Venezuela’s Economy: An Overview of Its Growth and Challenges

Map of South America with magnifying glass over Venezuela main

Nestled on the northern coast of South America, Venezuela is a nation brimming with potential as a developing economy. Venezuela’s diverse industries span oil, food processing, construction, textiles, mining, steel, and tourism. As a petrostate, however, reliance on oil has led the country to be mired in economic and political turmoil. An economic downturn that started in the 2010s continues. Its future is a troubled one without major reforms.  

Venezuela At A Glance

Venezuela is a country on the northern coast of South America.  It supposedly reminded early European explorers of the Italian city of Venice, so it was named “Little Venice.”   

Venezuela obtained its independence from Spain in the early 19th Century.  

The population is around thirty million.  Its people are primarily Roman Catholic. A majority are multiracial. Their government is a presidential republic.  

The country is about double the size of California.  It is a tropical country with a hot and humid climate.  The official language is Spanish.  

Economic Snapshot 

Venezuela is a mixed economy. A mixed economy combines a market (privately owned) and a command economy (government based).   

Venezuela’s currency is the Bolivar.

The major industries are oil, food processing, construction, textiles, mining, steel, and tourism.  

A person working in Venezuela is likely to be in a service-related job.  Twenty percent work in construction and industry.  Tourism is an important source of employment.  Agriculture jobs provide less than ten percent of the whole.  


Venezuela Is A Petrostate 

Venezuela is a petrostate.  Oil is the primary source of its income and plays a fundamental role in its government and foreign policy. The country is a member of OPEC (Organization of the Petroleum Exporting Countries).  Oil profits are known as “petrodollars.”

Venezuela has other natural resources, including natural gas, iron, gold, and diamonds.  It is a significant consumer of hydropower (water power).  Oil still dominates its economy.

For instance, as a tropical country, the country raises agricultural products such as sugar cane, maize, milk, rice, plantains, bananas, pineapples, potatoes, beef, and poultry.  Nonetheless, Venezuela has to import food to feed its people.

Perils of A Petrostate 

Venezuela’s status as a petrostate provides both opportunities and the fruits of its current desperate state.  Its status has the character of a Greek tragedy.

[1] Reliance on Oil

The country was a petrostate since the 1920s.  A petrostate is very reliant on oil.  A healthy economy relies on oil profits.   Oil is a fundamental concern of society overall.

President Hugo Chávez came into power promising social reforms and started to work toward helping to build a more equitable society.  His program, however, relied on oil wealth.  

A long-term healthy economy, like a good investment portfolio, is diverse.  If one thing fails, other things can pick up the slack.  A petrostate puts all the eggs in one basket.  

The life of Venezuela’s petrostate status was a series of boom and bust cycles.  

[2]  Government 

Officially a  presidential republic, the country has a history of strongmen-type governments, a common theme in petrostates. Strongmen governments lead to much corruption and unreliability.  This leads to inefficiency and the inability to provide essential services.  

President Hugo Chávez’s socialist policies were very controversial and received strong opposition.  Normal enough. But, his autocratic policies, continued by his successor, are much more problematic.   The nation’s international reputation for legitimacy is poor. 

The Great Depression in the United States led to many programs and reforms to address the country’s needs.  This program required a basic level of government that is lacking in Venezuela.  

[3] Corruption 

A petrostate is an oligarchy, controlled by a corrupt few.  There is a significant amount of economic inequality. There is a large underground or illegal economy.  

Venezuela follows this trend.  For instance, illegal activities play a significant role in the economy.  One recent report found that over twenty percent of the nation’s Gross Domestic Product (GDP) came from organized crime, including the drug trade and human trafficking.  

The support of socialist policies is not surprising if you look at the gap between the well-off and the poor. The poorest 10% in Venezuela survive on just $8 a month, compared to $553 for the country’s richest 10%.  It is the most unequal nation in Latin America.  

[4] Troubled Foreign Policy  

Venezuela’s oil wealth has allowed it to have a trade surplus, meaning that it sells more goods than it imports.  This provides potential IF the wealth is used productively.  

Nonetheless, it has troubled international economic policy, including relying on imports to feed its people.  And, the factors discussed above also make it difficult to spread its wealth equitably to address the needs of the country as a whole.  

The corrupt government and large illegal economy have led Venezuela to be considered a “rogue state.”  Economic sanctions have been used to punish them and attempt to lead them to change their behavior. The Biden Administration continued them in the United States.   

The United States still plays an important role in Venezuela’s economy.  Since 2017, the United States has provided nearly $2.8 billion in humanitarian, economic, development, and health assistance to support Venezuelans.  A healthy Venezuela is in our self-interest, including reducing the harm to the U.S. and other regional nations arising from its illegal economy.  

Other trading partners are Mexico, Spain, and Brazil.  Venezuela’s rogue state problems have led to an increased reliance on other nations, including China, India, and Russia.  

Venezuela In Crisis 

The collapse of oil prices led to a major economic downturn in the 2010s from which the country has yet to recover.  The country had problems in the past. This time it was full crisis mode.  

A collection of things fed the crisis. The world price of oil dropped from $100 to $30, dropping the country into an extended economic recession. Hyperinflation worsened the situation, contributing to an overall shortage of goods, making it not profitable to sell them.  

This increased the country’s debts.  A corrupt and inefficient government mismanaged the situation, including the distribution of the foreign aid that was provided to help.  It also led to economic sanctions, making it harder to obtain oil profits.  And, then COVID came.  

Basic needs including food and simple medicines like aspirin became hard to come by for the average person.  Many are leaving the country and illegal human trafficking is a major concern.

The country continues to be in the midst of a social and humanitarian crisis.  

Venezuela’s Troubled Future  

A developing country is one whose economic development has not yet reached full maturity but has shown signs of an upswing. The term given for this often is an “emerging” economy.  

Venezuela has the potential to be a developing country. If exploited correctly, its oil wealth is a useful asset. It has the basic core of a legitimate political and economic system.  Education is free for all and there is a high official literary rate. Oil is not the only industry.  

The country has shown limited signs of recovery, including somewhat decreased inflation and lessening of sanctions by the Biden Administration. But, the situation remains grave. 

Venezuela has an uncertain future.   If it hopes to move on, it needs to address the problems of the petrostate, including providing a government trusted by the people and the world.

Teach and Thrive

A Bronx, NY veteran high school social studies teacher who has learned most of what she has learned through trial and error and error and error.... and wants to save others that pain.