Investir au venezuela ou aux emirats arabes unis ?

Investir au venezuela ou aux emirats arabes unis ?

Considering United Arab Emirates and Venezuela as an attractive opportunity for investment, we can compare and contrast the risks and opportunities presented by both countries. On this basis, we will try to suggest where to invest and why. Table of contents Introduction 1. Historical and political context in both countries 3 1. 1 Venezuela 3 1. 2 United Arab Emirates 4 2. Economic situation in both countries 5 2. 1 Economic systems 5 2. 2 Economic data 6 3. Local opportunities and risks to invest 7 Conclusion 10 References 11 About Foreign Direct Investments and international trade 11

About United Arab Emirates 11 About Venezuela and South America 12 Introduction The globalization phenomenon, developing international trade, has started during the second part of the XIXth century. Nowadays, globalization is a worldwide process which affects all the world economy. Under globalization, international trade, foreign direct investments, capital movements, people movements increase on a large scale. In that context, every company has to deal with a global network production, marketing, and information management.

I am a consultant from a French company which would like to expand its presence over the world in order to be more competitive on this global market place. The company is willing to invest in any sector of the industry. Venezuela and United Arab Emirates

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are considered as attractive countries for foreign investment. As a business management consultant, I will study and analyze the opportunities and risks that exist in both countries for foreign investors in order to choose the more attractive. The attractiveness of a potential investment country can be assessed examining and balancing the political and economical context.

This could be achieved analysing the different local factors (political, economic and legal) which determine costs and benefits of doing business as well as the risks in business environment in those countries. In this report, historical-political situation and economical situation in both countries are presented and commented. Then, the third part balances advantages and disadvantages of doing business regarding risk and opportunities which coexist. Historical and political context in both countries Before choosing to invest in a country, it is important to understand the policy which applies.

Indeed, the policy led by the local government determines the legal environment in which any enterprise (foreign or not) has to deal with doing business. 1 Venezuela The Venezuela’s history is extremely colourful. The country (with other South America’s areas) was a Spanish colony from 1560’s to 1810’s. From the independence, Venezuela has encountered a series of wars, revolutions, counter revolutions, takeovers, totalitarian governments, etc. The first democracy was established after the WWII but did not stop the politic instability. Currently, Venezuela is the Bolivarian Republic of Venezuela.

Hugo Chavez, the current president, was elected in 1998. Since his election, he has changed the constitution giving him more power. At present, the president is elected for six years renewable, he runs both government and State. He nominates himself the vice president and chooses his ministers. Nowadays, although he is supported by Cuba, Brazil and Argentina, Hugo Chavez is fairly badly regarded over the world. For example, he has engaged directives against corruption but Venezuela has never known a higher corruption since he has got the power.

On another hand, despite huge profits from oil business and the Chavez’s engagement to increase the standards of living, the Venezuela’s population is still the poorest of South America. 74 % of the Venezuelans live under the poverty level. However, the government currently invests more in the health sector and school infrastructures to tackle illiteracy. For years, Venezuela lived on coffee, cocoa, tobacco, cotton culture and business. The first oilfield was discovered in 1917. The Venezuela is the founder member of the OPEC (the Organization of Petroleum Exporting Countries) founded in 1960.

About 27 450 million people live in Venezuela. As far as the Human development index is concerned, the Venezuela is the 74th country out of 175[1](in 2005). 2 United Arab Emirates United Arab Emirates are a federal sovereign state which consists in seven emirates: Abu Dhabi, Ajman, Dubai, Fujairah, Ras al-Khaimah, Sharjah, and Umm al-Quwain. Each Emirate is a monarchist state and the federal state capital is Abou Dhabi. The president of the U. A. E. was Zayed bin Sultan Al Nahyan, Abou Dhabi ruler, until 2004 when he died. He was 86 years old and he was the first UAE president elected in 1971.

Since, he had been re-elected every five year. After his death, his oldest son, Sheik Khalifa bin Zayed Al Nahyan, became the new president. The prime minister is Sheikh Mohammed bin Rashid al-Maktoum, ruler of Dubai. In the UAE constitution, the president and the vice president are elected by the Supreme Council. The president nominates the prime minister with the consent of the members of the Supreme Council. The members of the Federal Government are nominated by a decree elaborated by the president and the prime minister.

The Federal National Council, which consists of representatives of each emirate, is the legislative Council (Parliament). It exercises the Authority to discuss the sanction of all Federal Laws and then refer them to the Supreme Council for enactment. [pic] States partition in U. A. E. From 1820 to 1971, United Arab Emirates was a British protectorate. During this period, U. A. E. lived mainly on the pearl culture and its business. The first oilfield was discovered in Abou Dhabi in 1953 and its exploitation started after the second war world. Abou Dhabi integrated the OPEC in 1967.

During the British protectorate, the English was established as the administrative language. But, every social class did not speak English and nowadays, the Arabic was re-established as the official language. However, the English is still used as the main language in administrative and economic sector. Currently, five million people live in U. A. E. and 80 % of them are immigrant. As far as the Human Development Index is concerned, the U. A. E. is the 41th country out of 175[2](in 2005). Economic situation in both countries 2. 1 Economic systems The Venezuela is a socialist system.

Under Chavez’s policy a lot of enterprises are state owned. The State is very involved in business activity that is to say that the economy is extremely controlled by the State. Thus, The Venezuela’s economy is one the most regulated in the world. Venezuela’s economic policy promotes more the benefit society rather than individual capitalist interests. Under Chavez, some economics sectors have been nationalised: first, the petroleum and then the telecommunication and electricity sectors. Thus, the French company Total has lost its shares in oil exploitation in 2007.

Recently, Hugo Chavez has shown his will to lead a very anti-liberal policy. Indeed, on top of that successive nationalisations, he has left the International monetary Fund and the World Bank (2007). He regards those organisations as “imperialism mechanisms exploiting poorest countries” (according to his own words)[3]. However, the Venezuela knows it needs foreign investments to progress. That is why even if the government tries to lead an anti-liberal policy, he wants to open the country to FDI. As far as the UEA society is concerned, it is a liberal society, that is to say a free market economy.

The economic policy is based on a strong safeguarding of the property rights. The economic policy is based on safeguarding and respecting the individual freedom in Ownership of the means of production, practicing any type of business activities and providing all facilities that boost entrepreneurship. There are no restriction on imports and exports apart from a few minor customs and administrative duties. The government plays a supervisory role in legislation, which organize the functioning of the various economic sectors while causing no hindrance to the business activities. . 2 Economic data | |Venezuela |United Arab Emirates | |Gross Domestic Product (2006) |$181,608 billion |$163,296 billion | | |(oil : more than 25 %) |(Abou Dhabi: 56. 15 % ; | | | |Dubai 30. 84 % ; others: 13. 01 %) | GDP per inhabitant (2006) | $6 736 |$38 613 | |Sector share on the GDP |Industry: 50 % |Services: 39. 58 % | | |(oil: 16 %, manufacture: 17 %) |Oil production: 35. 4 % | | |Services : 45 % |Industry: 22. 74 % | |Agriculture: 5 % |Agriculture: 2. 25 % | |Growth rate (2006) |10,3 % |9,4 % | |Inflation rate (2006) |13,7 % |9,3 % | |Unemployment rate (2006) |10. 4 % |4,5 % | The Venezuela’s GDP, for the year 2006, is $181,608 billion.

The GDP per inhabitant is only $6,736. Even though Venezuela is richer than U. A. E. , its population is a lot poorer. As regard as the living standard in both countries, this data means that purchasing power is higher in U. A. E. than in Venezuela. The rate of growth is very high, like in the U. A. E. In Venezuela the oil industry represents about 16 % of the industry sector and the benefits from oil business represent more than 25 % of the GDP. Venezuela is the fifth petroleum producer in the world. A huge part of its oil resources is not exploited yet.

Proofed Venezuela’s oil reserves are about 79 billion barrels, but actually, the global reserves are estimated to 315 billion of barrels[4] roughly. That means Venezuela could have the biggest oil reserves in the world, before Saudi Arabia who has 266 billion. In addition to those oil reserves, Venezuela has got gas and gold resources. The service sector represents 45 % of the GDP. The U. A. E. ’s GDP, for the year 2006, is $163,296 billions. 60 % of the GDP is generated by the Emirates Abou Dhabi and 30 % by Dubai. U. A. E. is the second hugest petrol producer in the world, after the Saudi Arabia.

Currently, its petroleum reserves are about 98 billion barrels. However, the petroleum reserves are currently decreasing and the United Arab Emirates are diversifying their economy. Indeed, in 1990, the wealth generated by the oil represented about 66 % of the GDP and in 2006 it was down to approximately 33 %. That is to say that the profit made by the petroleum sector tend to drop. The United Arab Emirates are increasing the development of upscale services, like tourism, leisure, hotel management and restoration. The sector of the upscale property, the ceramic sector and cement are increasing as well.

As far as the GDP is concerned, its value was $163,296 billion in 2006. It has been multiplied by 2. 3 between 2001 and 2006. The same year, the growth rate was 9. 4 %. This is twice as much as the world average for the same year. The U. A. E. is one the countries which has the biggest growth rate in the world. Local opportunities and investments risks The United Arab Emirates are a country with a political stability and they are always considering as a gold mine for business entrepreneurs. This area offers a lot of attractive conditions for doing business. First, various taxes free areas exist offering many opportunities.

Out of free zones it is forbidden to get more than 49 % of a local firm’s capital for a foreign investor. But, in taxes free zones the law which forces foreign investors to share the capital with a local partner is not implemented. Furthermore, importation and exportation are not controlled and there is no control on the capitals. The Emirates, by their geographical situation, give an access to a big market, through the Indian Ocean. Finally, U. A. E. offer cheaper cost of production than Europe. The U. A. E. are seen as a very attractive country to launch into business, however, it is not so easy to start a business in.

Starting a business requires high costs in this country. On the other hand, the biggest and most important Emirate, Abou Dhabi, does not have taxes free zones. In those conditions, foreign investors have to share 51 % of their capital with local partners. That is why their enthusiasm could be restrained. Regarding the Venezuela’s situation, frequently there are waves of nationalisation. With those nationalisations the government shows than foreign capitals are not welcomed anymore. This kind of policy represents a massive risk for foreign investors who want to do business in Venezuela.

Although they receive financial compensation from the government in case of nationalisation, they have to take a chance to lose a part of their profits. However, some companies are successful doing business in Venezuela, and Venezuela needs foreign investment. For instance, France and Venezuela have signed cooperation agreements in the railway sector. Then, the French presence can be established easier and, in 2005, the French company Alstom signed with the Venezuelan government a €204 million contract to extend the Caracas’s metro. Moreover, France is the second foreign investor in Venezuela.

That means there are some opportunities for us doing business in this country. On another hand, since the economy is stabilising the tourism sector is increasing a lot. Venezuela has many geographical advantages to become a popular tourism destination. If the politic situation remains stable, Venezuela could be a good opportunity doing business in this sector. Despite all attractives, the frequent nationalisations are strong arguments discouraging investors. Doing business in Venezuela means to take enormous risks for the company to be nationalised one day.

Comparing both Venezuela and United Arab emirates situations, doing business in the UAE seems to be a better opportunity. Moreover, UAE develops upscale products and the French quality is appreciated. The English is more widely spoken than in Venezuela and it is a great advantage in business because in firms, staffs are often more English literate than Spanish literate. Nevertheless, starting a business in the UAE requires a huge initial capital (because of the upscale range of product and services). Furthermore, to invest in a free zone, the company must ask for permission from the local government.

Conclusion To conclude, we can say that is not so easy to choose one of those countries to invest. At first sight, we could think U. A. E. is the best for doing business but actually several factors have to be considered. Considering all of them, U. A. E. is not a so good opportunity. Invest over there requires enormous costs to start a business and a company could prefer to invest in a country with lower starting cost. Free zones attract a lot investors but actually there is not so many and the state exercises a strong regulation to allow foreign investors to move in those areas.

But, if you get the necessary capital and the permission from the authorities, U. A. E. seems the best opportunity: people speak English, it is a big and rich market expanding quickly and very hopeful in various sectors. You could also choose to invest in Venezuela. If the political situation was not so uncertain, this country would represent a very attractive opportunity as well. As an investor you could take advantage of a big market, big resources and low costs (considering starting costs but also wages costs and material costs). The good politic relationship between France and Venezuela is a great advantage.

Agreements signed enable you to do business easier. Moreover in some sectors like tourism you could enjoy the first mover advantage. However, you do not have to forget the huge risk of nationalisation and restrictions imposed by the government. All things considered, I cannot recommend one of those countries. Doing business in both is very different. The best opportunity depends of the kind of investments the enterprise wants to do, the size of its capital, and the size of the risk it is disposed to take. References About Foreign Direct Investments and international trade Ministere des affaires etrangeres, 2008, http://www. iplomatie. gouv. fr/, accessed on 12th November 2008. Geert-hofstede cultural dimension, http://www. geert-hofstede. com/, accessed 12th November 2008. BRISE (Banque de ressources interactives en sciences economiques), Investissement directs a l’etranger, http://brises. org/notion. php/investissement-direct-a-l-etranger/IDE/firmes-transnationales/delocalisation/specialisation/notId/126/notBranch/126/, accessed 12th November 2008. F. Williams, FDI flows to slow this year, The Financial Times, 2008, http://www. ft. com/cms/s/0/ae0516da-8a51-11dd-a76a-0000779fd18c. html? nclick_check=1, accessed 12th November 2008.

UNCITRAL, United Nations Convention on Contracts for the International Sale of Goods, http://www. uncitral. org/uncitral/en/uncitral_texts/sale_goods/1980CISG. html, accessed 12th November 2008. About United Arab Emirates United Arab Emirates, 2008, http://www. emirates. org/, accessed on 19th November 2008. Emirates, 2008, http://www. emiratesfreezone. com/, accessed on 19th November 2008. Economic Data, The economist, 2008, http://www. economist. com/countries/UnitedArabEmirates/, accessed 12th November 2008. Le point, 2008, http://www. lepoint. fr/html/edition_digitale/emiratsarabesunis. sp, accessed on 19th November 2008. Le limousin international, Investir aux emirats Arabes Unis, 2007, http://www. limousin-international. info/fr/fiches-pays/emirats-arabes-unis/investir2, accessed 12th November 2008. Fiche pays: les emirats Arabes Unis, Inter-ex, 2007, http://www. interex. fr/fr/fiches-pays/emirats-arabes-unis/modalites-d-implantation, accessed 12th November 2008. http://www. al-bab. com/arab/countries/uae. htm, accessed 12th November 2008. About Venezuela and South America R. GOTT, Hugo Chavez and the Bolivarian Revolution, London : Verso, 2005. World Trade Organization, http://www. wto. rg/french/thewto_f/countries_f/venezuela_f. htm, accessed on 12th November 2008. Ambassade de France, mission economique, http://www. missioneco. org/venezuela/, accessed on 12th November 2008. Encyclopedia of Nations, Venezuela and Foreign investment, http://www. nationsencyclopedia. com/Americas/Venezuela-FOREIGN-INVESTMENT. html, accessed on 12th November 2008. 2005, Country profile: Venezuela, http://www. mongabay. com/reference/country_profiles/2004-2005/Venezuela. html, accessed on 12th November 2008. A new approach to Venezuela economy, The Economist, 2008, http://www. economist. com/displayStory. fm? story_id=11585215, accessed on 12th November 2008. Fiche pays : le Venezuela, Inter-ex, 2007, http://www. interex. fr/fr/fiches-pays/venezuela/accueil, accessed 12th November 2008. P. Maccioni, La lettre diplomatique, , 2007, http://www. lalettrediplomatique. com/contribution_detail. php? id=16&idrub=45&idrubprod=205, accessed 12th November 2008. Les Echos, 2008, http://www. lecho. be/article/Total_paye_en_petrole_par_le_Venezuela. 6247091, accessed on 18th November 2008. OPEP: La Faja en la agenda de la cumbre, 2006, http://www. aporrea. org/energia/n77970. html, accessed on 18th November 2008.

Venezuela :futur leader mondial du petrole, 2006, http://www. enerzine. com/10/991+Le-Venezuela-futur-leader-mondial-du-petrole+. html, accessed on 18th November 2008. ———————– [1] www. missioneco. org/emirats, accessed on 19th November 2008 [2] www. missioneco. org/emirats, accessed on 19th November 2008 [3] Chavez poursuit la nationalisation du petrole venezuelien, www. ledevoir. com, accessed on 19th November 2008 [4] Venezuela : futur leader mondial du petrole, 2006, http://www. enerzine. com/10/991+Le-Venezuela-futur-leader-mondial-du-petrole+. html, accessed on 18th November 2008. ———————– 13/13