Chavez's Seizures Scuttle Housing Campaign as Venezuelan Steel Output Sags

President Hugo Chavez’s campaign of nationalizations is scuttling a top policy goal as sagging output at state-owned steel and cement makers thwarts a pledge to build 100,000 homes a year for poor Venezuelans.

Lack of supplies from seized companies such as Siderurgica del Orinoco SA, Venezuela’s largest steel mill, has slowed building activity to less than 50 percent of last year’s pace, according to the Caracas-based Venezuelan Construction Chamber. The chamber, which estimates 83 percent of homes are built by private companies, says 25,510 were finished in the first half of the year.

“I sometimes have to go to a lot of places to try and find iron rods and cement,” said Humberto Altuve, a Caracas-based engineer who is currently working on a university construction project in Vargas state. “I’ve had to pay three times the regulated price to make sure my projects aren’t delayed.”

Venezuela’s housing deficit of 2 million units widened further this month when floods and landslides forced more than 25,000 families to seek refuge in government shelters. Chavez, who has put up families at the presidential palace and an expropriated shopping mall, said Dec. 3 that housing is his top priority.

Close the Deficit

The government aims to close the deficit by building 2 million homes by 2020, the president said yesterday. China’s CITIC Construction and Turkish companies he didn’t name are pledging to help in the efforts, he said.

Chavez’s homebuilding pledge is aimed at bolstering support for an expected re-election bid in 2012, said Milton Guzman, an economist at Caracas-based consultancy Fortuny, Guzman & Asociados.

“Chavez sees solving the housing issue as his ticket to winning the elections,” Guzman said in a telephone interview. “If he can be seen to be providing people with houses it would give his flagging image a significant boost.”

In September, Chavez suffered his biggest electoral setback since taking power in 1999 as opposition candidates for parliament took advantage of voter discontent with 27 percent inflation and the second year of recession to strip him of his two-third majority.

Former Paratrooper

Since the election, the 56-year-old former paratrooper has toured the country promising “dignified homes” to millions of Venezuelans who live in self-built dwellings on hillsides. Many lack amenities like drainage and are vulnerable to collapse.

“I’m putting myself at the forefront of this operation to give every family that needs it a proper house on secure land, whatever it costs,” the self-declared socialist revolutionary said Nov. 7 in comments broadcast by state television.

The same day, Chavez said he would add $1.5 billion to next year’s $480 million housing budget. On Dec. 7, after the rains, he boosted his pledge by another $931 million. To finance the construction drive, Chavez has said he’ll raise sales taxes.

Chavez is looking to reverse a drop in building that, according to the construction chamber, fell to an annual average of 44,285 homes since he came to power compared with an average 69,528 from 1990 to 1998. Housing Minister Ricardo Molina said on Oct. 28 the government aims to increase the annual average to 100,000 over the next 10 years.

Phone calls and e-mails to the Housing Ministry seeking comment weren’t returned.

Cement Industry

Chavez nationalized most of his country’s cement industry in 2008, taking over companies owned by Monterrey, Mexico-based Cemex SAB, Paris-based Lafarge SA and Jona, Switzerland-based Holcim Ltd.

In 2009, he acquired for $1.97 billion steelmaker Siderurgica del Orinoco, or Sidor based in Ciudad Guyana, from Luxembourg-based Ternium SA. On Oct. 31, Chavez ordered the forced acquisition of Caracas-based Siderurgica del Turbio SA, which produces 40 percent of the country’s steel rods, after accusing the company of overcharging for its products. The company denied the charges and said it adhered to strict price controls.

Sidor will produce 2.2 million metric tons of steel this year because of an electricity shortage that forced the government to ration energy, the company said on Dec. 13. That’s less than half the output in 2007, when production reached 4.3 million tons.

Alfredo Cohen, whose family’s Constructora Sambil CA has developed residential and commercial properties in Venezuela for over 50 years, said shortages of steel rods are “very severe.” A Sambil-built mall in Caracas that was expropriated by Chavez in 2008 is being used to house families left homeless by the rains.

“Now you have to pay in advance whereas before you got credit for 30 to 90 days,” Cohen, general manager of Sambil, said in a phone interview from company headquarters in Caracas. “They send you the materials when they have them.”

Help from Belarus

Nationwide production of steel rods declined 20 percent in September compared with a year ago, according to the central bank’s production index. Cement output fell 40 percent in the second half of 2009, according to the bank, which hasn’t published production figures for this year.

Chavez has vowed to keep nationalizing key sectors of the economy in a bid to drive down prices and increase production. He has signed bilateral deals with allies in Belarus and Iran to help solve the housing crisis.

Venezuela, which has the highest inflation rate of 78 economies tracked by Bloomberg, saw prices rise 27 percent in November from the same period a year ago. The International Monetary Fund expects Venezuela’s economy to shrink 1.3 percent this year, compared with a forecast for 5.7 percent growth in Latin America and the Caribbean.

Housing Seizures

On Oct. 31, Chavez expropriated six housing projects, saying builders were tricking customers into covering inflation costs after work was delayed. An emergency housing law being discussed in the National Assembly would grant the government powers to seize idle or underused land to build houses.

Chavez said Nov. 24 that the government will provide financing to cement companies to modernize plants and boost production. Output of steel rods and cement will have to double to meet government targets, said Gilbert Dao, the vice president of the construction chamber.

“Those companies need to reach at least a level of production we had before they began the nationalizations,” Dao said in a telephone interview.

To contact the reporter on this story: Charlie Devereux in Caracas at cdevereux3@bloomberg.net;

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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