Smuggled cattle and petrol join exodus from Venezuela

[dropcap]T[/dropcap]hey bribe border guards to get the livestock across. The cows are slaughtered — as many as 250,000 a year — in makeshift Colombian abattoirs and the meat is sold for three times what it fetches in Venezuela.

The business is worth US $135m a year, according to one estimate by the Colombian cattle-ranching federation. But it is only one of a series of growing cross-border smuggling rackets that include petrol, stolen copper, scrap metal, eggs, tomatoes and clothing.

It is also just another symptom of Venezuela’s imploding economy, which has caused spillovers elsewhere. Falling oil output in a country with the world’s largest oil reserves has helped boost global energy prices. Lower export revenues have meanwhile pushed Venezuela towards default on its $64bn of internationally traded bonds.

And then there is the regional impact. This is most severe in Colombia, which has received about 500,000 Venezuelan refugees. Cattle rustling also brought foot-and-mouth disease back to Colombia last year for the first time in almost a decade.

“The biggest danger that we face at the moment is trade in contraband, in cattle above all, from Venezuela,” Juan Manuel Santos, Colombian president, said last month when welcoming a decision to lift a ban on Colombian meat exports. “In Venezuela at the moment there are no controls to fight against foot-and-mouth.”

The catalyst for the smuggling boom is Venezuelan hyperinflation and the profitable arbitrages it creates. Fourteen months ago, the Colombian peso and Venezuelan bolívar were at parity, trading at about 3,000 each to the US dollar. Now Colombia’s peso is worth 40 times as much as the bolívar.

Given the price controls put in place on a range of goods by President Nicolás Maduro’s socialist government, this makes Venezuela incredibly cheap for anyone with foreign currency.

Criminal gangs have seized the opportunity. Insight Crime, a Medellín-based foundation, says two big Colombian criminal groups, the Rastrojos and the Urabeños, are fighting for control of contraband around Cúcuta, a frontier city separated from Venezuela by a footbridge.

In the past four months of 2017 there were several gunfights near the bridge. “This is a recent development,” said Major General Gustavo Moreno of the Colombian national police in Cúcuta. “In the first eight months of the year there wasn’t a single such incident.”

Although Mr Maduro regularly lambasts unnamed saboteurs for his country’s economic problems and shortages, the mix of hyperinflation and price controls may be more to blame. Some Venezuelan cattle ranchers, for example, no longer sell meat into the local market as it is easier and more lucrative to sell to smugglers.

“They take care of the whole business,” said one rancher close to the frontier who declined to be named. “They come to my ranch, they pay me in pesos rather than bolívars and they buy 30, 40 or 50 animals at a time.”

In his office in the Venezuelan frontier town of La Fría, the head of the local cattle ranchers’ association, Isidro Uribe, acknowledges that “the Colombians are in charge”.

The most lucrative trade of all, though, is petrol. By some estimates, as much as 100,000 barrels of oil are smuggled out of the country every day.

The reason, again, is price arbitrage. Petrol is so heavily subsidised in Venezuela that it is virtually free. Motorists fill up their tanks for a couple of US cents, then siphon off the fuel and sell it to gangs. They in turn sell it in Colombia at a 2,000 per cent mark-up.

Unsurprisingly, there are enormous queues for fuel at Venezuelan gas stations close to the border, where sales are rationed.

As 2018 begins, nothing suggests things will get better. In December, Mr Maduro floated the idea of using a cryptocurrency, the Petro, to skirt US financial sanctions on Venezuelan debt refinancings put in place by Washington last year.

“To overcome the financial blockade, this will allow us to move toward new forms of international financing,” Mr Maduro said during his Sunday television programme.

Meanwhile, the IMF expects Venezuelan inflation to reach 2,350 per cent this year, by far the highest in the world. At the same time, a 300,000 barrels a day fall in oil output to 1.8m b/d has all but wiped out the much-needed windfall that Caracas would otherwise have reaped from last year’s $10 a barrel rise in oil prices.

This year, oil output is widely forecast to drop by a similar amount again, making it even harder for the country to meet $9bn of debt payments due this year.

Indeed, Venezuela failed earlier this month to make a $35m coupon payment on bonds due in 2018. Caracas Capital, an investment firm, says the sovereign and state oil company PDVSA is now $1.3bn in arrears on debt payments.

Back on the frontier, business leaders are in gloomy mood. “We’re going to reach a stage where there is simply nothing left here,” says William Roa, head of a local Venezuelan chamber of commerce. “Venezuela hardly produces anything any more and the few things it does produce, like gasoline and meat, are all being taken across the frontier.”