Venezuela Freight Transport Report 2007

Venezuela and China would create a US$6bn fund to be used for investments in Venezuela, President Hugo Chvez said at the beginning of November. Part of the money was due to go into oil-related transport projects (including pipelines and tankers). Venezuela continues to ride an oil boom, and that is having a marked influence on the freight transport sector. Seeking to seize a nationalist, anti-US leadership role in the region, Chvez has turned his attention to a series of ambitious projects, designed to underpin the growth and diversification of the country's hydrocarbons exports. Business Monitor International's (BMI's) new Venezuela Freight Transport Report details forecasts, however, that as strong oil and gas revenues begin to moderate, Venezuela's total freight carried, measured in milliontonnes km, will grow at an average annual rate of 3.5% in 2007-2011, a little ahead of GDP growth which will average 3.2% over the same period. As a result, the total value of transport and communications will grow to reach US$20bn by the 2011, representing 9.3% of the country's GDP.

We expect Venezuelan pipeline throughput to grow by an annual average of 4.0% in 2006-2010. While oil volume growth will moderate, the big developments will take place in natural gas. At present, there are chronic shortages of gas in western Venezuela, and the pipeline to Colombia will initially be used to bring in imports from that country. But Venezuela sits on the largest gas reserves, mainly located in the east of the country. President Chvez's vision is that these can be used not only to cover the domestic deficit but also to reverse the flow, pumping gas to Colombia, and eventually to supply key South American nations such as Brazil and Argentina, through a continental pipeline. The initial aim is to boost natural gas production by 30% by 2008. In line with the president's plans, in 2006 Venezuela joined Mercosur, the South American trade pact between Brazil, Argentina, Paraguay and Uruguay (with Bolivia as associate member).

Venezuela's ambitious plans, which require massive investments over many years, might not survive sharply lower revenues, which could come within our forecast period. Second, significant political and business environment risks must be factored in. The Chvez presidency has been erratic, and its commitment to regional integration projects has tended to be politically-led (Venezuela recently left the Andean Pact because it disagreed with other members who were seeking free trade agreements (FTAs) with the US). As for the business environment for the freight industry, BMI gives Venezuela the lowest score among the major Latin American markets - 29 (out of a theoretical maximum of 70), well below the regional average of 38. The regulatory and competitive environments are particularly weak. In fact, while oil and gas wealth underpins our Venezuelan freight transport forecasts, it is also true that given this advantage the freight industry could have done much better. In emerging economies, freight growth tends to run significantly ahead of GDP, but in Venezuela, on our projections, the gap will be only 0.3 percentage points on an annual average basis over the next five years. Pipeline throughput and sea cargo is largely driven by the oil sector. Rail freight will grow strongly because of mineral exports, but is developing from a very low base. Road haulage is held back by a failure to invest in the highway network. Airfreight growth is moderate to disappointing compared with neighbouring countries. The bottom line then, is that Venezuela's freight industry can expect moderate, but below-potential growth over the next five years, and that it remains exposed to the risk of a sharper downturn in international oil prices.