mong other things.
Despite a number of flagship foreign investment projects, restoring and sustaining investor confidence remains an important issue in Venezuela. This is unlikely to occur in the near term however, as a challenging operating environment and uncertainty over contract and property rights persists.
In July 2012, Venezuela joined Mercosur, the Southern Common Market formed in 1991 between Argentina, Brazil, Paraguay and Uruguay. Venezuela’s membership of Mercosur expanded the market to 283 million people (2013) with a gross domestic product worth US$3.2 trillion (2013). Venezuela assumed the Presidency of the trading bloc in July 2013.
Venezuela's main source of income continues to be Petróleos de Venezuela (PDVSA), the state-owned oil company. Its revenues give the PSUV the ability to fund wide-scale social reforms such as free health-care clinics, discounted food centres in poor areas and secondary and tertiary education programs.
Venezuela was hit hard by the global financial crisis, with GDP contracting 3.2 per cent in 2009 and 1.5 per cent in 2010. High inflation, falling public expenditure due to low oil prices, a weak investment outlook, deteriorating infrastructure and a major breakdown in security are contributing factors to this slowdown.
The United States is PDVSA’s main full cash export market. Most other exports go to political allies that receive oil shipments on long-term credit agreements at concessionary interest rates (such as Nicaragua or Cuba), or constitute payments for previously received loans (as in the case of China). The company has also revived plans to expand natural gas production for export to Argentina.
Also, while Venezuela boasts one of the region's more developed physical infrastructure, the quality has deteriorated in recent decades because of underinvestment—in spite of a prolonged oil bonanza—stemming largely from a lack of effective administrative capacity. This has been most evident in the electricity sector, where a failure to invest in extra capacity and in improved distribution networks has left the country facing constant electricity rationing, but it is also evident in the deteriorating quality of roads and ports.
Bilateral economic and trade relationship
Bilateral trade is modest, although businesses continue to explore possibilities for expanding commercial interaction, particularly in the mining, agriculture and maritime sectors. Two-way trade was AU$5.3 million in 2013-14, down from $13.2 million in 2012-13. Australian exports to Venezuela totalled $4.0 million in 2013-14, consisting mainly of paper, pharmaceutical products (excluding medicaments), vehicle parts and accessories, and musical instruments and parts. Imports to Australia from Venezuela were $1.4 million in 2013-14, consisting primarily of alcoholic beverages, crude animal matter, manufactures of base metal, and cocoa.
Trade and Investment
The mining industry offers some potential for Australian involvement. Despite abundant mineral wealth and some of the world's largest reserves of iron ore, aluminium, nickel and gold, Venezuela's mining industry is underdeveloped and accounts for less than one per cent of GDP. The government has identified the mining industry as a key sector in the diversification of the economy away from petroleum, particularly as a source of export revenue and inputs for domestic industry.
Excel Mining and RFC Finance Corporation are involved in two mining projects in Venezuela: a diamond project in the Guaniamo region and the Cosila coal mine.
A significant Australian investment in Venezuela is Orica's joint venture with Venezuela's Grupo Merand in two explosives manufacturing projects. One project involves an existing plant that supplies on-site bulk explosives for a large coal mining facility in western Venezuela. In the other, Orica Venezuela upgraded an existing packaged explosives plant and operates it on behalf of its owner, CAVIM, the state-owned military industries company.
However, the government's action to nationalise strategic industries in addition to banks and foo