Thursday, 21 January 2010

Investment and regime uncertainty

In an earlier posting on government actions in Venezuela to take over a French-owned retail chain I wrote,
I'm guessing foreign investment isn't at the top of Hugo Chavez's list of must haves for economic development. I'm also guessing that Robert Higg's idea of regime uncertainty isn't something Chavez is too concerned about. One wonders what effect all this will have on private investment, both foreign and local, in Venezuela.
Now this story from Reuters UK tells us
Venezuela's Mariscal Sucre project, which has estimated reserves of 14.7 trillion cubic feet of gas, has failed to attract private interest after the government invited firms to make offers last week.

Offers were to be made on Friday until midnight.

The government this month improved the conditions it was offering companies to help develop the project, but in the end nobody came forward, private sector sources close to the process said on Monday.
Given past actions, such as the nationalisation of the French-owned retail chain and the threatening of international car companies with nationalization, it is hardly surprising that foreign firms don't want to invest in Venezuela. They too, rationally, fear seizure of their assets at some future date. The possibility of hold-up in the future reduces firms willingness to invest today. A point lost, it would appear, on Hugo Chavez.

Maybe there is more to this story than is obvious from the news report, but the argument above seems sufficient to explain the lack of interest in investing in Venezuela.

(HT: Knowledge Problem)

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