Venezuela was once among the largest economies in Latin America. However, the hyperinflation witnessed in the 2010s has plunged the country into an economic crisis of unprecedented levels. Venezuela's economy revolves around the oil industry as the country is among the largest oil producers globally. However, the country’s reliance on its oil industry has seen it suffer from an economic phenomenon known as the “Dutch disease” where other sectors of the economy shrink as the government focuses on the oil industry. The global drop in oil prices witnessed in the late 20th Century and the 2010s almost crippled the economy and resulted in the country experiencing hyperinflation. Other industries which are integral to the economy of Venezuela include its agricultural, tourism, and manufacturing industries.
The agriculture industry in Venezuela is among the country’s main economic drivers. The industry accounts for an estimated 4.4% of the country’s GDP, and agricultural products are some of the country’s most important export commodities. The industry is also an important employer and employs about 6.5% of the country’s available labor force. Despite being situated in a region having climatic conditions which are ideal for agriculture such as rich soils, the country is far from reaching its agricultural potential. The country has about 3.4 million hectares of land which are perfect for agriculture, but only 0.7 million hectares are utilized in agriculture. The industry has shrunk in the past decades due to the emergence of oil as the country’s chief export commodity and main economic driver.
The Decline Of Agriculture In Venezuela
Before the discovery of oil in the country in the mid-20th Century, agriculture was the economic backbone in Venezuela and at one point was responsible for more than 50% of the country’s GDP. The industry was also the largest employer in the country and provided jobs for over 60% of Venezuela’s workforce in the 1930s. However, the industry was ignored by successive regimes after the discovery of oil and subsequent reliance on petroleum exports. By the late 1980s, agriculture had shrunk and only accounted for 5% of the country’s GDP and employed less than 13% of its labor force. The shrinking of the industry triggered the increase in food imports to meet the domestic food demands in the country. While the country is attempting to revive its agriculture, it relies on food imports the majority of which is sourced from the United States and Colombia.
The petroleum industry is Venezuela’s most important industry and also the largest employer of the country’s labor force. The United States is among the top destinations for Venezuela’s oil and provides the market for about 11% of the country’s oil production. The country has the largest oil reserves in the world. All proven oil reserves in the country are estimated to be about 0.297 trillion barrels which is equivalent to about 20% of the global proven oil reserves. The oil production in the country has fallen in recent years and currently stands at 2.3 million barrels each day which is a significant drop from the over 3.5 million barrels produced each day in the country in 1998. The country is also endowed with immense natural gas deposits which are among the largest in the world and estimated to be over 176 trillion cubic feet.
The country is also a founding member of the Organization of the Petroleum Exporting Countries which was formed in 1960 as a way of bringing together oil-producing countries to push their collective interests in the global oil markets. Despite being the largest industry in the country, the petroleum industry has had detrimental effects on the economy in recent years, with overreliance on oil being responsible for the hyperinflation the economy is currently experiencing.
History Of The Oil Industry
The use of oil in the country predates the arrival of the Europeans in the 16th Century with indigenous Venezuelans using crude oil for illumination and medical purposes. However, oil was first drilled for commercial purposes in the early 20th Century with the first well with commercially viable oil being completed in 1914. Petroleum first appeared as an export commodity in Venezuela in 1918 when the country exported over 21,000 metric tons of the commodity. By the late 1920s, oil production in the country had grown to make Venezuela among the top oil-producing countries in the world and was only exceeded by the Soviet Union and the United States in oil production globally. The wealth that came with the oil exports, however, had a detrimental effect on the overall health of the economy as it led to the shrinking of the agriculture. The reliance on oil exports also made the government neglect developing social amenities such as health facilities, infrastructure, and education.
Venezuela’s geographical position in Latin America makes it a prime tourist destination. The country enjoys warm temperatures throughout the year since it experiences a tropical climate. However, the industry has not been spared by the economic crisis which has engulfed the country with tourist numbers plunging to record lows in recent years. The ripple effect of the drop in tourist arrivals has also hurt the country’s hospitality sector which relies on international visitors.
Another important industry in Venezuela is the country’s manufacturing industry. The industry accounts for an estimated 15% of the country’s GDP. Manufactured goods are among the top export commodities in the country. Some of the manufactured goods exported from the country include aluminum, steel, textiles, beverages, cement, fertilizer, and tires to mention a few. The industry is anchored by the country’s wealth of raw materials required in the industry with many of the manufactured goods having all the raw materials sourced locally. However, the ongoing financial crisis the country is experiencing has been devastating on the manufacturing industry with sources stating that the industry’s production fell by 8% in 2015. Lack of proper legislation frameworks and increasing costs of production have also played a role in the decline of the country’s manufacturing industry which has seen major global brands which had established plants in the country such as General Motors, closing shop.