Hours-long lines at the stores, empty shelves, severe rationing and fingerprint controls… this is an image one would expect after a natural disaster, but not as part of the daily routine of an economy considered as a high income economy by the World Bank. The culprit? Oil – not its absence, but its excess. But how can oil be responsible for bringing a country as Venezuela to the verge of collapse?
Venezuela is one of the top oil producers in the world, and it is frequently touted as being the country with the biggest oil reserves. Its yearly budget is elaborated taking in account the expected average price of the barrel of oil for the budget year, and for many years, the high prices that oil achieved in the international markets benefited the economy by bringing billions of dollars. As the oil dollars kept coming in, the economy of the country focused on this commodity, becoming less diversified – today it is estimated that the sale of oil represents more than 95% of the country’s export revenues. As a result of the lack of diversification, the country’s reliance on the importation of finished goods and raw materials increased, reaching significant levels and leading to the stagnation of much of the local manufacturing. Corruption and poor management have always prevented the country from fully using the opportunity to develop a solid and stable economy, but when the oil prices collapsed, revenues shrunk fast, affecting the whole economy and society and making headlines.
The crisis has been particularly severe with the health sector, negatively impacting the quality of healthcare, and the access to physicians and medicines. One of the most visible effects of this crisis is the widespread shortage of medicines and medical supplies; according to the president of the Venezuelan Pharmaceutical Federation 70-80 percent of the medicines in the country are in short supply, or not present at all. Hospitals and clinics are unable to provide many of the medicines and medical supplies, relying on patients to find them elsewhere, a challenging and frequently unsuccessful task. The social media is full of desperate requests for medicines, and those who can afford it can find many of them in the flourishing black markets, even though the quality of those drugs cannot be guaranteed. As a result of the shortages, the newly elected National Assembly’s majority declared a humanitarian health crisis, demanding immediate access to the treatments that make part of the list of essential medicines. The lack of access to medicines comes as a result of several factors, one of them being the difficulty in importing medicines and the raw materials that are used on their elaboration – the access to foreign hard currency is highly regulated, and the currency requests made by the manufacturers/importers are only partially met, resulting in the importation of much smaller amounts than the necessary. The current price freezes for many of the essential drugs also result unappealing, as the maximum sale prices have not been updated in more than a decade, and the manufacturers would be producing medicines at a loss. Driven by the prospect of better salaries and working conditions, thousands of physicians, including those brought as part of the Cuba-Venezuela agreement, have also left the country, limiting the access of patients to healthcare, and the lack of funds to maintain and improve the hospital and instrumental infrastructure has led to their deterioration, and in many cases, to their closure.
In order to make payments and finance importations, the country has already resorted to some of its gold reserves and on the savings it had at the International Monetary Fund, but these actions are not sustainable as the country’s reserves are finite. In February 2016 the government took several initiatives aimed at reactivating the Venezuelan economy, which included increases in the price of gas – heralded as the cheapest gas in the world – and a new currency system which lead to the devaluation of the currency, and specific measures for 14 strategic sectors. The measures affecting the pharmaceutical sector included the stimulation of the national production of medicines, and the strengthening of the existing partnerships with India, Brazil, Cuba, Nicaragua, China and Iran.
With an ongoing recession and a triple digit inflation, neither of them expected to improve in 2016, Venezuela will face big challenges in order to reactivate its economy. One of the biggest challenges will come from within, as the socialist government and the parliament opposition will have to find a common ground. The country will also have to diversify its economy and reduce the dependency on oil exportation – analysts predict that the international prices of oil will remain low in 2016, and the recent entrance of Iranian oil in the international markets will likely drive them lower – as well as create a friendlier regulatory and political environment to international companies interested in investing in the country.
Taken together, the falling price of oil has presented a body blow to Venezuela and its ability to pay for healthcare. Absent much-needed compromise and reforms, the situation does not bode well for industry.