Caracas Chronicles

The informal sector plays a pivotal role in the Venezuelan economy. According to Andrés Bello Catholic University’s 2022 Encuesta Nacional de Condiciones de Vida (ENCOVI), 44% of the workforce exists in the informal economy. The picture probably hasn’t changed a lot since then: according to the newest edition of Datanalisis’ Encuesta Ómnibus, 7% of Venezuela’s active population works as a buhonero (informal street vendor). However, this segment of the economy remains understudied, mainly because of its elusive nature. Yet, as part of our college thesis on the industrial organization of informal commercial business in Caracas, between October and January we’ve interviewed roughly one hundred buhoneros all around Caracas and some interesting patterns have emerged. 

Firstly, we’ve seen the tenuous relationship between formal authorities and the informal economy. While firms and workers in the formal economy –under ideal conditions– rely on the law and state institutions to resolve disputes, the informal sector by design operates outside of their reach. 

In Venezuela, the result is that the degree of involvement of official government authorities goes from almost null in zones like Petare or Catia to a diluted presence mainly to keep organized crime at bay in places like Quinta Crespo and La Candelaria. In the first ones, colectivos –armed Chavista paramilitary groups– approve who can sell in the area and assign them a spot. In the latter, the Municipality gives an authorization to operate (just verbally since the pandemic) and the security forces patrol in larger numbers. 

In fact, in the areas where the buhoneros enjoy a higher degree of freedom from the state, new competitors experience more hostile environments. In La Candelaria, a respondent told us: “Do you want to know the truth? I’ll never let anyone sell the same products that I have. My family controls the entire block and each one of us sells and patrols a street”. In that area, the informal merchants are so self-organized that many streets have a representative that negotiates with the police or other actors on their behalf. 

Similar things happen around the Quinta Crespo Market where most of the interviewees declare that even though police forces have a light presence, organized crime doesn’t operate there (the same can’t be said a few streets away). In fact, when surveying in Petare, merchants asked for permission to answer our questions – which was granted.

Petare also revealed ‘cartelization’ among buhoneros, a microeconomic concept to denote the act by which market participants collude to fix their products’ price and amount.  There, a vegetable seller told us that if two or more buhoneros sell similar products they usually collude and fix prices, but if one breaks the agreement “the rest would confront him and force him to comply”. In the area, hot dog sellers also formed an informal association of affiliates to fix their products’ prices.

Similarly, in some sectors of the Sabana Grande Boulevard, street vendors informally created organizations similar to business chambers where all of the affiliates discuss, among other things, who sells what and where – of course resorting to unconventional methods to assure everyone stays in line.

Petare also revealed ‘cartelization’ among buhoneros, a microeconomic concept to denote the act by which market participants collude to fix their products’ price and amount.  There, a vegetable seller told us that if two or more buhoneros sell similar products they usually collude and fix prices, but if one breaks the agreement “the rest would confront him and force him to comply”. In the area, hot dog sellers also formed an informal association of affiliates to fix their products’ prices.

Seasonality, another economic dynamic, is also present among buhoneros as certain seasons attract more people into informal commerce and disrupt this status quo. For example, an elderly woman that sells fruits on an old supermarket cart outside of the Quinta Crespo Market told us “It’s unfair that I have to work under the sun for hours all around the year, and some outsiders come only during the best month [December] and then leave.” After the survey ended, perhaps revealing the hostility brewed by rising competition, she insisted that “the next newcomer will find out how things are done around here”.

During the last days of December, many videos were posted on social media showing massive amounts of street vendors in La Hoyada, Catia and Sabana Grande. It’s fair to assume that hostilities reached new heights in those places because, at the same time, we encountered an increase of street vendors in locations with significantly less competition. “There’s no room for more us”, an ice-cream seller said In Caracas’ historic quarter, “Turning a profit is becoming more difficult”.

Such hostilities and fierce competition are expected in a country where 81.5% of the population lives under income poverty according to the last ENCOVI and in which consumption is driven mostly to satisfy the most basic needs in what has been described as “an economy at the base of the Maslow pyramid.” It’s an understatement to say that building a path towards formality is necessary, but this has been a historical challenge for underdeveloped and developing countries. 

Fortunately, there’s some consensus on policies that can help in this endeavor. First and foremost, the legality cost should be low: if labor regulations are strict and costly, more people will hire outside the law. For example, the longer and more expensive the process of registering a company is, the less interest in doing so there will be. But in Venezuela, according to think tank CEDICE, a small company usually wastes around 945 hours in some 68 legal procedures to begin operating. It’s redtape country.

Access to financial services and microcredits is also a gamechanger, as the Nobel Peace Prize winner Muhammad Yunus and the Grameen Bank showed. But in Venezuela, credit is only around 1% of the GDP – quite far away from the regional average of 40%, similar to Venezuela’s levels before the crisis. In fact, credit supply is mostly concentrated  in the manufacture and agroindustrial sectors, out of the small businesses and consumers’ reach, according to Escenarios Datanalisis’ Encuesta Multisectorial Empresarial. Offering some capacitation on accounting, law and acquiring profitable skills is also recommended. Although many economists expect a better performance of the economy during 2024, the number of buhoneros most likely will not dwindle. The informalization of productive activities is –purposely or not– encouraged by the Venezuelan government. The bonification of salaries in the public sector to the point that bonds far surpass the minimum wage in the “minimum income”, extreme fiscal voracity, the high cost of company registration and the inaccessibility of bank loans incentivize informality. Therefore, these little ecosystems, endemic to each street and corner, will continue to thrive and be accompanied by their oligopoly in the use of force.