The short-term outlook for the Venezuelan consumer electronics market is weak, with currency weakness, and economic, political and security risks weighing on purchasing power and consumer confidence. As a result, BMI forecasts a contraction in the consumer electronics market in 2014, with all three market segments affected. However, the medium-term outlook is stronger, with vendors having opportunities as a result of low device penetration in key categories as the economic and political backdrop improves. Furthermore, the ascension to full membership in the Mercosur trading bloc in July 2012 is another bright spots for local and foreign companies operating in the country. This potentially opens up new opportunities in markets such as Brazil, Argentina and Uruguay, which Venezuelan companies can export consumer electronics products to, in order to boost growth. This is evident in the business strategies of Samsung, with its joint venture with the government, as well as VIT and Vtelca.
Headline Expenditure Projections
- Computer Hardware Sales: US$1.09bn in 2013 to US$984mn in 2014, -9.7% in US dollar terms. Forecast downgraded last quarter in the wake of the devaluation of the bolivar and domestic economic and security risks.
- AV Sales: US$1.10bn in 2013 to US$1.0bn in 2014, -8.4% in US dollar terms. Forecast in US dollar terms downgraded, with demand for flat-panel TV sets hit by currency weakness.
- Handset Sales: US$1.38bn in 2013 to US$1.36bn in 2014, -2.1% in US dollar terms. Forecast in US dollar terms downgraded, but strength of local manufacturing in handsets and operator subsidies will help to absorb some of the impact of devaluation, resulting in stronger performance compared with the other consumer electronics segments.
Key Trends & Developments
The consumer electronics production base in Venezuela has been developing rapidly in recent years, with the government targeting it as a key sector for wider development. Additionally, import restrictions and, most recently, currency devaluation have boosted domestic device sales as a share of the total by raising the cost of imported products. This development has given producers the confidence to move into new product areas and, in June 2013, President Nicolas Maduro presented one of three tablets produced by VIT. The Vergatario tablet follows on from the production of the Vergatario phone, which was aimed at making handsets affordable to the mass market in Venezuela. However, with the price of the tablets listed on the VIT website, BMI believes the tablets are unlikely to make an immediate impact on the market, particularly at a time of economic and political instability.
In order to lessen the impact of government policies and tap into the large domestic market international vendors have been adapting strategies. For instance, Samsung has signed an agreement with the Venezuelan government to establish a factory in the country to produce appliances, TV sets and mobile phones. The agreement is an extension to the joint venture (JV) and strategic alliance signed between the two during December 2012 and will include the capacity to export the manufactured goods. The JV is 51% owned by the Venezuelan state and 49% by the Samsung company, and was designed to produce goods for the domestic market and export across South America.