Venezuela Retail Report Q3 2012

The Venezuelan Retail Report examines the long-term potential of the local consumer market, but flags short-term concerns about the impact on Venezuela’s economic outlook of extremely low productive capacity and a potential currency devaluation.

The report examines how best to maximise returns in the Venezuelan retail market while minimising investment risk, and also explores the impact of deteriorating regional credit risk on the Venezuelan consumer, and on the ability of producers and exporters to realise returns in the short term.

The report also analyses the growth and risk management strategies being used by the leading players in the Venezuelan retail sector, as they seek to maximise the growth opportunities offered by the local market.

Venezuelan per-capita consumer spending is forecast to decrease by an alarming 38% to 2016, compared with a regional growth average of 19%.

The country comes fifth (out of seven) in BMI’s Latin America Retail Risk/Reward Ratings, although it underperforms significantly for Risk.

Among all retail categories, consumer electronics will be one of the strongest performers through to 2016 in growth terms, with sales forecast to increase from US$3.82bn in 2012 to US$4.46bn by 2016, a rise of 16.9%.

In the competitive arena, BMI sees upside potential in government programmes that provide new financing options for consumers.

Venezuela is not one of the largest markets in the region, but the low household penetration of many products suggests there is latent growth potential.

The market offers continued growth potential in key digital products groups such as computers (less than 15% penetration), notebook computers and LCD television sets.

Over the last quarter, BMI has revised the following forecasts/views:

BMI is maintaining its modest 2.5% real GDP forecast for 2012, as any upside risks to growth in the next few quarters are mitigated by the massive growth risks beyond the election.

From a longer-term perspective, we believe that the marginal return to growth from additional monetary and fiscal stimulus is likely to be limited, regardless of who wins the election, which supports our weak 2.4% average real growth forecast over the next five years.

Private consumption was strong in the latter stages of 2011, a trend that BMI expects to continue over the next few quarters.

However, the possibility of a rapid retrenchment following the election, combined with the high base effect from H211, implies that the rate of growth will slow substantially by late 2012.

BMI expects private consumption growth to be 3.0% in 2012.

BMI’s forecast for slowing private consumption has been reinforced by latest data showing that retail sales grew less than expected in the first two months of 2012.

The central bank’s retail sales index (by volume) grew just 5.7% year-on-year (y-o-y) in H112, down from 8.6% in Q411.

However, the pace accelerated to 12.6% y-o-y in March.