Emerging Markets

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Nextel’s Risk of Investment in Venezuela

In Venezuela, there are many political, economic, and business risks that Nextel must assume before entering into the telecommunications market there. This report will focus on the risk factors that Nextel will have to face in order to undertake any business in that country. These risks can have a tremendous impact on the outcome of the venture if they are ignored.
As of the moment, Venezuela is a huge market for telecommunications. Under President Hugo Chavez Frias, there are no significant barriers to the telecommunications industry in Venezuela. The opening of the telecommunications sector has led to an increase in telecommunication imports because of the increased free competition and the improving economic climate. The high level of demand for equipment and infrastructure in Venezuela is a big incentive for Nextel to venture there because of the substantial profits that are available. However, Venezuela is a country in turmoil and investing in it carries huge risks.
Venezuela has a great deal of political risk because of the increasing poverty rate and the dictatorial ways of President Chavez. In 1998, Chavez was boosted to power by a large majority of the poverty because of his promises to empower the poor and weed out corruption. Instead, he rewrote the constitution to expand his powers, extend his term
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in office, and diverted funds to buy loyalty and to establish armed partisan militias. Along with widespread corruption, these actions prompted a strike on December 2, 2002 where 35,000 workers walked out of the state oil monopoly PDVSA, which slowed production dramatically. The business and labor leaders were trying to pressure Chavez into resigning, but instead most strikers were replaced with loyalists. The actions of President Chavez lead to the assumption that he is trying to slowly impose a dictatorship to maintain his power in Venezuela. This can be...