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Ludicrous Proposal By Venezuela's Maduro To Combat Oil Price Damage
Submitted by Michael McDonald via OilPrice.com,
Venezuela’s economy is in desperate trouble. The country is highly dependent on oil reserves and has no significant substitute for black gold in the near term. That reality makes Venezuelan President Nicolas Maduro’s recent efforts to tout the country’s technology industry laughable.
Maduro was quoted as saying "We need to generate new sources of revenue besides oil that will force us to produce more and better quality products. In addition, a large percentage of those currencies will go back to the industry for investment." A deeper look at the numbers here reveals that Maduro is doing the equivalent of rearranging deck chairs on the Titanic and then holding a press conference about it.
Prior to the oil price crash, exports of that commodity accounted for roughly 96 percent of Venezuela’s export earnings, 45 percent of budget revenues, and 12 percent of national GDP. With Venezuelan GDP around $400 billion by purchasing power parity, that means that the oil industry accounted for just under $50 billion in annual economic activity, or roughly $1,600 in annual income for every man, woman, and child in the country (based on ~$13,500 in GDP per capita).
With oil prices having crashed by more than half over the course of the last two years, this means that the economic value of the oil industry to Venezuela is likely around $25 billion. Not all of that economic impact will hit Venezuela though since some of the revenues went to foreign firms. That percentage of value sent abroad for foreign goods and services that are directly tied to the oil industry is rather low though since Venezuela famously nationalized everything they could that was related to the industry. A very generous estimate suggests that Venezuela’s annual loss from the collapse in oil prices is $20 billion or about $650 per person (around 5 percent of total income). For the government itself, the loss has probably blown a hole in the budget equal to around 20 percent of the government’s revenues.
To offset this level of economic destruction, Maduro’s plan is to compensate with factories making servers, desktop computers, laptops, tablets, etc. These products are all much lower margin than oil and require significant foreign components. For instance, Intel is one of the very few suppliers of processors that will be needed for many of these machines. Optimistically, Venezuela might be able to make a profit on each machine of $50 each and source an additional $100 of local goods and services. That means that Maduro’s factory would generate $150 in increased GDP for each device made. Again, these figures are rough and purposely optimistic for Venezuela here.
Yet even using these numbers, Maduro’s factory, running at full steam and putting out 400,000 devices per year would only add $60 million to national GDP. Thus to offset the $20 billion hit from oil, Maduro would need more than 330 such factories all across the country. To put this in perspective, Venezuela would need to become Apple overnight in order to offset the hit from oil. That’s extremely unlikely to happen to say the least. Maduro’s opening of factories might make for good PR, but it comes nowhere near being a significant factor to offset the loss of Venezuela’s oil revenues.
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Betcha he misses his old bus route.
Venezuela is fucked in the upcoming (realized) world deflationary depression.
pods
why do you sign all of your comments? We can see who the author is already. It's right there in blue and white.
Boy this is a real nail biter, will Maduro and his family and friends come out OK? Not every dictator family does as well as the Arafats or Castros. Hope they have solid bankers placing their fortune.
I don't know about the rest of you ZH'ers, but when I hear the word "Venezuela," the first phrase that comes to mind is: "Computer Manufacturing."
And when we think of "computer manufacturing" we think of the Dickensian conditions and Blade Runner atmosphere of Asian manufacturing locales.
I heard the first big marketing push will be for email hosting services. Great discounts if you're an employee of the Department of State.
Iceland pretty much has a wrap on that...
Iceland is Clintons toilet???
If Venezuela wants oil price to go up, they should declare war on Saudi Arabia.
Or at least TP the Saudi royal palace.
Oh wait...
I have always done it from a long time ago on a message board far far away.
Sort of stuck. Old habits die hard I guess.
pods
https://www.youtube.com/watch?v=Sdn3O6aaMNc
I didn't f' it up....
The "high technology" that Maduro has in mind is self-driving buses, so when he is kicked out of office, he does not have to go back to driving a bus.
Ludicrous Speed!
Stupid article plz don't post again ever
Only in the clueless and deluded mind of an OilPrice.com writer are the margins of oil production higher than the margins on technology production.
Perhaps the author is confusing the theoretical (negligible even in a socialist paradise packed with .gov desk jockeys) operating cost structure for the (rentier class/Statist) owner of the mineral rights... and then ignoring that out in the real world someone has to go pull the physical oil out of the ground and sell it...
Nope, he actually wrote:
"These products are all much lower margin than oil and require significant foreign components."
Intel margins on product are like 50%. After all, they make it out of sand.
Margins on Gold Production are like 99%.
After all, it only costs $5 to dig it out of the ground.
Margins on sodas are like 1,000%.
Water is free. Sugar is plentiful. Chemicals are cheap. Low amounts of energy = tons of product.
This, my friends, is why we can't have nice things.
Perhaps if you only count the profit margin per unit, and do not take into account research and development and capital expenditures. Which is the same as saying oil only costs $20 per barrel, looking only at production, and not looking at the sunk costs, royalties, transport and refining and distribution of finished products.
This fix is in on Venezuela when these clowns get executed in a bloody revolution.
Can you say "Dollarization!" ?
Venezuela got screwed by Obama's war on oil to hurt Russia whose main export is energy (more than 50% of total exports).
The 1986 collapse in oil prices caused collapse of the USSR. Putin will not stand for another collapse. Michael Reagan confirms that Saudis collapsed oil prices in 1986 at behest of USA to hurt USSR. History repeats:
Ronald Reagan's son says his father got the Saudis to pump more oil to undercut USSR
http://www.politifact.com/punditfact/statements/2014/mar/13/michael-reag...
John Kerry, the US secretary of state, allegedly struck a deal with King Abdullah in September, 2014, under which the Saudis would sell crude at below the prevailing market price. That would help explain why the price has been falling at a time when, given the turmoil in Iraq and Syria caused by Islamic State, it would normally have been rising.
http://www.theguardian.com/business/economics-blog/2014/nov/09/us-iran-r...
John Kerry's actions don't explain anything at all. He is a clown.
"Lower oil prices devalued the ruble, causing the USSR to go bankrupt, which led to perestroika and Mikhail Gorbachev and the collapse of the Soviet Empire."
Meh, the collapse started in the early-60's, Reagan just hastened their demise.
It's such an apples to oranges comparison to today, that it's barely worth trying to draw comparisons.
Right, central planning and destruction of incentives to productivity had nothing to do with it. Its all about oil prices.
Venezuela screwed themselves when they decided to become a Marxist dictatorship.
Mother Russia is too dependent on oil - and communism runs Putin's motor.
Why in the fuck would anybody build a factory in that shithole when Maduro will take your shit and give it to the peasants so he can keep his power? Remember the big teevee "give away" a couple years back?
SOCIALIST PRESIDENT OF VENEZUELA GUARANTEES EVERYONE A PLASMA TELEVISIONhttp://www.frontpagemag.com/point/210817/socialist-president-venezuela-g...
Free TV huh, Christ that must hurt like hell wiping your ass with that thing...
Don't let the FSA in the USA hear about this.
They'll be Obutthurt cause they only got Obamaphones.
Venezuela sits on the biggest pool of oil in the world, but going back to Chavez nationalizing oil and kicking out all the foreign companies, the have treated their reserves as a magic piggy bank that would last forever. They've done little or no upkeep on the infrastructure and if you look at their exports they have basically trashed it all for a socialist Nirvana. The end will be bloody and violent and we'll likely have a military dictatorship running things. It can't end well and I truly feel sorrow for the people who have to live there.....
There already is a military dictatorship running things, it just happens to be an elected one. That's the magic of Democracy.
Why don't they balance there budget by selling heroin,and cocaine to the Gringo's,like Mexico does?
The commies seem pretty smart when free money is coming out of the ground. When that stops, the jig is up. Democracy is nothing but a precursor to communism and mob rule. That's why it never works long term. There are a lot of folks in any society that have no business voting because they just can't help themselves voting to steal someone elses wealth and labor.
In a country where even toilet paper is in short supply, the only way they can start manufacturing high tech products, is if one of the EMS giants (Foxconn, Flextronics, Jabil) builds a plant or two.
The business case for them to do this, is rather unattractive at this time, to put it kindly. They could have and should have done this long-lead and capital-intensive process years ago. They sound like shipwrecked people in deep waters, who proclaim "We need to build a new boat!", when they really need and want someone to rescue them. Unfortunately for Venezuela, such SAR ships are far away and otherwise preoccupied.
They need to bring the best engineers, businessmen and ruling oligarchs to The Table, and give them a Do-Or-Die mission, where Failure is not an option. When a People are properly motivated and sensibly organized, there is little that they cannot accomplish. Theirs is an opportunity to re-invent themselves, and become an example to others. A word of caution though, with a difficult Truth to face: Their culture needs to have a more Asian, Germanic or Nordic work ethic and organizational skills, than the Latin/Tropical work ethic and organizational traits.
Mr. Maduro, leadership is as leadership does. "Stop talking, and Just Do It" -Nike slogan
No. They don't need to do any of that.
Venuzuela's situation is not the result of an act of nature, but the result of an act of stupidity.
All they need to do is stop doing stupid things.
You can't pay someone who does little or nothing the same as someone who does a lot, or people will take the easier of those routes and do as little as possible.
But the core of Socialism and Communism is equality of output, without equality of inputs. Stupid.
Garbage in, Garbage out.
Venuzuela has found itself in a hole.
Their first task should be to STOP DIGGING!!!!!
The problem is that except for ghost employees which are probably rare, everyone looks busy with important stuff even if the product of their work adds zero to real meaningful economic output. Somebody's ox has to get gored lol. Those some bodies will scream loudly how important their work is and how much value they add to the economy
Yes, they are busily and self-importantly doing very little of substance.
And why?
WHY?
Because they don't know which things to do are of substance?
WHY?
Because without a pricing system there is nothing that says designing and building cold fusion reactor is more valuable than doing TPS reports (Gratuitous 'Office Space' reference).
And in Venuzuela, market pricing is illegal.
"They need to bring the best engineers, businessmen and ruling oligarchs to The Table, and give them a Do-Or-Die mission, where Failure is not an option."
Or what? They get killed? Why not motivate them by letting them keep the fruits of their labor instead? Let private enterprise flourish with out fear that the state is going to take everything they have, which is exactly what Maduro has done.
Communists think a gun is the answer to everything.
And while you can eat a gun...you won't survive the process.
But after nearly two centuries of this madness, with zero !!!ZERO!!!! successes to date...they still seem intent on trying.
This all makes sense viewed from a 'dollar' perspective.
If the dollar goes away suddenly we see Venezuela exporting oil and the US exporting....what...?
If our wonderful financial assets are no longer desired...we got nutin'...well the occasional Boeing jet or the odd Cat tractor (that no one seems to want right now.)
The world is viewed entirely from the perspective of dollar dominance today. When that changes the world will appear to be a very different place and ....the losers now will be later to win...cuz the times they are a changin'....
A whole bunch of current "winners" on China investments will become losers too.
"If our wonderful financial assets are no longer desired...we got nutin''
Agree with our "financial assets" illusion, but we do produce a lot of agricultural products, oil, chemicals, automobiles (many by foreign firms assembly plants in the US), software ...
The problem that we have is that we are consuming more than we produce and the Federal Reserve counterfeits that deficit.
Call me old fashioned but I'm a fan of our seventh president, Andrew Jackson, who abolished what was then the Federal Reserve, the Second Bank of the United States.
Reads like he wants to build some of Obummer’s Solyndras and Fiskers.
OK, build a cleanroom (class 100) and then see how well that goes when no one can wipe their ass.
Maduro's idea may not be so crazy. I saw a report recently that Medellin, Columbia has been quite successful in developing a high-tech industry and has attracted major US and other foreign companies.
Computer manufacturing may be relatively low margin, but software development and consulting may be more lucrative. Why not cell phone development?
God help the average Venezuelan if the economic stagnation continues or worsens. Narco trafficking and violence, other crime, and corruption likely won't diminish. Catch the next flight to the USA while they are still free.
The problem in Venezuela, as in every other piece of landmass in this planet, is the state. As long as Venezuela is ruled by Marxists (in the US is fascists, same statist coin) there will be no solution. If and when the state gets out of the way, Venezuela could use its oil revenues to diversify into other forms of production. No, laptop manufacturing in a latin american country where most of the population is composed of the FSA will not work. The only high tech they can even begin looking at would be becoming an international data sanctuary ( ala Cryptonomicon). Production of food stuffs, water harvesting and bottling and high demand narcotics (coca plants, opium etc) are the only other things that might work. In general, Venezuelans would be better off reorganizing into small scale agrarian society (think Mississippi in the 1890s) that use limited but appropriate technology (some solar, wind, hydro) for small community / extended family use. The potential of the country of Venezuela to reach the current conditions of Colombia or even Mexico is nill.
Screw you and your Pol Pot back to the stone age proposals. Venezuela was the richest country in South America before the marxist takeover.
Medellin is 5,000 ft. above sea level. A "livable" climate (like San Jose Costa Rica) Tropical heat and humidity kill motivation.
Just about to the slaughtering your own population phase of statism there...
OMG, I can't believe it, I just looked at the side of my desktop PC ... "Made in Venezuela". It only cost me $2000 and it doesn't work very well, but a deal is a deal, right? Plus, I feel better knowing that I am helping bail out Venezuela. Hugo, my man, we miss you, RIP
They need not worry
They should make a new alliance with Russia & Iran to form a new oil block ,stop seling in dollars , sell in yuan, join AIIB & BRICS and bypass the west for trading. Quit SWIFT for petro trade