Venezuela-Colombia Border: How the Economy Works Amid the Crisis

The border with Colombia is one of the epicenters of the Venezuelan economic crisis, and due to its particular characteristics, it is one of the regions that has the toughest conditions. Read in this special report from Supuesto Negado how the “Tachirense” (local to Tachira state) productive apparatus manages to cope with it. The report is part of our series dedicated to the border situation.

The economy of the Táchira state has moved in the last two centuries from agriculture
to oil and, from this, to binational border trade. However, it is currently characterized by hybrid processes between production and legal trade, financial speculation, smuggling, “doing whatever to survive” (rebusque) and extortion.

Supuesto Negado was on “the hottest border in Latin America” to learn about the local economic indicators, its impact on the quality of life of area inhabitants abd day to day life in a territory that lives beyond any known logic in the Venezuelan countryside.

Currently, all the industrial and agricultural production in Tachira, consumer expectations, unemployment rates, and wages and salaries are determined by two transversal factors: the proximity of Colombia with its internal conflict and the migration crisis that Venezuela is going through.

Venezuelan Bolivar vs. Colombian peso
Historically, the ratio of Colombian and Venezuelan currencies resulted from the price
of the dollar with respect to both. But at present, the price of the US currency in Venezuela is calculated on the basis of the peso-Bolivar ratio, that is , the value of the Venezuelan currency is determined almost exclusively by economic agents of the border.

“This process is supported by a resolution of the Bank of Colombia (No. 8 of the year
2000) that authorizes the registration of buying and selling professionals with special requirements and conditions for border areas. In other words, this financial deregulation allows private agents of very doubtful transparency to participate without
accounting or auditing,” says Carlos Mendoza, economist, master in Foreign Trade, and advisor to a customs agency in San Antonio del Táchira.

He explains that for this reason salaries in Venezuela are not very competitive compared to those of Colombia. Much more given the Venezuelan hyperinflation that triggers the prices of most products and services and sometimes places them above international standards.

“While the minimum global salary in Venezuela is 15 dollars (300 thousand bolivars) in
Colombia it is $ 270 (925,148 pesos). In theory, just by crossing the bridge a worker can get a job where they pay 1800% more,” he said.

This abrupt depreciation of the purchasing power negatively impacts the commercial, export, textile and leather goods business of the state, which according to figures from the Chamber of Commerce reaches 100% in the customs sector and 95% of the industrial, after the border closure in August of 2015.

That without taking into account the critical impact generated by the lack of fuel, the
constant power cuts, and that the smuggling of essential products can generate exorbitant gains in a short time, leading to the abandonment of formal jobs.

Táchira, transit state
Isabel Castillo, president of the San Antonio Chamber of Commerce, argues that
large commercial premises and industrial warehouses became temporary lodgings for those who came from the interior of the country to work as “advisors”, “guides” and everything related to the sector linked to the Venezuelan migration economy that exits Venezuela from this place.

“They started to produce shelters making precarious divisions, placing mats, enabling a shared bathroom and now they charge about 5 thousand pesos per night per person (about 31 thousand Bs.), said Castillo.

In parallel to these precarious lodgings, hotels and formal inns that maintain high levels of occupancy also increased. While in 2015 there were about 12, now there are about 50.

For his part, William Gomez, mayor of San Antonio, stressed that the population increased almost 70% in recent years and “the economy was transformed from industries and factories to services,” he said.

Before the crisis, only six companies came from the interior of the country to this
border; now there are more than 30 companies with offices in the bus station. According to Gomez, about 50 thousand people arrive daily.

Smuggling, “rebusque” and extortion
The problems of shortages in the center of the country are not caused by smuggling but by the lack of Venezuelan production and irregularities in imports, although that has already been greatly overcome, said the regional president of Fedecámaras in Táchira, Daniel Aguilar.

“Smuggling has always existed (in fact it is inherent on every border) and at other times it did not affect the national market, on the contrary, it stimulated production growth by expanding the spectrum of its markets,” he said.

Aguilar revealed that currently the largest flow of goods is from Colombia to Venezuela and not vice versa. “You find Colombian products throughout the western zone and even in the eastern zone of Venezuela, but there you find Brazilian items,” he said.

Supuesto Negado was able to verify this assertion in Táchira and Mérida where most
of the industrialized food, personal hygiene and cleaning products, vehicle parts, medicines and agricultural and industrial raw materials are Colombian.

Since 2016, mainly “bachaqueo” (informal smuggling) has been going in the opposite direction and has become a subsistence activity for thousands of families, not only in the border region, as it had been traditionally, but increasingly in more internal regions of Venezuela, says the head of Fedecámas in Táchira.

This assertion is noted in the accent of the passers-by of Av. 1 de Mayo, in San Antonio, the main route of entry and exit to Colombia. The native “accent” is not heard and instead the accent characteristic of newcomers from popular areas of Caracas and La Guaira is heard.

This informal, disorderly and vulnerable migration has been “adapted” to the conditions of the area and now they are victims of the extortion of the various irregular groups that make their living on the border.

It is not a minor fact that armed groups are the real powers in some sectors of San Antonio, Ureña and Cúcuta. There, extortion has become the largest source of financing for these groups even surpassing drug trafficking, according to analysts.

Meanwhile, from the other side …
According to the Technical and Economic Information Department of the Bank of the Republic of Colombia, Cúcuta continued for the fourth consecutive quarter to have negative growth.

For the April-June 2019 quarter, the indicators showed a deterioration in the quality of employment and a new increase in the informality rate (remaining as the city with the highest in Colombia). Employment reaches 51.1% and unemployment 15.5%.

By departments, Santander received 61.8% of the remittances that arrived in the region and, compared to the previous year, the amount in pesos had a growth of 58.8%. “The substantial increase in remittance income improved the purchasing power of households (…) This indicator was driven by several factors, including the flow of
Venezuelan capital through this route to the national territory,” says the report.

Despite the political disagreement between the governments of Iván Duque and Nicolás Maduro, analysts and local inhabitants agree on the need to strengthen coordination and
information between central banks and exchange houses, fix a definitive reopening
of the border crossing and guarantee a clear and common strategy, especially with regard to security plans.

Source URL: Supuesto Negado

Translated by JRE/EF

Venezuela-Colombia Border: How the Economy Works Amid the Crisis