APPENDIX B. DATA ON BEST PROSPECTS: INDUSTRY AND AGRICULTURE 1. INDUSTRY A) Rank: 1 B) Name of Sector: Telecommunications Services C) ITA Code: TES 1993 1994 1995 D) Total Market: 2,200 2,200 2,500 E) Total Local Production: N/A N/A N/A F) Total Exports: N/A N/A N/A G) Total Imports: N/A N/A N/A H) Total Imports from U.S.: 1,881 1,800 2,000 I) Exchange Rate (Bs./US$): 90 150 200 Comments: Billings from telecommunications services will continue their long-term growth trend, although 1994, given the generally very depressed economy, will probably show the slowest growth in five years. New telecommunications services are coming on stream, and demand for such services still appears to be unsatisfied. The privatized national telephone company continues to add subscribers and services and its billings will continue to rise, partly because of authorized rate increases. The two cellular telephone companies continue to grow at a rapid rate. All of the privately owned non-telephone companies (data, voice, video, trunking etc.) have some U.S relationships, either through full or partial ownership, or carrier or satellite contracts, and thus contribute to sales by U.S. companies in this market. A) Rank: 2 B) Name of Sector: Telecommunications Equipment C) ITA Code: TEL 1995 1993 1994 D) Total Market: 1,274 1,030 1,236 E) Total Local Production: 25 30 35 F) Total Exports: 0.8 0.5 0.5 G) Total Imports: 1,250 1,000 1,200 H) Total Imports from U.S.: 600 450 500 I) Exchange Rate (Bs./US$): 90 150 200 Comments: Investments in the burgeoning telecommunications industry will continue at a high level, but are expected to decrease in 1994 due to general economic conditions. Some recovery is expected for 1995. The expansion of the sector will continue at a somewhat slower rate once the initial new services allowed after liberalization and privatization are in place. U.S. firms face growing competition by aggressive sales efforts by European suppliers. A) Rank: 3 B) Name of Sector: Oil and Gas Field Machinery and Services C) ITA Code: OGM 1993 1994 1995 D) Total Market Size: 270 304 471 E) Total Local Production: 120 137 171 F) Total Exports: - - - G) Total Imports: 150 167 300 H) Total Imports from U.S.: 81 91 114 I) Exchange Rate (Bs./US$): 90 150 200 Comments: The 1994-99 petroleum investment plan is under review. Preliminary figures indicate that Petroleos de Venezuela S.A. (PDVSA), Venezuela's oil holding company, will allocate sufficient funds for the production, refining and exploration activities. Aging oil fields tend to require increasing investments and servicing to maintain their production level. The exploration effort continues as the country searches for more petroleum and gas. In addition, the marginal oilfields reactivation program will go ahead, and recent government discussions have included examining how to utilize a reopening to private investors to expand the industry. A) Rank: 4 B) Name of Sector: Automobiles and Light Trucks/Vans C) ITA Code: AUT 1993 1994 1995 D) Total Market: 2,114 1,630 1,920 E) Total Local Production:* 1,520 1,150 1,350 F) Total Exports: 16 20 30 G) Total Imports:** 610 500 600 H) Total Imports from U.S.:*** 352 480 520 I) Exchange Rate (Bs./US$): 90 150 200 * From imported kits with about 30 percent local component content. ** Includes kits for local assembly. *** Include non-U.S. made cars sold through U.S.-based dealers. Comments: The seriously deteriorated value of the local currency will cause an estimated 35 percent decrease in vehicle sales, both domestically assembled and imported by dealers or individuals. Even with some improvement in the economy, the high local cost of domestically assembled and of imported vehicles will make these unaccessible to large sectors of the population. New luxury taxes are also expected to result in a restructuring of the Venezuelan demand picture. This situation will give a great advantage to the manufacturers of small and less expensive vehicles. A) Rank: 5 B) Name of Sector: Automobile Parts and Service Equipment C) ITA Code: APS 1993 1994 1995 D) Total Market: 710 720 730 E) Total Local Production: 200 190 210 F) Total Exports: 30 35 40 G) Total Imports: 480 500 480 H) Total Imports from U.S.: 345 300 280 I) Exchange Rate (Bs./US$): 90 150 200 Comments: The domestic parts and components industry claims to be supplying about 30 percent of the total needs of the country for such products, which includes sales to the assembly plants. With decreasing sales by the assemblers, local production should decrease, partly offset by exports to Colombia and Ecuador under the common automotive industry policy agreement. New car sales are decreasing, and with the growing age of the vehicle population, sales and thus imports of replacement parts should grow, offsetting the decreasing needs of the assembly industry. The U.S. market share may decrease as foreign cars take a larger share of the market. A) Rank: 6 B) Name of Sector: Computers and Peripherals C) ITA Code: CPT 1993 1994 1995 D) Total Market Size: 325 335 350 E) Total Local Production: 0 0 0 F) Total Exports: 0 0 0 G) Total Imports: 325 335 350 H) Total Imports from U.S.: 228 235 245 I) Exchange Rate (Bs./US$): 90 150 200 Comments: The local desktop PC subsector (including PC's and workstations) continues to grow, accounting for 55% of total sales in Venezuela. Networks (both LAN and WAN) are gaining ground in the local market due to various factors: improved telephone lines, greater use of fiber optic cable, more powerful and better priced machines. Banks and other leading private sector companies are making substantial investments in networking systems. While the U.S. has the dominant market share, competition is increasing, and Asian countries are providing strong competition to U.S.-made computers. A) Rank: 7 B) Name of Sector: Medical Equipment C) ITA Code: MED 1993 1994 1995 D) Total Market Size: 366 293 337 E) Total Local Production: 60 78 72 F) Total Exports: 9 7 10 G) Total Imports: 315 222 275 H) Total Imports from U.S.: 106 85 98 I) Exchange Rate: (Bs./US$): 90 150 200 Comments: Domestic production of medical equipment consists primarily of expendables and of hospital furniture. Japan and Germany are the principal competitors to the U.S. for electro- medical equipment of all types, while U.S. manufacturers are the major suppliers of surgical instruments and appliances, radiation equipment, magnetic resonance and tomography equipment and implant devices. Under present budgetary restraints, there will be limits to the equipping and modernization of existing and construction of new hospitals, despite the new government's commitment to improving health care and facilities. The principal market should continue to be private hospitals and individual physicians. A) Rank: 8 B) Name of Sector: Machine Tools and Metal Working Equipment C) ITA Code: MTL 1993 1994 1995 D) Total Market Size 210 170 190 E) Total Local Production - - - F) Total Exports - - - G) Total Imports 210 170 190 H) Total Imports from U.S. 48 39 44 I) Exchange Rate (Bs./$) 90 150 200 Comments: The Venezuelan industrial modernization process is forcing the metalworking industry to produce more efficiently and increase quality. This may result in the construction of steel mini-mills. In addition, the downstream transformation process will require more controls, high-precision equipment, faster production machinery and quality assurance equipment. While there is no local production of machine tools, there is strong competition from the EC, Japan and Eastern Europe. U.S. suppliers should aggressively pursue sales opportunities for metalworking and machine tools equipment, taking advantage of the anticipated expansion of the petroleum and petrochemical industries. A) Rank: 9 B) Name of Sector: Electrical Power Systems C) ITA Code: ELP 1993 1994 1995 D) Total Market Size: 232 277 360 E) Total Local Production: 132 161 208 F) Total Exports: 20 24 29 G) Total Imports: 120 140 181 H) Total Imports from U.S.: 52 60 73 I) Exchange Rate (Bs./US$): 90 150 200 Comments: The Interamerican Development Bank is providing a loan of USD 500 million for the Caruachi Project. Over the next three years the following systems should be privatized: Enelbar, Planta Centro, Enelco, and Isla Margarita. Private sector companies also continue expansion plans. A) Rank: 10 B) Name of Sector: Computer Software and Services C) ITA Code: CSF 1993 1994 1995 D) Total Market Size: 108 135 175 E) Total Local Production: 10 11 12 F) Total Exports: 5 7 9 G) Total Imports: 98 124 163 H) Total Imports from U.S.: 92 112 147 I) Exchange Rate (Bs./US$): 90 150 200 Comments: This subsector maintains a steady upward growth as end-users become aware of the need to modernize their businesses in order to be competitive in international markets, especially as software programs become much more user-friendly and cost effective. The United States continues to be the major supplier of software to Venezuela (approximately 90% of all imports). There is a small local production sector, mainly in the area of accounting and business administration applications, which is prospering due to price and adaption to local practices. Local software companies have been exporting to other Latin American countries and to the Spanish-speaking market in the United States. A) Rank: 11 B) Name of Sector: Pumps, Valves and Compressors C) ITA Code: PVC 1993 1994 1995 D) Total Market Size: 300 250 275 E) Total Local Production: 153 132 147 F) Total Exports: 9 7 8 G) Total Imports: 156 125 136 H) Total Imports from U.S.: 94 80 87 I) Exchange Rate (Bs./US$): 90 150 200 Comments: The United States' position as a supplier of pumps, valves and compressors has traditionally been very strong, thanks to the special historical relationship with Venezuelan petroleum and petrochemical end-users. Projects in water supply systems -- upgrades, expansion and refurbishment -- and in the electrical industry offer potential sales opportunities. U.S. equipment will face competition from European and Japanese suppliers. A) Rank: 12 B) Name of Sector: Aircraft and Parts C) ITA Code: AIR 1993 1994 1995 D) Total Market: 232 100 100 E) Total Local Production: 0 0 0 F) Total Exports: 0 0 0 G) Total Imports: 232 100 100 H) Total Imports from U.S.: 192 90 90 I) Exchange Rate (Bs./US$): 90 150 200 Comments: While there were still some imports of used airliners of the 727 and DC-9 class during 1993, and a few executive jets and turboprops, no such imports are expected for 1994. If the planned luxury tax of 30 percent on all aircraft, in addition to the 10 percent tax on all imports, go into effect, sales of aircraft should fall close to zero. On the other hand, imports of parts and accessories should continue at the same level and possibly increase as the existing fleet becomes older. A) Rank: 13 B) Name of Sector: Hand and Power Tools C) ITA Code: TLS 1993 1994 1995 D) Total Market: 93 90 92 E) Total Local Production: 2 2 2.5 F) Total Exports: 0 0 0 G) Total Imports: 91 88 89.5 H) Total Imports from U.S.: 46 45 46 I) Exchange Rate (Bs./US$): 90 150 200 Comments: Most hand and power tools will continue to be imported since domestic production is small and of limited variety. The U.S. continues to be the major provider of electrical and pneumatic tools, while there is considerable competition in non- powered hand tools from Brazil, Mexico, Italy and Germany. The general economic situation of the country should not affect the total market much, and market size can be expected to continue at the same level with a slight increased during 1995. A) Rank: 14 B) Name of Sector: Security and Safety Equipment C) ITA Code: SEC 1993 1994 1995 D) Total Market: 93 91 95 E) Total Local Production: 12 12 12 F) Total Exports: 0 0 0 G) Total Imports: 81 79 83 H) Total Imports from U.S.: 40 39 42 I) Exchange Rate (Bs./US$): 90 150 200 Comments: Growing crime, especially automobile theft and home break-ins, has fueled a growing market for all security devices. Local production and assembly of such products have shown steady increases and diversification, although the industry does not produce electronic systems, closed circuit TV systems or elaborate equipment for banks. The market for industrial safety equipment, fire prevention and fire fighting does not appear to be growing, probably because of the generally depressed economic conditions affecting industry and municipal governments. The U.S. appears to be the major supplier of all types of equipment in this sector, with the exception of video systems which generally come from Japan. A) Rank: 15 B) Name of Sector: Pharmaceuticals C) ITA Code: PHA 1993 1994 1995 D) Total Market Size: 196 164 189 E) Total Local Production: 95 76 88 F) Total Exports: 14 11 13 G) Total Imports: 115 99 114 H) Total Imports from U.S.: 30 34 28 I) Exchange Rate (Bs./US$): 90 150 200 Comments: Venezuela does not produce any ingredients for pharmaceutical products with the exception of alcohol, sugar, starch and flavors. While the domestic pharmaceuticals industry, consisting of about 30 companies (the major ones are subsidiaries of foreign companies) produces a wide variety and volume of medicines and drugs, practically all of its raw material is imported in bulk form and domestic production consists mainly of formulating, diluting, mixing and packaging. Imports of finished products in retail sale form have thus been relatively low, and consist mainly of hormones, specialized medicines with small sales, cancer treatment drugs and finished bulk vitamins imported only for re-packaging. The U.S. is a major supplier of all pharmaceuticals, closely followed by Germany and Switzerland. A) Rank: 16 B) Name of Sector: Pollution Control Equipment C) ITA Code: POL 1993 1994 1995 D) Total Market Size: 91 72 80 E) Total Local Production: 10 6 10 F) Total Exports: 7 4 5 G) Total Imports: 88 70 75 H) Total Imports from U.S.: 66 50 60 I) Exchange Rate (Bs./US$): 90 150 200 Comments: The market for the entire sector is presently undergoing important changes. During the last couple of years the sector showed moderate growth, but because of the 1992 passage of the Criminal Environmental Law (CEL), this sector is expected to grow considerably. CEL will give a definite boost to all pollution control related investment: air, noise, water and toxic wastes. The U.S. is the major supplier of pollution control equipment to Venezuela. A) Rank: 17 B) Name of Sector: Hotel & Restaurant Equipment C) ITA Code: HTL 1993 1994 1995 D) Total Market Size: 133 112 145 E) Total Local Production: 90 115 173 F) Total Exports: 44 72 108 G) Total Imports: 87 69 80 H) Total Imports from U.S.: 35 28 42 I) Exchange Rate (Bs./US$): 90 150 200 Comments: Imports of hotel and restaurant equipment consist primarily of mechanical appliances, flatware, stemware, cutlery and cooking utensils. Kitchen ranges, refrigeration and cooling equipment, water filters and most furniture, linen and expendables are manufactured locally, as well as equipment used in the construction of buildings, such as air conditioners, elevators, floor coverings, paints, etc. The overall market should continue to be good in spite of depressed general economic conditions, since the construction of new hotels will continue, with the ongoing proliferation of restaurants, soda fountains and bars. The U.S. is the major supplier of mechanical appliances, while other supplies come from France, Italy and Germany. A) Rank: 18 B) Name of Sector: Construction Equipment C) ITA Code: CON 1993 1994 1995 D) Total Market Size: 125 100 115 E) Total Local Production: 48 39 45 F) Total Exports: 5 5 6 G) Total Imports: 82 66 76 H) Total Imports from U.S.: 48 39 44 I) Exchange Rate (Bs./US$): 90 150 200 Comments: Prospects for construction are up thanks to the new concessions law for public works. The construction equipment market is fed mostly by imports, due to low local production. This market uses both new and used equipment, and most consumers prefer to purchase directly from overseas. Individuals who are interested in importing construction equipment are looking for either new technology or lower prices. A) Rank: 19 B) Name of Sector: Mining Industry Equipment C) ITA Code: MIN 1993 1994 1995 D) Total Market Size: 50 60 66 E) Total Local Production: - - - F) Total Exports: - - - G) Total Imports: 50 60 66 H) Total Imports from U.S.: 35 42 46 I) Exchange Rate (Bs./US$): 90 150 200 Comments: There is a growing interest in the Venezuelan mining sector due to two important new developments: a) the approval of a new law in September, 1991 which significantly lowered the tax rate applied to mining companies to a maximum of 30%, and b) the granting of mining concessions to foreign owned companies, which had been forbidden for many years. This is certain to attract substantial investment from the U.S. and other countries to develop Venezuela's impressive deposits of coal, gold phosphates and other minerals. Most of this is open-pit. U.S. products are highly regarded in this industry and continue to have a high market share. A) Rank: 20 B) Name of Sector: Water Resources Equipment C) ITA Code: WRE 1993 1994 1995 D) Total Market Size: 74 70 74 E) Total Local Production: 20 15 20 F) Total Exports: 5 5 5 G) Total Imports: 59 60 59 H) Total Imports from U.S.: 36 35 36 I) Exchange Rate (Bs./US$): 90 150 200 Comments: The Venezuelan water resources sector is expected to expand rapidly in the next 5-7 years. Both the U.S. Trade and Development Agency (TDA) and U.S. Eximbank are currently supporting projects and U.S. suppliers may also wish to follow up with the Inter-American Development Bank (IDB) and the World Bank, as these multilateral lending institutions are considering funding Venezuelan water resource projects. The decentralization process has brought about several regional water companies which will be responsible for water supply, waste water treatment, and sewage and sanitation related projects. Due to increased demand for potable water, the water supply is expected to experience significant growth which will require foreign sourced water supply and operation equipment. 2. AGRICULTURE A. Name of Sector: WHEAT B. PS&D Code: 0410000 Units: Thousand Metric Tons 1993 1994 1995 C. Total Market Size 950 900 1000 D. Total local production 0 0 0 E. Total exports 0 0 0 F. Total imports 950 900 1000 G. Total Imports from US 757 700 800 Comments: Venezuela consumes 1 million metric tons of wheat per year on the average, with no local production of relevance. Imports of U.S. wheat will compete directly with Canadian and EC wheat, as well as smaller amounts of Argentinean wheat and other sporadic sources. In MY 1992, an EEP program helped reach 838,000 MT of U.S. wheat imports, which have since declined slightly due to the program no longer being in effect, a local recession, and highly subsidized imports from the EC. The prospects on the increase of U.S. share in this market are based on the improvement of the local economy, the relationship between the Bolivar and the U.S. Dollar, and the presence or absence of an EEP program to counterbalance Canadian and European subsidies. A. Name of Sector: YELLOW CORN (Feed Grains) B. PS&D Code: 0440000 Units: Thousand Metric Tons 1993 1994 1995 C. Total Market Size 850 850 900 D. Total local production 50 50 50 E. Total exports 0 0 0 F. Total imports 800 800 850 G. Total Imports from US 762 760 800 Comments: Venezuela produces around 400,000 MT of feedgrains, and requires approximately 1.2 to 1.5 MMT to supply the local animal feed industry, a highly sensitive market that is frequently hindered by local policies to buy local grain. Venezuela has traditionally been a near monopoly for U.S. grain, despite small sales by Argentina. Minimum expectations for U.S. grain imports seldom fall below 450,000 MT. A. Name of Sector: SOYBEANS B. PS&D Code: 2222000 Units: Thousand Metric Tons 1993 1994 1995 C. Total Market Size 179 209 239 D. Total local production 9 9 9 E. Total exports 0 0 0 F. Total imports 170 200 230 G. Total Imports from US 170 200 230 Comments: Venezuela's imports of soybeans averaged 125,000 MT of beans for the period 1990-1993. Bolivian soybeans, which do not pay tariff due to Andean Pact preferences, are currently the sole competition for U.S. beans. A. Name of Sector: SOYBEAN MEAL B. PS&D Code: 0813100 Units: Thousand Metric Tons 1993 1994 1995 C. Total Market Size 560 555 625 D. Total local production 135 160 185 E. Total exports 25 30 35 F. Total imports 450 425 475 G. Imports from US 425 400 450 SOYBEAN MEAL: Another component needed for the manufacturing of animal feed; local production of soybean meal is from the crushing of imported U.S. soybeans, and so follows the same trade patterns as the beans. Imports of meal from the U.S. averaged 400,000 MT for the period 1990-1993. Prospects for imports are based on the relationship between importing U.S. soybeans or soybean meal, and the expansion of the animal feed/poultry industries.