El Nacional, the Minister of Basic Industries and Mining announced that Corporación Venezolana de Guayana (CVG) would not be renewing its contracts for the international supply of iron and aluminum when they expire this year and in 2006. In other words, beginning in January 2007, the iron and aluminum that is currently being exported under supply agreements will stay here in Venezuela, to be used by domestic companies in manufacturing higher value-added products. The reason for this decision, says the Minister, has to do with the global endogenous development strategy which will be expanded to include iron and aluminum.

The government’s expectations are that, by one year from now, the country’s manufacturers will be processing at least 50% of Venezuela’s total aluminum production. This will be an uphill endeavor, given that production in 2004 totaled 623,500 metric tons of aluminum, of which 423,600 MT were exported and only one third (207,810 MT) was processed in the country. In the case of iron ore, production totaled 21.5 million MT in 2004, with exports accounting for 9.3 million TM. The remaining 11.4 million MT were processed locally for DRI and steel products.

There is no question that this would be beneficial for the country insofar as the capacity to process Venezuelan aluminum and iron ore were to grow. It would mean new sources of jobs, foreign exchange and tax revenue. But, why halt exports? If the country can increase domestic consumption, why not increase production of the raw materials at the same time? Why not have the country eat its cake and have it, too?

What is most worrisome, however, is how completely CVG is out of touch with reality when it speaks of having domestic consumption take the place of exports in a mere 18 months. The country doesn’t have the installed capacity. And, even assuming that the investment projects did exist, it would take years to get them started up.

Besides, there is no hint or indication whatsoever of any coherent industrial development strategy. On the contrary, the government’s endogenous development plans seems to be nothing but gaping holes and bottomless black chasms. And, to top it off, most of the industries in the country –existing or planned- are unable to compete efficiently on the international market because of the overvalued bolivar and the many antibusiness restrictions put in place by the government.

Faced with a “strategy” that is both hard to understand and impossible to achieve, the question is whether there isn’t something else behind the announced suspension of export contracts.

Could it be that the decision has nothing to do with endogenous development, but rather with the creation of a new Bolivarian international marketing strategy? Should this be the case, once President Chávez becomes firmly entrenched in December 2006, perhaps 2007 will be rung in with the establishment of trading companies working out of a new CVG office in Havana. No monitoring of operations, no controls nor, much less, any of those bothersome audits.

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