So here’s the deal. Hugo Chavez is a dictator governing the South American (oil wealthy) country: Venezuela. I think, when being up to speed on global politics and international business you should be able to at least carry out a 2 minute conversations about this character. Why? You look smarter, people are talking of him, and he is president of the nation which helped create OPEC (Organization of Petroleum Exporting Countries) in the 1960’s.
OPEC is basically a collaborative of the biggest oil producing nations in the World (Saudi Arabia, Iran, Ecuador, etc – seen in blue on world map) that aims to stabilize oil markets and prices around the globe. OPEC has been widely criticized in the past because it manipulated supply – effecting demand accordingly to attain the desired global price. In 2010, OPEC was not considered as influential due to new oil coming from Russia, Canada, and the Gulf of Mexico – OPEC nations now hold 79% of the world’s crude and 44% of production. Chavez is known for OPEC (among other things) but first read about his background. If you want to learn more, I highly recommend reading some academic sources – there is ALOT of material on him and his past!!!
History - Ranked Time Magazines 100 most influential Men of the year (2006 & ’07) he is now a big deal in global politics – one thing to remember about CHAVEZ = United States ANTAGONIST. From the beginning he probably started his career...most likely with good intentions. He was born into a working class family then headed to a military route – working hard while noting the corrupt country he served. He hated how the country was run, so after being in the army for a while he started a movement in the 1980s in attempts to overthrow the government – that failed. In 1992, he tried again but was jailed after using supporters from his previous movement to forcefully overthrow the government – that failed again! By 1999 he was successful, and was elected for his socialist ideology - he was now president.
Problem today. My problem is that this country is tough to do business with – yet a commodity rich country with 28 million people and a GDP of about $326 billion, 2009. However, the Consumer Price Index (CPI – good measure of inflation) is very high, near ~25% - typical of developing nations (usually around 2-3% in Canada).
I am not a political science major, and some of his earlier political moves were rational and may have helped his country – but now the media certainly has a negative connotation on this character, and rightfully so! Chavez has a nasty habit of taking what he wants and making it his own (nationalizing), changing laws over night (literally) and actively displaying dictatorship traits.
Rusoro Mining Ltd was an annomoly of companies fast the harsh reality of Chavez’s habit of nationalizing in Venezuela. This Canadian gold mining company has seen only tough times in its Venezuelan operations. However, Rusoro should be counting their lucky stars and maybe RE-think their ‘LOCATION LOCATION LOCATION’ strategy. Chavez has allowed this one company to continue to operate under a joint venture between the Venezuelan government despite his recent move in the Gold industry. This is GOOD news because Hugo decided to be a BOSS... by indeed, nationalizing the Venezuelan Gold Industry on August 23rd 2011. He has also done the same with many other industries in the past (Cement, Oil, Glass, Steele, Banks, etc, etc, etc... now GOLD!). This sends the message “DFDI” (a phil invented term for this blog), not for “DO” but for “DON’T” FOREIGN DIRECT INVEST in this country.
While I was studying in Mexico, I had a business owner in my “Doing Business in Mexico” course who explained his sticky situation to me. He had exported 1,000 litres of “Mexico’s Finest” (his very own family operated) Tequila, to Venezuela. Since the shipments arrival, his business partner in Venezuela sent him a disheartening note that read the following. “Hugo Chavez just made a rule, stating that Tequila was not classified Tequila anymore unless it was distilled for more than 2 years”. His Reposado tequila (aged 2-12 months – and perfectly drinkable...) was no longer a suitable product and they had to renegotiate their terms. Luckily the business partner was understanding of this issue and their relationship continued – managing to work around the already shipped “Agave juice” – not to be called tequila. Lucky for him and his tequila exporting business, otherwise our Doing Business in Mexico class may have had a Barra-Libre weekend trip to Venezuela!