Caracas Chronicles

Venezuela has been in recession for eight straight years, four years of hyperinflation, a mega-depreciation, and 15% of its population has migrated. However, in some cities, you can see active cranes all over the place, shopping malls under construction, as well as residential buildings, boulevards, hospitals, and new tourist centers.

How can you explain this sort of economic surrealism? Because it does seem like fiction, more than reality, even though it’s happening right in front of our eyes, and it must be difficult to understand for many foreigners, and not only Venezuelans. According to Nicolás Maduro, international sanctions prevent Venezuela from importing basic goods, but that same administration announces that it’s been able to build millions of homes for the poor while we are in the midst of the current economic breakdown.

Meanwhile, in the country’s capital, the Humboldt Hotel has been reopened, new tourist centers are being built in Margarita and in national parks like Los Roques or Morrocoy; and new residential, commercial, and corporate projects are being developed in La Trinidad, Las Mercedes, Altamira, Los Palos Grandes, and El Cafetal, to name just a few, as well as other areas in the Baruta, El Hatillo, and Chacao municipalities. How do you explain this?

Money Laundering on the Rise?

It’s not only a few Venezuelans who, when they drive by these construction sites, wonder how much of the money invested in the sector comes from legitimate funds, and how much of it is money laundering. A reasonable question because the Venezuelan chapter of Transparency International, for example, maintains that the opacity, corruption, and institutional weakness in this country pave the way for money laundering in many sectors. The de facto dollarization also helps clandestine economic operations.

“Technically, I can’t say what’s being used for money laundering and what isn’t,” Enrique Madureri Tejares, president of the Cámara Venezolana de la Construcción (CVC), said to Caracas Chronicles. “All I can say is that if the government maintains a black market if half of the economy isn’t formal and on the side, there can’t be an effective control over that black market. Once the public and private investments go back to normal, then we could overcome that.” 

The union leader also pointed out that “many of the properties being developed in Caracas were financed by banks five years ago and they’re almost finished. They’re also funded by private money, by companies who reinvest their earnings in Venezuela because they still believe in this country and a better future. So, it’s not fair that because some do wrong, everyone’s record will be stained.”

The Tolón de Las Mercedes boulevard, for instance, will be financed by the debt issued recently through the Bolsa de Valores de Caracas (Caracas Stock Exchange), according to them.

Madureri said that most Venezuelan developers are companies who comply with the anti-money laundering regulations and are financed by clean money. “Companies go through bank compliance, making things clear case by case,” he says. 

However, several journalistic investigations show that a significant number of Venezuelans have laundered huge amounts of money using traditional finance systems and offshore associations in tax havens, where the inquiries made by those banks in checking the clients, didn’t stop them from their illicit enrichment.

The FinCen files in relation to Venezuela, point to a particular businessman named Alejandro Ceballos Jiménez, a construction magnate who, according to documents, secretly transferred 116 million dollars in contracts to build public housing to offshore companies and family members through banks in Europe and the United States. According to the BBC, Espirito Santo Bank, which closed down after the Portuguese government intervened it in 2014, moved over 100 million dollars outside Venezuela to his family’s accounts. “Part of that money came from the state oil company, PDVSA, and government programs such as the Misión Ché Guevara, whose purpose is to combat poverty,” the BBC said.

The International Consortium of Investigative Journalists (ICIJ) analyzed the leaked FinCen files, and revealed that there were suspicious bank reports linked to Venezuela for over 4,800 million dollars between 2009 and 2017. And over 70% of them involve public funds paid for by a government entity.

Lifting Regulations and Overturning Laws

What’s out of the question is how much the construction industry has shrunk in Venezuela. In 2001, construction represented 7% of the GDP; today, it only makes up for 0.7%. It has contracted 98.8% since 2012. These are the estimates of the Cámara Venezolana de la Construcción, which gathers around 200 construction and developing companies in the country.

Throughout history, the construction industry has been one of the largest employment sources in the country. But today, we’re very far away from the 1.3 million direct jobs that depended on the sector in 2012. According to the CVC, they only employ 20,000 now. 

This chamber is asking for the government to lift price and foreign currency exchange controls and to overturn a few laws. “We have a list of laws and resolutions which limit and affect our industry’s performance,” Madureri says. “Foreign currency control has to be eliminated and price controls for supplies (fuel, cement, steel, etc.), property rentals, and services (water, electricity, communications) must be lifted because it results in them being unprofitable and generating shortages. It’s necessary to disengage the market and promote free competition.” 

Basically, they suggest the depenalization of private sector housing development. “The Ley Contra la Estafa Inmobiliaria (Law Against Property Fraud) must be overturned.” Furthermore, the Ley Especial de Protección al Deudor Hipotecario de Vivienda (Special Protection to the Mortgage Holder Law) from 2007 and the Law Against Property Fraud from 2012 must be reformed. They also need to relax current rules for transactions in foreign currency like buying, selling, and renting to be allowed.

“We demand prioritizing buying and/or hiring national construction companies and national goods and service providers. The ‘buy Venezuelan’ practice has to be encouraged. We demand respect for property and constitutional warranties, and stop intervening companies and confiscations,” Madureri added.

These demands have been channeled in the past few months in meetings between Maduro’s regime and the private sector, through corporate unions. “The CVC has presented proposals to reactivate the construction industry. They have been sent to the offices of ministers who have authority in the matter: the Ministerio de Hábitat y Vivienda (Housing Ministry) and Ministerio de Obras Públicas (Public Works Ministry). We also presented the Plan Nacional de Infraestructura (National Infrastructure Plan) 2021-2033,” Madureri said.

Only 96 Projects in 2021

Here’s a number that can shed light on the current situation: only 96 projects by companies chartered to the CVC have been under development in the country during the first quarter of 2021, according to the chamber’s registry. Over half of them are being executed in Miranda and the Capital District: 44.2% and 7.8% respectively. 13% are in Nueva Esparta and 9.1% in Zulia. They didn’t necessarily begin during that quarter, but they remained active during that period.

The president of the chamber admits they really are too few. “You’ll see some private works in premium locations in the capital,” Madureri says, but in reality “many of them began six years ago, and they’re in their final stages.” During the pandemic, there was an upturn in “renovations” and property negotiations, as a result of people moving from locations affected by deficient services and lack of opportunities to the capital.

46.9% of projects being developed during the first trimester of 2021 are non-residential buildings, such as office buildings, shopping malls, and tourist infrastructure. 29.6% are single-family and multi-family homes.

These 96 active projects include maintenance works by governors’ and mayors’ offices, such as renovations and developments for the Bicentennial of the Carabobo Battle, and planting Japanese lawn and date palm trees to rename highways. Only 13.3% of projects developed in the first three months of 2021 can be considered investments in public infrastructure, according to the CVC.

The new CVC board will head the chamber until 2023 and its priority is obtaining higher participation in the economy, which private corporations have been asking for for years. For instance, they want to carry out a census on housing projects and they propose that construction companies that have been intervened or confiscated are returned to their owners or that they’d be allowed to take over their restart. Madureri speaks about promoting alliances with Conindustria and local governments to operate and maintain infrastructure and public services. The guild is also looking to negotiate the Collective Labour Agreement of the Construction Industry 2021-2024.

Challenges

The main challenges and problems affecting productivity in the construction sector were exposed in a poll conducted during the first quarter of 2021, to affiliated companies of the CVC, as well as regional chambers in Aragua, Bolívar, Carabobo, Lara, Nueva Esparta, Portuguesa, Táchira, and Zulia states.

For them, the main issues are Venezuelans’ purchasing power (17%), lack of financing (14.9%), inflation (13.1%), and currency exchange (11.1%). Fuel shortages and air traffic isolation also stood out as an important limitations for the industry.

Construction machinery and transportation need diesel fuel, which is currently scarce. The president of the CVC commented that they have to add six days for every trip from Puerto Ordaz to Caracas: three days for the driver to get his hands on fuel and then three days of the same ordeal for the trip back. “That’s four times the usual time it takes and that translates in cost overrun.” 

The pandemic has also affected the industry deeply. In fact, Madureri says that the vaccination plan without political discrimination is another key factor to bring back the economy. Fedecámaras has proposed the revision of the 7×7 scheme, which complicates the dynamics and processes of the construction industry: seven days of partial labor followed by seven days without working.

Madureri adds that international sanctions “have a direct impact on the country’s main source of income,” the oil industry, which in the end “affects not only the government, but also construction and, of course, each and every Venezuelan.” 

The president of the Cámara Venezolana de la Construcción believes that when oil income is re-established, financing will return as well, and with it, investment in construction. And in any case, “through the participation of private companies, which have knowledge of the oil industry and the existing infrastructure, we’ll be able to get the wheels in motion.”