SubscribeAnalysis and forecasts for the construction market in Venezuela
Market Overview
- Overall spending in the construction sector will grow at a compound annual growth rate* (CAGR) of 3.2%, from US$4.4 billion in 2005 to US$6.1 billion in 2015. Recovery in the economy after the crisis of the last five years and the efforts of the government to improve the infrastructure to attract more investors will lead to growth in the construction sector.
- Spending on residential construction will grow at a CAGR of 3.0%, from US$0.9 billion in 2005 to US$1.2 billion in 2015. This sector has shown a mixed trend of growth in the past; however, the government's attempt to provide housing to the entire population of Venezuela will facilitate growth in the residential construction sector.
- Spending on nonresidential construction will grow at a CAGR of 3.3%, from US$3.5 billion in 2005 to US$4.8 billion in 2015. The government's initiative to improve and upgrade the infrastructure in Venezuela will drive growth in the nonresidential construction sector.
- Venezuela is a high-risk country, with its construction risk scores significantly higher than the regional and the average world construction risk scores. The unstable and uncertain political system as well as the legal and institutional framework may hinder investment in the country. On the other hand, efforts by the government to improve the infrastructure for business opportunities will attract investment in the country.
*All CAGRs are measured in constant 2000 US dollarsunless otherwise noted
| CAGR% | |||||||||
| 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2015 | 2005-10 | 20010-15 | |
| Total Construction (Billions of US$) | 4.3 | 5.1 | 5.2 | 5.5 | 5.7 | 6.0 | 6.9 | 6.9 | 3.0 |
| Residential | 0.9 | 1.0 | 1.0 | 1.0 | 1.1 | 1.1 | 1.4 | 5.4 | 4.2 |
| Non-Residential | 3.4 | 4.0 | 4.2 | 4.5 | 4.6 | 4.8 | 5.5 | 7.3 | 2.7 |
| Infrastructure | 1.1 | 1.3 | 1.3 | 1.4 | 1.5 | 1.5 | 1.7 | 7.4 | 2.7 |
| Structures | 2.3 | 2.8 | 2.9 | 3.1 | 3.2 | 3.3 | 3.8 | 7.3 | 2.7 |
| Total Construction (Billions of 2000 US$) | 4.4 | 4.7 | 4.8 | 4.8 | 4.9 | 5.1 | 6.1 | 3.0 | 3.4 |
| Residential | 0.9 | 1.0 | 0.9 | 0.9 | 0.9 | 1.0 | 1.2 | 1.6 | 4.5 |
| Non-Residential | 3.5 | 3.7 | 3.8 | 3.9 | 4.0 | 4.11 | 4.8 | 3.4 | 3.1 |
| Infrastructure | 1.1 | 1.2 | 1.2 | 1.2 | 1.3 | 1.3 | 1.5 | 3.5 | 3.1 |
| Structures | 2.4 | 2.6 | 2.6 | 2.7 | 2.8 | 2.8 | 3.3 | 3.4 | 3.1 |
Market Segments: Residential
Current Environment: Spending in the residential construction sector increased by 12.5%, from US$0.8 billion in 2004 to US$0.9 billion in 2005. Venezuela has shown a mixed trend of spending in the sector over the past decade. The increase during 2005 can be attributed to public spending in the housing sector; however, public spending has declined in the past few years.
Outlook: Spending in the residential construction sector will grow at a CAGR of 3.0%, from US$0.9 billion in 2005 to US$1.2 billion in 2015. This growth is due to the Government efforts to meet housing demands of the country's entire population.
Key Points:
- There is a severe housing crisis in Venezuela, with a housing deficit of around 1.6 million in 2005. In an attempt to improve conditions, the government has announced a program to construct 150,000 new houses by the end of 2006. The Ministry of Housing will subsidize two-fifths of the cost of a new house and the homeowners will pay the difference in the next 20 years at an interest rate of 4%. Government efforts to meet housing demand will facilitate growth in the residential construction sector in the near future.
- Increasing rates of urbanization and real per capita income, along with a declining unemployment rate will support growth in the residential construction sector.
- The inflation rate in Venezuela is higher than the interest rate. As a result, investment in a non-depreciating asset such as housing becomes a better option than saving money. The low interest rates on loans will also contribute to growth in the residential construction sector.
Market Segments: Non-residential Structures
Current Environment: Spending in the nonresidential structures construction segment increased by 9.1%, from US$2.2 billion in 2004 to US$2.4 billion in 2005. This growth can be attributed to the strong economic recovery (17.7%) during 2004 after two years of recession.
Outlook: Spending on nonresidential structures construction will increase at a CAGR of 3.3%, from US$2.4 billion in 2005 to US$3.3 billion in 2015. Increased spending by the government of Venezuela in the manufacturing sector to meet demand for its exported goods and to boost the tourism industry will support growth in the segment.
Key Points:
- The government of Venezuela is planning to expand the capacity of its oil sector, which generates more than 50% of the government's revenue. The planned budget, both nationally and internationally, is around US$16.5 billion during the next decade. This will attract more investment in the construction of refineries and oil plants.
- The manufacturing sector has grown at a rate of around 5% since 2005, which is expected to continue as a result of increasing demand for exported products. This will be facilitated by growth of the total industrial and commercial output, which will remain higher than the world average for the next decade.
- The government of Venezuela is planning to launch a national program to boost the tourism industry, which is one of the major contributors to the economy and job opportunities in the country. Several pilot projects have been planned in such states as Nueva Esparta, Sucre, and Bolivar. This will attract investment in hotels, resorts, etc., thereby will support long-term growth in the nonresidential segment.
Market Segments: Non-residential Infrastructure
Current Environment: Spending in the infrastructure segment grew at a rate of 10%, from US$1 billion in 2004 to US$1.1 billion in 2005. This growth can be attributed to government expenditures on maintenance of the existing expansion of the roadway and highway infrastructure.
Outlook: Spending in the nonresidential infrastructure segment will grow at a CAGR of 3.3%, from US$1.1 billion in 2005 to US$1.5 billion in 2015. Increased government spending in infrastructure projects will drive growth in the segment.
Key Points:
- Government efforts to improve the tourism infrastructure of its La Tortuga Island will facilitate growth in the nonresidential infrastructure segment in the near future. In the first stage, the government has allocated US$31.2 million (VEB 65,000 million at the average exchange rate for 2005) for the development of basic services such as electricity, drinking water, sewerage systems, and airports.
- The government has signed two contracts worth US$2.2 billion for the construction of 453 kilometers of railway lines, including tunnels and bridges. The project, expected to be completed by 2012, also includes the construction of railway stations and logistics centers. The government has also signed a US$991-million contract for the expansion of roadways and the highway network in the next five years. This investment will facilitate growth in the nonresidential infrastructure segment in the next decade.
- Growth in spending on infrastructure, such as transportation, electricity, gas, and water, which is expected to be more than the world average in the next decade, will facilitate growth in the nonresidential infrastructure segment.
Construction Market Risk
Risk Overvieew
- Venezuela is a high-risk country, with its construction risk scores significantly higher than regional and average world construction risk scores - due primarily to an unstable political system, uncertain economic policy, and weak enforcement of the legal and institutional framework.
- The political system will remain unstable, unless the government takes efforts to abide by the legal and the institutional frameworks.
- High inflation, which is higher than the saving interest rates, is a major concern, despite the constant efforts of the Central Bank of Venezuela.
- The economy of Venezuela continues to be highly dependent on the oil industry, which accounts for around 80% of the export earning. This makes it susceptible to fluctuations in the global economy. However, government efforts to diversify the economy and reduce its dependency on the oil industry will increase investor confidence and will attract investment in the economy and the construction sector as well.
| 1-Year Risk Score | 5-Year Risk Score | |
| Overall Country | 17 | 49 |
| Country Construction | 27 | 63 |
| Regional Construction | 8 | 41 |
| World Construction | 6 | 34 |
This article was extracted from Global Insight's Global Construction Outlook. For a free sample of this service, please visit www.globalinsight.com/Construction.