Surging Crime Under Chavez Fuels Venezuela Armored Car Boom

Luis Fuenmayor, a Caracas-based airline pilot, said he never considered armoring his Chevrolet Tahoe because of the $28,000 price tag. He changed his mind when two armed motorcyclists robbed him of his watch in traffic.

“It seemed expensive at first, but then I realized that, more than an investment, it’s a necessary cost,” Fuenmayor, 50, said in an interview. While the protection gives a greater sense of security, it isn’t a “panacea,” he said.

Since President Hugo Chavez took power in 1999, Venezuela has seen a near tripling in homicides, allowing the country to overtake Colombia as South America’s murder capital in the most- recent United Nations study of global crime trends. That spells brisk business for security firms, which are adding middle-class Venezuelans to their traditional corporate clients, according to Ingrid Suarez, manager at armored-car company Blindcorp. The number of businesses in Caracas that prepare vehicles against attack has swelled to about 47 from 12 five years ago, she said.

The rise in violent crime reflects a broader breakdown in the rule of law. Criminals, many involved in the nation’s burgeoning drug trade, operate with “complete impunity,” said Roberto Briceno, who heads the Venezuelan Violence Observatory, a Caracas-based group that tracks crime.

The country’s justice system is beset by corruption and political interference, making it the least accountable in a ranking of 66 nations published this month by the World Justice Project, a Washington-based group supported by jurists and businesses that seek to strengthen the rule of law globally.

Murder Rate

Homicides nationwide rose to 17,600 last year from 16,047 in 2009 and 5,968 in 1999, according to the Venezuelan Violence Observatory. That took the country’s murder rate to 57 per 100,000 inhabitants from 25 in 1999. Chavez’s government put the number lower, though still above the Latin American average. In the U.S., the murder rate was 5 per 100,000 in 2009.

Among the companies profiting from the crime spree is Liege, Belgium-based Carat Security Group, the world’s largest commercial armored vehicle provider, according to its website. Carat’s Centigon Venezuela unit bulletproofs about 20 privately owned vehicles each month, said Eduardo Ibarra, the unit’s managing director.

That’s more business than Carat does in Brazil, where the population is over six times Venezuela’s 29 million, Ibarra said. Venezuela has now surpassed guerrilla-plagued Colombia as the company’s most-profitable in Latin America, he said.

“Our business here hasn’t stopped growing since we entered in 2002,” said Ibarra.

Business Costs

The proliferation of crime adds to the difficulties of doing business in a country where companies must contend with currency controls, frequent blackouts and an inflation rate that at 22.8 percent in May was the highest among 78 economies tracked by Bloomberg.

“When you start a business in Venezuela, a significant part of your costs are in security, costs that you have to incorporate into prices,” said Victor Maldonado, president of the Caracas Chamber of Commerce. “We are less competitive because we have so much crime.”

Chavez, 56, devalued the bolivar for the second time in a year on Jan. 1 by 40 percent, eliminating the preferential exchange rate for so-called essential goods such as food and medicine.

The extra yield investors demand to buy Venezuelan government bonds instead of U.S. Treasuries narrowed 30 basis points to 1,151 today, the most of any developing nation in JPMorgan Chase & Co.’s EMBI+ index.

The fear of becoming a victim of violence runs deep. The Country Club, a golf club in Caracas, held a Father’s Day raffle June 19 that awarded a prize of an armoring service. Tickets cost 250 bolivars, or $58 at the official exchange rate.

Public Concern

Surveys show crime has been the biggest concern for Venezuelans seven years running and was the main reason given by wealthy citizens for wanting to leave the country, according to Luis Vicente Leon, head of Caracas-based pollster Datanalisis.

“Those who have left did so because of crime,” Leon said in an interview. “Going through a kidnapping or robbery is the difference between wanting to emigrate and acting on it.”

Venezuela was given the maximum score of five in FTI Consulting’s Latin Security Index for 2010, which measures security for businesses, meaning it is a “very dangerous country,” according to the Baltimore-based consulting company. Venezuela was considered the region’s most dangerous nation after Haiti, and was designated with a red light meaning that crime is getting worse.

“Venezuela looks like Colombia 10 years ago,” Frank Holder, FTI’s chairman for Latin America, said in a phone interview from Miami. “They switched places.”

Kidnappings in Colombia, which has a population of 44 million, plummeted to 282 in 2010 from 2,882 in 2002, when then- President Alvaro Uribe began a U.S.-backed crackdown on drug- financed guerrilla groups. Last year, Colombia reported 15,459 homicides and a murder rate of 34 per 100,000 people.

Government Response

Chavez’s government disputes the private estimates by the Venezuelan Violence Observatory, though it hasn’t published official crime figures since 2005, Briceno said.

Interior and Justice Minister Tarek El Aissami told lawmakers Feb. 8 that the nation’s homicide rate was 48 per 100,000 in 2010. While recognizing that crime in Venezuela is above the Latin American average, El Aissami cited an increase in spending on security programs as proof that the government is taking the public’s concerns seriously.

Vice President Elias Jaua said that the number of kidnappings in the country fell 39 percent to 174 in the first quarter of this year. “We are on the right path to reducing crime,” Jaua said May 30 in comments transmitted by state TV.

A UN report published last year found the country’s murder rate of 47 per 100,000 inhabitants in 2008 was the fourth- highest in the world, behind Honduras, Jamaica and El Salvador.

Rental Business

For those who don’t have their own armored vehicle, companies such as Alquiblind.com hire them out. The Caracas- based company has had a boom in its service for party-going teenagers, said owner Luis Esclusa.

“We transport the father to drop off and pick up his child from the party,” Esclusa, 39, said in an interview. “And we keep a security guard at the site to protect against kidnappings.”

The price of the service is about 2,700 bolivars ($628), said Esclusa.

German Garcia Velutini, head of Caracas-based Vencred brokerage, didn’t invest in personal security until after he was kidnapped as he left his office in January 2009 and held for ransom for 11 months. Now, he’s armored all of his family’s vehicles and hired bodyguards.

“Before, I was worried about my children crashing their cars,” Velutini said in an interview. “Now the risk is that they’ll be robbed or kidnapped.”

To contact the reporters on this story: Corina Pons in Caracas at crpons@bloomberg.net; Jose Orozco in Caracas at jorozco8@bloomberg.net

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

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