Venezuela's US Investment Deal: Watershed Moment or Risks as Usual?

The country’s interim president, Delcy Rodriguez, recently met with Donald Trump and spoke at the UN General Assembly. On the economic front, in early September the US government took a stake in the oil company NABEP, which plans to assume 100-year leases on 17 major oilfields in Venezuela.

Chevron, the only major active in Venezuela in recent years, announced a $7 billion expansion plan in Venezuela shortly after. Despite this apparent increased willingness to invest in Venezuela, these events in fact show that the risk picture in Venezuela has not yet materially changed, and that new risks are appearing for potential investors.

Dealmaking Dynamics

NABEP is headed by Alejandro Betancourt, a controversial businessman who has been investigated for corruption and money laundering by the US, Spain and Switzerland. The Trump administration’s decision to partner with him therefore raised eyebrows, but was ultimately driven by Betancourt’s political connections in the US and Venezuela, and his perceived ability to get deals done. Our sources in Venezuela also told us that the US did not originally want to partner with Betancourt, but ultimately did so out of frustration of a lack of private investment in Venezuela – and thus a desire to lead by example.

The NABEP deal, and other private deals like it, have also exposed a key dynamic in dealmaking in Venezuela: the importance of securing approval from both the US and Venezuelan governments. Our Venezuelan contacts told us that many key investment decisions are being driven by public and private figures in Florida (including Mar-a-Lago), particularly figures close to Trump himself.

The story is the same in Venezuela, where most important investment deals are coordinated and signed directly with the President’s Office. While unsurprising given current circumstances, it implies a high level of political and diplomatic engagement is required for any investment decision in Venezuela to proceed, which (given the lack of state capacity in Venezuela) may be unsustainable in the long term.

Taken together, these developments send a difficult message to potential investors: that the best way to do business in Venezuela is to work directly with government, and/or favor figures with political connections over clean track records. This poses problems for investors in two ways: they may not possess sufficient political connections to advance investments, and that they may feel obliged to do business with questionable business figures to be most effective. Pursuing such connections raises both corruption and reputational risks, and requires careful analysis and due diligence.

‘New’ Government, Same Faces

Another risk looming over investment in Venezuela is the sustainability of the political status quo. Delcy Rodriguez technically presides over a new government, but many key political figures from the previous regime are still in place. While politically expedient, it means that many operational risks for investors in Venezuela remain: entrenched corruption amongst the political elite and state-owned agencies (who, as detailed above, are key stakeholders in investment decision-making); a lack of political and social legitimacy for decisions made by the government; and deficient state institutions (such as courts and the security services) that make doing business difficult.

Moreover, it is unclear how long the Rodriguez government will stay in power, and whether – and under what conditions – elections will take place. This makes any investment deal signed with the Rodriguez government, any allies or power brokers connected to it, vulnerable to change. This change may come either in Venezuela, under a new government that seeks to promote its own interests and allies, or in the US, where a new administration may be less amenable to supporting figures like Betancourt.

New Sectors of Interest

Wallbrook’s conversations in Venezuela suggest that, faced with these realities, investors are paying attention to sectors that are both key to Venezuela’s economic recovery and less exposed to political changes. These include: financial services and digital banking, as Venezuela already registers high use of dollars and digital assets; and food & drink, which presents a key export opportunity for US and other international firms. Many investments being made in these sectors are being led by Colombian and Latin American companies, which may present opportunities for co-investment for international investors seeking established counterparties with experience of working in Venezuela.