I’ve been thinking about cement. Actually I’ve been thinking about Venezuela, the NEWS, nationalizations, “guns or butter,” and international re-alignments. Last week I was once again a guest on Vheadline’s Venezuelan News Hour. In preparation for the dialogue/ discussions, I went on-line to update myself on relevant news worthy items and was literally taken a back. Like so many in the US, I had been absorbed by the coverage of the 29th Olympiad and hadn’t been doing my routine web searches to fill the gaps left by our own main stream media coverage. They have been focusing THEIR attention on Michael Phelps, Madonna, Paris Hilton, Obama, and McCain. YAWN!
You see the Chavez government was continuing on with its nationalization agenda of appropriating foreign owned/run operations in Venezuela. The target now was cement. This follows earlier “nationalizations” involving energy/ petroleum, electricity, telecommunications, media, and most recently steel. When the Chavez regime “nationalizes,” they don’t seize the operational sites, they buy-out the outside owner/ investors and then send them packing. Hugo’s team offered the Mexican owners some $600 MILLION for CEMEX, they want double that. National Guard troops took control of CEMEX plants in Maracaibo and Barquisimeto a little over a week ago. This follows on the heels of “cement take-overs” from the Swiss and the French. Just what is Chavez up to here?
There are three reasons why a government might nationalize an industry. They desire to keep the profits within the country. They want to control the output, because they have some long term projects/ agenda in mind and they want to insure they have what they need – when they need it! They also desire to control the public dissemination of information regarding production and distribution. Chavez is a sharp cookie and has yet to do anything without some master plan in mind.
Why cement? And... why now?
The cement manufacturing process requires a lot of energy because you need to “cook” the limestone to get the quicklime necessary ingredient for cement. Venezuela is blessed as one of this hemisphere’s largest mother loads of oil and gas. The just released figures for the June 2008 US energy imports still put Venezuela in number four position – at 1.085 MILLION barrels per day for crude and 1.213 MILLION barrels per day for crude and distillates. Even at $ 100 per barrel (a conservative estimate) this puts the daily cash flow from petrol sales to the US alone at well over $100 MILLION a day! Cement “nationalization” does make some limited sense from a vertical integration/ diversification perspective, but also raises negative questions about investing there.
While cement is used in residential and commercial construction to some extent, the hands down largest uses of it involve transportation and/or military applications. In economic theory this could be referred to as the “guns or butter” substitution matrix. The cement nationalization could have been driven by some long range Chavez plan to pave roads, expand railroads using concrete ties, or create concrete breakwaters in some harbor expansion agenda. Even though a preliminary agreement to build a new rail line from Caracas to Buenos Aires was just announced, I fear this cement “business” falls more under the realm of potential military applications. TH*NK about it!
The Chavez administration’s relationship with Washington has soured - a goodly portion of the blame for THAT was initiated from the DC side, but Chavez HAS strengthened his ties with the Castro brothers in Cuba, fostered a new friendship with Ahmadinejad in Iran, and cozied up to Putin and Medvedev. A recent BILLION dollar arms/munitions sale was just inked between Moscow and Caracas. This follows on top of sales from the Russians of four times that amount in recent years since Venezuela was denied access to needed replacement parts for all their US made armaments.
The placement of a missile “defense” system in Czechoslovakia and Poland has greatly angered the Russians. Are they now looking for a quid-pro-quo counterbalancing placement in Cuba, or Venezuela? Is this part of a plan “cementing” the way to an Armageddon confrontation over here? What is Chavez up to?
I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.
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This story was published on August 25, 2008.