What MNCs need to know about recent events in Venezuela

On January 23rd, the head of the opposition-held Congress in Venezuela Juan Guaidó declared himself interim president of Venezuela amid mass organized civil protests against Nicolás Maduro’s regime and the economic/humanitarian crisis. Shortly after, President Donald Trump issued a statement declaring US support for Guaidó. Many international and regional leaders and organizations (i.e. Brazil, Colombia, Chile, Canada, France, Argentina, the OAS, the Lima Group etc.) followed suit issuing similar statements of support for Guaidó. On the other hand, other nations have continued to recognize Maduro as the legitimate president, including Russia, China, Turkey, Mexico, Bolivia, and Cuba, among others. This division in support is even more stark nationally, where Maduro, for now, continues to enjoy the support of the military and high-level government officials. The opposition in Venezuela has managed to unite behind Juan Guaidó, but the current roadmap to put a political transition in place remains unclear.

Moving forward, MNCs will need to set realistic expectations for the market and ensure that the right market monitoring tools are set in place to track, evaluate, and understand potential outcomes and relevant business implications.

Scenarios

To resume, here are some of the potential scenarios we are tracking, which range significantly based on how recent events may progress: 1) Maduro clings to power through military and key international support from geopolitical allies including China and Russia, 2) the military extends support to Guaidó allowing for a transition to begin, 3) a dual sovereignty state arises as the opposition runs a parallel government recognized abroad but without state control, 4) a civil conflict unfolds with/without international intervention, 5) a potential amnesty deal with high-level government officials to oust Maduro takes place, or 6) an all-out oil embargo collapses the economy, to name a few.

Here are some key signposts for MNCs to track whether the crisis may improve or deteriorate further in the near term:

Positive Signposts 

  • Military turns on Maduro’s government, recognizing Guaidó as the Interim-President and supporting future free elections
  • Guaidó strikes a deal with high-level government/military officials promising amnesty in exchange for forcing out Maduro, but this does not guarantee a transition from Chavismo
  • Guaidó puts forward his government’s own diplomatic international relations, ignoring Maduro’s government’s plans to sever ties
  • The military does not support the opposition but refuses to crack down violently on civil protests
  • Guaidó gains control of foreign assets, including CITGO, and proceeds of Venezuelan oil sales are diverted to accounts controlled by the opposition-held National Assembly
  • US imposes new sanctions, or an all-out embargo, on Venezuela’s vital oil sector (this would severely strain the government’s economic power, but could incentivize the government to seek a way around sanctions through more direct sales to geopolitical allies)

Negative Signposts

  • Maduro orders a military crackdown on protestors and the opposition, inciting violence and further repression
  • An official cut of diplomatic ties with international nations, ordering opposing diplomats to exit (Maduro has already ordered US diplomats to exit)
  • China and Russia provide Maduro with further support, financial lifelines, and potential military backing
  • An international military intervention unfolds in Venezuela
  • Retaliations escalate back and forth between Maduro and international opposition governments

The events that have materialized so far do not yet demand an immediate shift in strategy for multinational executives in the region. MNCs should understand that even if a successful political transition unfolds in the near term, the market’s attractiveness for investments will take many years to restore—as previously outlined by FSG (see this Harvard Business Review article published in September 2017).


Our team will continue to track key political developments as events continue to unfold in Venezuela to discern the effects on the macroeconomic and business landscape. For a more in-depth briefing on Venezuela, FSG clients can contact their Client Services Director. Not a client? Please contact us to learn more.

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