Saturday, May 03, 2008

Cementing a relationship Part 2

Last month I mentioned following the negotiations between the Venezuelan government and foreign cement companies, as the calls for nationalization had been contradictory. After having written about all the threats the government had been making, I thought it would be interesting to see how the threats eventually moved toward action. The government says it does not rule out the possibility of taking 100% control, as opposed to 60%, but nothing has yet been settled.

This raises the question of how precisely to define “nationalization,” which normally refers to a government taking complete control of at least some parts of an industry from private interests. To me, it seems odd to use the term “nationalization” in the case of joint ownership where private companies continue to make a profit along with the government. It is really more of a “forced joint venture.” In the case of cement, these actions are being taken only against foreign companies, so the cement industry per se is not being nationalized (though the vast majority of it was foreign owned).

This is not a trivial distinction. Concern about nationalization can discourage foreign investment, but I wonder whether the possibility of simply getting less profit has the same effect.

There is also the question of how companies respond during the negotiation process. There are currently rumors of a cement shortage, which the government is denying. The uncertainty is disruptive, so the government has a strong incentive to seal the deal as quickly as possible.


Anonymous,  2:56 PM  

Got some intelligence on the reasoning behind the decision:
Ramon Carrizales, current Vice President had a hopeless performance as a Housing Minister (his position until just a few months ago) and justified his ineptitude on cement scarcity. Then you have the feud with the Mexican government. So this, as most decisions taken by this administration, was tactical and capricious. As for the specifics on the deal, I guarantee you they don’t know have a clue yet. This was decided from one day to the other.

Greg Weeks 9:07 AM  

I don't know anything about that, though I have wondered why the Energy/Petroleum minister is the face of the government for this case, since it is about housing and construction rather than energy or petroleum.

Anonymous,  1:44 PM  

pure improvisation

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