Political Risk – Venezuela
The political climate in Venezuela is very unsettled, this is because of the course of action the president decides to take. However the biggest risk is to industry –type company’s that have major operations in Venezuela. This is exemplified in the operations of foreign oil companies and mining companies with operation in or with Venezuela. The greatest risk in conducting business is straightforward expropriation. Another major risk that foreign companies face while operating in Venezuela is increased income tax. The tax rates tend to be subjective and can change depending on the revenue and size (growth) of the company. The largest risk facing any foreign company such as the proposed from class is converting the local currency (Bolivar) to outside currency. This is mainly because of the bureaucracy involved exchanging the currency, which is governed by the Central Bank of Venezuela and the National Exchange Control Administration. This is especially applicable to the U.S. currency because of current relations. *
The additional expenditures accumulate because of time and resources required to transfer money abroad. Venezuela's democracy is broken according to the standards of the OAS Inter-American Democratic Charter. This may mean that changes to the political climate to further burden the operations of business will prove to be futile.
Venezuela has a national poverty percentage of 52% according to the World Bank. There is considerable income inequality, especially in densely populated areas. This becomes a concern because Venezuela has had massive economic growth compared to historical percentages. The unemployment rate is 6.6% at the year-end of 2009. This is considered to be low when factoring in that many people engage in subsistence farming and small-scale trade, which is not considered part of the unemployment count.
There is a large gap in income where the population is...
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