Chilly hotels point to Venezuelan investment freeze

www.forbes.com Reuters, 03.07.03, 9:10 AM ET By Alistair Scrutton CARACAS, Venezuela, March 7 (Reuters) - To gauge how much business travel to tropical Venezuela has fallen amid political and economic chaos, just walk into a hotel lobby and take the temperature. It can be chillingly cold. "I visit two or three lobbies a day in Caracas' main hotels and mostly there's a frightful chill," said Hugo Arriojas, president of Venezuela's national hotel federation. "The air-conditioning is on but the lobbies are empty of visitors, there's too few human bodies to warm these places up," he said. "And hotel porters complain about the cold because they've nothing to do but wait." Caracas' hotel occupancy rates -- a barometer of investor interest in this oil-rich nation -- have plummeted to record lows of 15 percent in the last month, according to the federation. That is half from a year ago and compares with average rates of about 60 percent in 1999. Visitors are so few that many guests praise quick room service. "When an ordered sandwich arrives in five minutes you know you're one of the few guests," said one U.S. businessman. It is the latest sign of how foreign firms are shunning Venezuela, once known as the Saudi Arabia of Latin America. In the 1990s, the oil-rich country was a magnet of investment not only in the energy sector -- when oil fields were opened up to foreigners -- but also in telecommunications and manufacturing. Over the last year Venezuela has suffered crisis upon crisis as Chavez, an ex-paratrooper turned fiery "revolutionary," survived an April coup and a recent strike which slashed output in the world's No. 5 oil exporter. Even after the strike, foreigners are not flocking back. "In 32 years in the hotel business I've never seen so few businessmen coming to Caracas," said Arriojas. Hotel occupancy rates are at 5 percent in the country's Caribbean resorts. One of the few big foreign investment deals in the last six months was in the energy sector where U.S. oil major ChevronTexaco (nyse: CVX - news - people) and Norway's Statoil <STL.OL> signed a deal to develop natural gas in the offshore Deltana region. HARD GOING EVEN FOR THE TOUGH Most investment by foreign oil firms, which account for about a fifth of the country's oil output, have stagnated since Chavez introduced a nationalistic oil law two years ago. "The oil sector is used to difficult conditions (like Central Asia) but even these guys are worried about business conditions here," said Jose Gregorio Pineda, chief economist at the Venezuelan-American Chamber of Commerce. It is not just oil. When the Venezuelan-American Chamber held its annual meeting this year, the number of members who attended was about 300, about half a year ago. Even before the two-month strike that ended last month, new foreign investments had tumbled. According to the latest data available, investments totaled $246 million in January to September last year, down 58 percent from the previous year. And way below the $1.5 billion before Chavez came to power in late 1998. Returning executives are few in numbers and cautious. Having survived the strike, foreign executives are now angry at new state currency controls in which dollar purchases will need special government permission. The new mechanism's details have still not been ironed out, meaning most businesses have been unable to buy new imports for over six weeks. "Most businessmen tell me they've battened down the hatches in a wait-and-see mode," said one diplomat. "These currency controls have just paralyzed them with uncertainty." For example, the UK faces losing its biggest export market in Venezuela -- $120 million in annual whiskey sales -- after Chavez railed against the imported spirit, implying he would not grant permission for it to be imported under new controls. Unpredictable policies have generated rumors that have added to a fearful investment climate. Executives speculate officials may confiscate dollars when travelers leave the airport or that foreign trips may be limited to three a year. Many executives have sent families home. At one top English-language school, enrolment has fallen by a third. Embassy cocktails, the traditional hub of potential business deals and intelligence-gathering, are now rare events. "Business has become almost impossible. It's basically a matter of keeping our company's brand name in the country. But business? Just about zero," said one foreign executive of a medical equipment supplier, who asked not to be named. "We're doing more business these days in Central America (one of the poorest regions in the continent). I'm even thinking of moving there," the executive added. Outside one major hotel in Caracas, its taxi drivers had given up the ghost and gone to play dominoes rather than wait for a possible client. The lobby was empty. "The world has forgotten about us," said Miguel, a porter.