Venezuela - Manufacturing

Manufacturing

Government-implemented industrialization policies begun in the late 1950s boosted the manufacturing sector. From the early 1970s to late 1980s, the state's ownership role in manufacturing increased from 4 percent to 42 percent. In 1988 the sector employed 18 percent of the labor force and accounted for 17.1 percent of GDP. Except for the export of processed petroleum and minerals, virtually all manufacturing was consumed locally. Manufacturing previously had been limited to oil refining, food processing, and small-scale enterprises. Domestic manufacturing blossomed somewhat during World War II as the country substituted local production for imports curtailed by the conflict. The expansion of manufacturing accelerated to its fastest pace in the 1950s as the world economy boomed, and the government embarked on the economic diversification and industrial development policies it referred to as "sowing the oil." By the mid-1970s, the nation's enormous oil wealth allowed the government to provide significant aid to industry, especially in the form of subsidized credit. Public-sector participation in industry expanded considerably with the nationalization of iron and steel in 1975 and petroleum in 1976. But after the country had exhausted its reserves from the two oil booms of the 1970s, it was forced to reexamine its industrial policies. Although Venezuela's level of industrialization was impressive by Latin American standards, industry was generally inefficient and productivity low. In 1990 Venezuelan industry faced the difficult task of moving beyond local markets and trying to compete in the international market.

By the end of the 1980s, the structure of manufacturing continued to be dominated by thousands of small firms in the private sector and a few hundred large, mainly public-sector, enterprises. In 1988 large firms employed 64 percent of the sector's workforce and supplied 78 percent of its output. Most smaller firms were family owned. Unlike many Latin American countries, capacity utilization among large, state firms was generally better than in the private sector. Caracas was the home of just under half of all industry, but it provided only 36 percent of its jobs and 26 percent of the country's manufactured goods. By contrast, the Guayana region, with only 3 percent of the country's industrial firms, produced 10 percent of all manufactured goods.

Four broad functional categories made up the manufacturing sector: traditional or basic industries, intermediate, capital goods and metals, and other. Basic industries included most traditional manufacturing, such as food processing, beverages, leather, footwear, and wood products. Traditional manufacturing constituted 54 percent of all firms; about three-quarters of these were considered small businesses. Intermediate products, such as paper, petrochemicals, rubber, plastics, and industrial minerals, represented 18 percent of the sector, but their share was growing. The share of the capital goods and basic metals subsector was 19 percent by 1988. These thriving heavier industries included iron, steel, aluminum, transport equipment, and machinery. Other miscellaneous manufacturing accounted for 9 percent of the sector's output.

The automobile industry was one of Venezuela's largest manufacturing activities outside of petroleum refining and mineral processing. The industry consisted of Venezuelan subsidiaries of various foreign-owned companies. United States automobile companies assembled 85 percent of the country's vehicles, and European and Japanese companies produced 10 percent and 5 percent, respectively. The two largest United States car companies, General Motors and Ford, controlled 70 percent of the Venezuelan automobile market, followed by Fiat, Toyota, Jeep, and Renault.

At the outset, the Venezuelan automobile industry was almost completely an assembly operation, importing most parts. Eventually, local factories supplied a greater percentage of parts to the assembly line, particularly tires, metal products, and motors. A government decree in 1985 required that all car engines be Venezuelan made by 1990.

Venezuela's automobile industry was first established with three vehicle assembly plants in the 1950s. By 1984 cumulative output had reached 1.7 million vehicles. The industry, protected by import tariffs as high as 300 percent, soon became virtually the only source of the country's transportation fleet. In the late 1980s, fifteen producers manufactured scores of models for domestic consumption, ranking Venezuela with Brazil as the largest per capita producers of cars in Latin America.

Venezuelans rushed to purchase vehicles in the 1970s, when generous government price controls on gasoline made driving economical. Production dropped during the less-affluent 1980s, however. As in the manufacturing sector at large, increased competition in the late 1980s forced many lay-offs at automobile factories.

Venezuelan factories manufactured a wide range of new products during the 1980s: specialized rubber goods, new paper products, ships, and aluminum, among others. A growing trend among producers of both new and traditional manufactured goods was overseas marketing. The country's traditional manufacturers began turning to export markets to enhance efficiency. The popular brewery, Polar, for example, turned to the international market after absorbing 85 percent of Venezuela's beer market. Following the success of other foreign beers in the United States, Polar began to export its brew successfully to North America in the late 1980s. Increased sales helped rank it among the world's fifteen largest breweries. The government-owned cement industry likewise expanded exports in the late 1980s, boosting its overall production in the process. Increased production allowed the industry to operate at more than 90 percent capacity, an unusually high rate of efficiency among Latin American industries. Although some manufacturers were expected to succeed in foreign markets, economists predicted that many others would close their doors during the 1990s as a result of reduced import protection.

Having reached a rather advanced stage of physical and human resource development by 1990, Venezuela hoped to turn toward high-technology areas for future manufacturing expansion. One of the country's largest import items, for example, was computer equipment. The P�rez administration promised to create incentives for investment in newer industries, such as information technology, telecommunications, and electronics. One obstacle to this goal, however, was the limited extent of research and development in the economy, particularly in the private sector. The country's expenditure on research and development in 1985 stood at only 0.41 percent of gross national product (GNP), compared with 2.7 percent in the United States. During the 1990s, the country aspired to reach the level of 1 percent of GNP recommended by the United Nations Educational, Scientific, and Cultural Organization.

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