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CARACAS, Sept 1 (Reuters) – As Venezuela’s economy shows tentative signs of recovery in 2020, Enrique Parrella thought the time had come to open a cafe serving coffee, desserts and snacks in eastern Caracas.
But by January this year, facing rising rents, increased taxes and financial constraints, they called it off.
“The boom is over,” Perrella said. “There is no security for investment.”
Business owners and analysts say that after a brief recovery due to real dollarization, Venezuela’s economy is once again suffering from high inflation, low wages and a reduction in goods purchases and production.
Nicolas Maduro’s government eased currency controls in 2019, allowing more transactions in dollars despite US sanctions. The move foresees a slight recovery in 2021 and 2022 after eight years of economic decline and the migration of some 7.3 million Venezuelans.
Maduro hailed economic growth of 15% last year and said in August that the expansion was continuing.
But traders and analysts said the dollarization boost proved insufficient due to limited debt, depreciating local currency, higher taxes, limited public spending amid lower oil income and rising utility bills.
According to the non-governmental Venezuelan Finance Observatory, economic activity in the first half of 2023 fell 7% compared to the same period last year, while inflation reached 398% year-on-year in July, according to the central bank.
Last month, Yan’er Fung closed the small supermarket he owned for 15 years in western Barquisimeto.
He said, “I had to close because sales were falling in the last two months due to low purchasing power… and even more so due to increased taxes and utilities.”
Fung now works for a similar business.
“I went from boss to employee.”
‘Can’t afford’
Other businesses that have survived said they are cutting prices, wages and profit margins to stay afloat.
“We had to cut wages and work fewer days a week in order to continue operating,” said the owner of a small food factory in the industrial central city of Valencia, who did not wish to be identified. “There is no purchasing power.”
Industrial production in the first half of the year was down 7.6% compared to the same period in 2022, according to the manufacturing guild Conindustria. Local analyst firm EcoAnalytica said commercial sales were down 9% during the same period.
The central bank, which has not released GDP data since 2019, did not respond to requests for comment.
“In the first half of 2022, we saw deregulation and greater use of the dollar helping growth, but then decelerating,” said Jesus Palacios of EcoAnalytica. “Structural economic problems such as scarce credit, absence of reforms in public utilities were not addressed.”
Retailers in the capital Caracas are offering discounts to raise customs, but traders said many people still can’t afford to shop because of low wages.
“Years ago I felt like a millionaire, today my salary is not enough,” said Migdalia Uviedo, 58, a retired teacher who now works as a tutor and seamstress. “I look for cheap food to survive.”
Uviedo’s pension is as low as $9 per month. With her other work, she makes around $20 in total.
A dozen eggs cost about $4, while a kilo of chicken costs $3 and a liter of milk costs $1.80.
EcoAnalytica says more than half of Venezuelans earn less than $100 a month, and even families that receive some income in dollars may struggle to afford food and medicine. Is.
Restaurants, cafes and bakeries like Perella flourished with dollarization. But 25 have already closed in Caracas this year, said Ivan Puerta, head of the Chamber of Restaurants.
Those left are offering deep discounts to entice customers, with lunch priced at $20 in early 2023 down to $10. But restaurant owners said sales have plummeted, while input costs have quadrupled in the past year.
“We have to keep inventing,” said Giulio Gallucci, partner at Mexican Restaurants.
Reporting by Mayela Armas in Caracas, Karen Torres in Barquisimeto and Tibis Romero in Valencia, Additional reporting by Johnny Carvajal in Caracas, Writing by Julia Sims Cobb, Editing by Vivian Sequeira and Rosalba O’Brien
Our Standards: The Thomson Reuters Trust Principles.
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