Bankrupt by socialism, Venezuela gives up control of its companies

---

The Venezuelan government, burdened with hundreds of bankrupt state companies in an economy that is in free fall, is abandoning the socialist doctrine and handing over key companies to private investors offering profit in exchange for a share of income or products.

Dozens of chemical plants, coffee processors, grain silos and hotels seized in the past two decades have been transferred , but not sold, to private operators in so-called strategic alliances, said nine people with knowledge of the matter. Administrators cover payroll and investments, and deliver products and a percentage of their income to the government.

Ramón Lobo, a legislator for the ruling socialist party and former finance minister said, we believe this is positive because it is the synchronization of the public sector with the private sector. The State acts as a supervisor and receives remuneration.

The change is noticeable in agriculture, part of Nicolás Maduro's effort to feed a starving population after seven years of economic and social collapse . It is unclear how much money the new policy brings in, which follows last year's approval of an "anti-lockdown" law that sought to reduce the impact of US sanctions and incentivize investment. The government now allows dollar remittances to flow and private business to flourish in small pockets.

Maduro took power eight years ago after the death of Hugo Chávez , who started the socialist revolution by confiscating more than 1,000 companies and numerous farms and properties, including assets of multinationals like Kimberly-Clark, Cemex and Kellogg. The new state companies failed due to mismanagement. Using its vast oil revenues, the government replaced local crops and manufacturing with imports.

Venezuela's state oil company PDVSA was turned over to allies and also became inefficient, effectively becoming an arm of the ruling party . It was ruined and forced to cut its production. Between that and the recent US sanctions, which increased significantly during the Trump presidency, they have shattered a society that was once among the richest in the world.

More than 5 million Venezuelans have fled the country in a desperate attempt to avoid ruin.

Rodrigo Agudo, head of Venezuela's Food Network said, the Maduro government took a U-turn in late 2019 by promoting savage capitalism. It stopped collecting taxes on certain companies, granted import licenses, and convinced military officials and others to invest money of unknown sources in local companies.

Strategic alliances began to quietly form in 2017. Last year's publication of the anti-blockade law gave the deals a legal basis, circumventing regulations such as bidding processes.

But the precise nature of the new agreements, whether they are leases, licenses or bailouts, is unclear. The anti-lockdown law prohibits the disclosure of such information, theoretically to protect companies from US sanctions, which are aimed at entities that do business with the government, but exclude private companies . The agriculture and information ministries did not respond to requests for comment.

The new agreements are affecting the main companies and mostly involve businessmen with ties to the government, but not exclusively. In some cases, the seized properties are returning to those from whom they were confiscated. In others, the owners refuse to participate. Similar association terms have previously been established in the oil industry . PDVSA gave local companies more control over state assets such as oil and gas compression plants to operate and increase production. And in some cases, PDVSA gave partners more capital in their joint ventures.

Lobo, the socialist lawmaker, said the agreements have terms, generally five to 10 years, and function as a concession. The private company agrees to invest, increase production on time, and manage the asset .

Most of the new agreements are made in rural areas of the country. Agropatria, a monopoly-sized agricultural supplies business nationalized in 2010 that ran five companies, is now turning to private management . More than half of its 70 stores and two of its pesticide plants, confiscated to free producers from extortion and intermediaries, according to then-President Chávez, are now managed by Agrollano 2910, a local agricultural company that is spending nearly $ 150 million to resupply, according to four of the people.

Lácteos Los Andes, a large milk processor and beverage manufacturer bought by the government in 2008 , is now run by a private Venezuelan company, although no official changes have been made to the council.

Two government grain processing plants, mostly inactive since their opening in 2007, have been transferred but not sold to local private companies. The same is true of the milk and coffee plants built during Venezuela's oil boom and under bilateral agreements with regional allies such as Cuba, Bolivia, Brazil and Argentina.

Conditions for companies vary. The main contribution is a percentage of profits or production for the state. In some cases, the government and managers are discussing a standardized monthly salary scale of between US $ 60 and US $ 80 for workers and technicians, some of the people added.

Not all companies that the government is targeting to partner with are generating interest. Local businessmen are suspicious of years of poor maintenance under state supervision and fear new nationalizations.

Maduro, who has cut allocations for some state and local governments during the crisis, has given them leeway to partner with local businesses to generate revenue. In December, the governor of the agricultural state of Portuguesa, Rafael Calles, told public media that alliances with the private sector in the management of 24 state-owned companies raised US $ 60,000 a month for the state government.

The government has never published the number of properties it has seized over the years . But a study by the national industrial chamber Conindustria said that a total of 1,322 cattle farms, food stores, power companies, mills, glassmakers, banks, supermarkets and cold storage facilities were expropriated between 2002 and 2015.

Many have ceased to exist and only about 700 remain. Most of their former owners are still waiting for compensation or are involved in litigation in the hope of receiving a payment, according to a 2019 Transparency International study.

Some analysts point out that what is happening in Venezuela has precedents in other authoritarian states of the left.

Asdrubal Oliveros, head of the economic consultancy Ecoanalítica, speaking of the 1990s said, this process is similar to the privatization process in Russia in that the assets are transferred to private local companies and investors from countries allied to the Government. But Unlike Russia, there has been no deep stabilization program with the help of multilateral organizations . Being isolated and under sanctions makes it a different situation.