As Venezuelans Starve, Luxury Dollar Economy Booms in Caracas
(Bloomberg) -- The two young women wade in a sun-splashed pool, heads tossed back in carefree laughter as they spill Prosecco over mango ice cream and into the water around them.
The image, part of a lavish Instagram ad campaign, is the epitome of hedonistic opulence -- or at least it is in the deeply impoverished city it was staged, Caracas, Venezuela. And yet the dissonance between the ad and the grim reality on the ground seems to bother no one in the comments where the alcohol-infused ice cream shop Lits earns heart emojis.
As the pandemic bears down globally, swelling the gap between rich and poor, there may be no starker case of inequality than Venezuela, where the socialist leader Nicolas Maduro has buttressed his hold on power by fostering a Darwinian dollarization under quarantine.
The nation’s mighty oil industry has collapsed, water, electricity and gasoline are barely available, and hunger gnaws away at vast portions of the population. The latest university-run survey shows that four out of five Venezuelans couldn’t purchase a basic food basket last year.
Meanwhile, Caracas neighborhoods have a dozen new delivery services bringing to their doors everything from truffle-salmon poke bowls to electronic cigarettes and $50 gluten-free birthday cakes.
“The government no longer harasses the small private sector and has allowed dollarization to advance,” observed Omar Zambrano, an economist. “It creates a comfort bubble that reduces the political pressure of having to maintain an economy that can supply the minimum, especially with U.S. sanctions.”
More than $2 billion have flowed in, some linked to the luxury businesses and some, unrelated to the Prosecco drinkers, are remittances of 5 million Venezuelans who fled the collapse long before the virus. The dollars have created a separate -- and surreal -- reality. With the national economy having shrunk 65% from 2015 to last year, and dwindling 20% this year, dollar-based businesses are flourishing.
What started last year as small luxury shops with a few imported goods have exploded into multilevel emporiums. Once painful shortages of toilet paper and sugar have morphed into endless options for those who can afford it.
In southeastern Caracas, there’s Sam Adams Octoberfest at $2.45 a bottle, Spanish Manchego cheese La cueva del abuelo at $12 for 150 grams, a keto seeds bread for $20 and Omaha Steaks, including a one-pound pork tenderloin for $23.
“Before, the biggest problem was scarcity,” said Risa Grais-Targow, a Eurasia Group analyst. “People who don’t have access to dollars are still suffering.” But for those with dollars, this “has been a huge driver of stability.”
Due both to the pandemic and U.S. sanctions on many of those associated with the government, the high-end travel of the Venezuelan elite has largely ended -- and been converted into a local luxury marketplace filled with pent-up creativity, a situation the U.S. presidential election is unlikely to change, no matter who wins.
“With just the slightest opening in the economy, we’ve seen innovative and creative ways to create during a crisis,” said Lits ice cream general manager Graciela Beroes.
The innovations are enjoyed by only a few, however. Food prices in local bolivars are soaring and those in dollars are also rising, having increased 23% since the quarantine began in mid-March, according to consulting firm Ecoanalitica.
Motorcycle-delivery service Ubii Go has grown to 15,000 users in Caracas since opening in March, with business growing 30% each month since, Managing Director Andres Alcega said. They plan to expand to five more cities next year.
Inside 2doce market in Las Mercedes neighborhood, 39-year-old publicist Romina Segovia walked down the aisles taking photos for her friends, surprised by the goods she found, including plant-based meat substitutes, and unapologetic.
“If you work and can pay for it, what’s the matter?” Segovia said. A man nearby complained to an employee about not finding Vanilla Coke.
Diego Moya-Ocampos, political risk analyst at IHS Markit in London, said the changes of the past six months in Caracas have been useful to Maduro, who’s been staving off an increasingly weak challenge from U.S.-backed opposition politician Juan Guaido.
“In a way, it’s an escape valve so the ruling class that’s increasingly surrounded can access luxury goods and services with a certain quality of life to prevent it from starting to think about a way out,” he said. “It maintains civil and military loyalty.”
It also offers a touch of poetry.
Unable to find her wish list of books and with more spare time than usual, Valentina Aponte, 24, is importing volumes on art, decor and management and displaying them on Instagram. Ranging from $15 children’s books to $140 coffee-table models, all have sold within days.
“So much is missing in Venezuela, even something as basic as books,” said Aponte, who delivers the books herself or asks friends to drive them over as favors during months of fuel shortages. “In a place where there’s nothing, there’s room to do pretty much anything.”
That could describe one of the messages of an import she recently sold to one of her own deliverymen: “The Alchemist” by Paulo Coelho, the modern Brazilian epic which argues that fear is the enemy, and trusting oneself on one’s personal journey is the true path to fulfillment.
©2020 Bloomberg L.P.