Eduardo Rodríguez and William Fookes, analysts at McKinsey & Company, analyzed the factors that condition projections for Venezuela’s GDP growth. The outlook is optimistic, but with conditions.
«Under favorable assumptions regarding investment, productive capacity, access to financing, and the evolution of key sectors, Venezuela’s GDP could multiply between three and five times over a horizon of eight to ten years,» notes an article written by executives of McKinsey & Company, published in Valora Analitik.
According to Eduardo Rodríguez’s assessment, partner and co-lead of the Retail practice in Hispanoamerica at McKinsey & Company, and William Fookes, leader of the Operations practice for Latin America, «in just six months relevant moves have already taken place».
In this regard, the experts highlighted «changes in the hydrocarbons sector, advances related to mining, gradual recovery of international air connections, announcements about external public debt, and modifications to some restrictions that affect the Venezuelan financial system».
If these initiatives mature and become engines of an integrated plan for economic growth and improving the population’s quality of life, Venezuela’s performance would be among the strongest in Latin America.
A potential scenario
However, Rodríguez and Fookes warn that the growth range they expect in the long term «does not constitute a forecast, but rather a potential scenario whose realization would depend on multiple economic and institutional variables and on ensuring that the conditions to invest, finance, and produce are maintained over time».
And consequently they added: «but the potential magnitude of that recovery also matters from a business perspective: even in a fairly unpredictable environment, the value that could be created for those who manage to position themselves successfully could be significant«.
Three relevant factors
Experts condition the estimated growth on the positive behavior of three variables they consider key: the evolution of the energy sector, the ability to attract and consolidate new investments, and the recovery of financial intermediation; that is, ensuring that credit flows appropriately.
«Oil and gas are the most obvious starting point. Different scenarios show the possibility of reaching production levels considerably higher in the coming years. The speed and magnitude would depend on factors such as investment, infrastructure, operating capacity, and market conditions,» the article notes.
McKinsey analysts point out that mining and agricultural production are sectors that also have high growth potential in the medium and long term.
«Higher productive activity would, in turn, have implications for sectors oriented to the domestic market. Consumption and financial services start from relatively low baselines compared with the historical dimensions of the Venezuelan economy and other markets in the region,» they emphasized.
«In the financial system, for example, bank credit currently represents a smaller share of GDP in Venezuela, at less than 5%, compared with more than 40% in Colombia,» Rodríguez and Fookes note.
«Greater financial intermediation could accompany, although not necessarily precede, a broader recovery in business activity and consumption,» they noted.
Earthquakes: a relevant cyclical factor
McKensey experts point out that the double earthquake of June 24 represents a relevant cyclical element for formulating projections.
«The June earthquake adds a human and material dimension that cannot be reduced to its economic implications. Without ignoring that cost, reconstruction also entails additional infrastructure and production capacity needs, whose impact will depend on how the process unfolds».
A recovery in energy, mining, agriculture, consumption, and services could gradually modify trade flows, supply chains, and investment patterns throughout the region.
«Latin America could provide business know-how, industrial capabilities, and capital, depending on economic and investment conditions and on the independent decisions of companies and investors,» they indicate.
By way of conclusion, Eduardo Rodríguez and William Fookes, executives at McKinsey & Company, state that «ultimately, sustained recovery will depend on a wide set of conditions: economic and regulatory predictability, access to capital and financing, infrastructure, availability of talent, and an environment that allows for long-term investment».
«In an environment of considerable uncertainty, the outcome is necessarily uncertain; but the return for those who know how to evaluate and act with conviction could also be high. In that sense, the future may belong to those who dare—to capture the opportunity with discipline, a long-term perspective, and full awareness of the challenges,» they conclude.