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The Real Venezuela

Article Author
James Marrison
Publish Date
February 1, 2011
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Author: 
James Marrison

With mile upon mile of beaches, unspoiled colonial towns and vast stretches of rainforest, Venezuela is one of the most stunning countries in Latin America. And with the sixth largest oil reserves in the world along with sizeable reserves of coal, gas and iron ore, Venezuela, in terms of its natural resources, is also one of the richest.

While tourist numbers have dipped during the global economic crisis, Venezuela is still a very popular destination for tourists—especially for Americans and Colombians. Located near the Caribbean Sea and home to over 4 million people, Caracas is not only the cultural center of the nation, but it also serves as the ideal gateway to the island of Margarita as well as innumerable resorts dotted along the coast. More than a quarter of a million tourists will visit the island of Margarita in December alone and all told (including the number of locals who holiday at home) 42 million people travel to Venezuelan tourist destinations each year. 

On first glance, Venezuela would seem like an ideal location for a number of high-end casinos in five-star hotels, which would add to the many attractions already on offer and help promote tourism. In fact, according to current legislation, that is exactly what there should be. Unfortunately, the reality is very different.

 

Gaming Law in Venezuela

On July 23, 1997, the Venezuelan Parliament passed “The Regulation of Casinos, Bingo and Slot Machine Law,” which permitted casinos in five-star hotels with a minimum of 200 rooms. Bingo halls with slot machines would be permitted in three-, four- and five-star hotels as well as other facilities authorized by a newly established gaming control board.

There was no limit on the number of casinos that would be permitted in Venezuela, nor was there a cap on the amount of foreign investment. Casinos, along with other gaming establishments, would only be permitted in tourist zones and only then after a local referendum was carried out to see if the local population was in favor. 

According to the exact wording of the Venezuelan 1997 gaming law:

 

“Casinos and bingo halls and slot machine parlors must be located in geographic zones which have been previously declared tourist zones ... For the authorization of such establishments the National Executive will request the Supreme Electoral Advisory to carry out a referendum in which the inhabitants will decide on whether they are in agreement or not with the location of installations in their locality. The result of the referendums will be binding if it is negative.”

The law very clearly places casinos and gaming establishments in key tourist zones nationwide and only then with the consent of the local populations. It was believed that once the act was passed, the many casinos and slot parlors already dotted around the country (the majority of which were not part of five-star hotels) would have to close. It was hoped also that the new casinos operating in a more clearly regulated environment would not only meet demand from foreigners visiting Venezuela, but also from Venezuelans enjoying their vacation.

However, more than 10 years after the gaming act was passed there are still a great number of stand-alone slot parlors and casinos dotted all over the country, especially in Caracas (many of which advertise themselves as bingo halls). This is because the law in many cases has simply been ignored and the gaming control board has not had the necessary resources to curb illegal gambling, which according to some estimates accounts for over 80 percent of all bets made. At the same time, in most cases when a casino or slot parlor has fallen under the scrutiny of the gaming control board, it has been able to remain open due to individual stays of closure granted by local courts or by the local municipalities where they are located. 

According to local newspaper EL Universal in the city of Caracas, of the 20 casinos now operating there is just one casino that opened after a referendum, and even that casino is not located in an officially recognized tourist zone. This is despite the fact that the Venezuelan government launched a renewed assault on illegal gaming in 2005. 

Originally, the gaming control board was controlled by the Ministry of Finance, but in an amendment to the gaming law in 2005, the gaming control board was placed under the jurisdiction of the Ministry of Tourism, which was given more power to inspect and close down illegal slot parlors and casinos. Almost immediately the Ministry of Tourism launched a nationwide crackdown on illegal gaming called “Zero Illegal Gaming” along with security forces and the tax department. 

Although many illegal slot parlors were closed and slot machines confiscated, illegal gaming still continued to thrive. In October of last year, the gaming control board was moved once again by presidential decree, and gaming is now overseen by the Ministry of Interior Relations and Justice—a government department that is charged with coordinating and evaluating policy that affects security, order and crime prevention. According to the act, this is due to the fact that casinos and gaming are easily infiltrated by organized crime. 

 

Current Economic Woes and Hugo Chavez

In 1999, Hugo Chavez, socialist leader and self proclaimed head of the “Bolivarian Revolution,” was elected president. Chavez has declared himself ideologically opposed to casinos and did little to encourage foreign investment.

Venezuela’s economy traditionally depends on oil with 95 percent of Venezuela’s revenue coming from oil exports. Today, the country remains in recession after last year’s slump in oil prices. The recession (which Chavez has publicly blamed on the forces of a global capitalist conspiracy) continued in the first quarter of this year when the economy shrunk by 5.8 percent compared to the previous year. While Venezuela tries to drag itself out of the current slump, today it is the worst performing economy in South America.

In May, annual inflation rates reached 30 percent—the highest in the entire region. With prices rising fast—especially for food and energy—Chavez, with his anti-American rhetoric and sustained attack on capital, has also seized foreign-owned assets such as oil fields and factories as part of his socialist revolution. According to recent estimates, Chavez has confiscated 120 private companies for the state—most of them oil companies.

In January, Chavez, claiming that they were guilty of hiking prices, took control of Colombian/French-owned hypermarket chain Exito with the help of armed troops. Then, after the Parliamentary elections in September when Chavez’s United Socialist Party lost its two-thirds majority, Chavez vowed to step up the pace of his socialist revolution. Chavez, who will seek a third six-year term as president in 2012, announced that he would nationalize land and cattle owned by the British-owned Vestey Foods Group.  

It is hardly surprising, then, that foreign operators are loath to invest in Venezuela. Casinos Austria International, for instance (one of the largest casino operators in the world), pulled out of the Island of Margarita when it sold its interests in Casino Laguna de Mar to its business partners in Venezuela in 2004. Furthermore, Chavez’s stance on gaming has become increasingly hostile.

In 2007, Hugo Chavez banned the importation of slot machines. In the same year he announced that he and his cabinet would take “all the measures necessary to eliminate places of prostitution, drug dealing, casinos and bingos—which are often visited by people belonging to the higher classes.” And in the same year, he and his cabinet announced major tax hikes for all sectors in the industry. In his most recent act in regards to gaming, this year the gaming control board was ordered not to renew or grant any more licences for six months.

That said, Chavez does not seek to ban casinos altogether. Rather, he has focused on the proliferation of illegal slot parlors and casinos, and the latest act still allows for the opening of casinos as long as they are in accordance with the 1997 act and are located in tourist zones.

However, despite the efforts of his administration, illegal gaming continues to thrive, and for the time being it is impossible for legitimate casinos to compete on a level playing field as gaming law in Venezuela is still being simply ignored. It is unfortunate as Venezuela is a potentially very lucrative market. Home to more than 27 million people, Venezuela is the wealthiest country per capita in South America. Furthermore, studies have found that Venezuelans are keen gamblers, especially on lotteries. An estimated 6 million Venezuelans play the lottery every day with 32 separate draws running daily.

The good news is that the Chavez administration seems committed to stamping out illegal gaming. But even in the unlikely event that Hugo Chavez manages to wipe out illegal gambling altogether, an operator would perhaps be ill advised to apply for a license as there is little or no guarantee of foreign investment under the present administration. 

Now, without his two-thirds majority in the Parliament for the first time, there is evidence to suggest that Venezuelans are turning away from Chavez in increasing numbers, and much depends on the upcoming presidential elections in 2011. But for gaming to be viable, any administration, old or new, has to tackle illegal gaming head on and finally put into effect the original 1997 gaming act.

 

James Marrison has been covering the casino industry in Latin America for over seven years and has written in-depth features on every country in the region. Marrison has worked as a research contributor for Global Betting and Gaming Consultants and serves as a consultant for industry professionals for the Gerson Lehrman Group. Marrison is also a researcher into the online gaming markets in Europe.

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