Venezuela growth hit by state seizures

Nov. 8, 2010 at 6:51 AM
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CARACAS, Venezuela, Nov. 8 (UPI) -- Venezuela, the only Latin American nation still in recession in the last quarter of 2010, risks fresh blows to its growth prospects in 2011 after a spate of new nationalizations hitting key resource industries.

Privately run steel manufacturing plant Sidetur was taken under state control after officials accused its operators of keeping productivity low and not doing enough to meet domestic demand.

Earlier in October two glass factories went under state ownership in a measure seen largely as the result of President Hugo Chavez objecting to the companies' U.S. ownership.

Last year Chavez nationalized a Venezuelan unit of U.S. food giant Cargill. The takeovers followed decreed nationalizations of privately owned oil, telecommunications, power and cement companies.

Opposition critics and financial analysts said in published comments that the nationalization could exacerbate low productivity that resulted partly from government intimidation of the labor force and managerial communities.

The ratings agencies have already downgraded Venezuela, stating poor economic performance as the key reason for the negative revisions.

Chavez said the government will take over the Sidetur steel manufacturing plant and two U.S.-owned Owens-Illinois glass-manufacturing units.

Jose Paredes, the vice minister for basic industries and mining, said the government nationalized the Sidetur plant because it wasn't providing enough steel to meet Venezuela's growing needs. In 2008, Chavez nationalized Venezuela's largest steel plant, Sidor, and several other industries. In each case the government cited low productivity as the reason behind the state takeovers.

Vivencia, which owns Sidetur, lost two mineral plants to government takeover in 2008.

Opposition critics want Chavez to halt nationalizations as they argue the state takeovers aren't helping economic recovery or growth.

In June U.S. oil rigs operator Helmerich and Payne was among several companies targeted for nationalization in the government's enthusiastic push for a socialist economy.

Oil Minister Rafael Ramirez said a fleet of oil rigs belonging to the Oklahoma company would be seized by the state and hinted that other companies seen not to be operating at full capacity could be targeted for nationalization.

A state takeover of the Helmerich and Payne was anticipated amid an ongoing dispute over payments between the company and the state-run Petroleos de Venezuela, S.A. Helmerich and Payne said it was owed money by PDVSA and would only resume operations after its account had been settled.

Export Development Canada, which provides trade finance and risk management services for exporters and investors, said, "The business climate is turbulent and the Chavez administration has been openly hostile toward private capital and foreign direct investment."

EDC said the Venezuelan's leader's "willingness to expropriate businesses and breach contracts is a significant worry for both domestic and foreign-owned businesses." It said, "Private business is under constant threat, and other sectors impacted by expropriation are petrochemicals, oil services, cement, telecommunications, steel, media and food," EDC added.

Moody's ratings agency said, "Venezuela is a wealthy country compared to its peers. But despite this comparative advantage Venezuela remains the only major Latin American country still in recession in 2010, a reflection of haphazard policymaking that has depressed investment and growth."

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