Have you ever heard of the Dutch curse? This curse is an economic phenomenon that arises with the discovery of a large reserve of natural resources. In the case of the Netherlands, this happened in the 1960s, when there was a major discovery of natural gas. What happens is that the country begins to focus solely on extracting the resource and ends up experiencing deindustrialization and disinvestment in other areas, since the entire economy revolves around the natural resource.
Something similar could be said to have happened in Venezuela. The country, which had great potential for oil production due to its reserves, ended up becoming a hostage to them. After production began to decline due to extraction difficulties, the country had no other source of income because it ended up depending only on oil. Today, Venezuela suffers from hyperinflation and has a very devalued currency. Given this context, let's understand what happened to Venezuela, which went from being one of the richest countries in the world to having a weakened economy.
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The Oil Curse! A Vast Reserve of Natural Resources!
Interestingly, between 1950 and 1970, Venezuela was among the 5 largest economies in the world, with oil sustaining its entire economy. In addition to possessing large mineral reserves, Venezuela's oil reserves are so vast that they represent more than 15% of the global total, estimated at 300 billion barrels.
You've probably heard many authors advise against putting all your eggs in one basket, that it's important to diversify your revenue streams in case of unforeseen events, and many other similar tips. Unfortunately, when everything is going well, it's highly unlikely anyone will consider this advice. In the case of Venezuela, instead of using the financial resources from oil to build new revenue streams, investing in new factories and developing the productive sector, preparing for unexpected events, that's not what happened.
Due to periods of high oil prices, government spending increased, leading to significant expansion and indebtedness, ultimately leaving the country unprepared for what was to come. When the price of oil began to fall, the vulnerability and dependence on oil became evident. This scenario intensified over time, each time they considered immediate benefits instead of choosing sustainability for generations. Over time, the amount of production decreased, and the population ended up suffering the consequences of this choice.
How could they have avoided the economic crisis?
It's easy to point out mistakes after they've happened, but one way to prevent similar cases from occurring and mistakes from repeating themselves is by analyzing the past. The Dutch curse itself is an example showing that the export of natural resources led to the deindustrialization of manufacturing in the country. In the case of Venezuela, the country became rich so quickly and without planning for the future that the benefit ended up becoming a kind of oil curse.
Nowadays, some Middle Eastern countries whose economies are largely centered on oil have already realized this problem and are seeking to invest in other areas to diversify their economies. One example was the hiring of star players to play for national teams, seeking to increase the country's sports industry. Another is foreign investment in companies in different sectors. This is the same direction Venezuela could have followed; DIVERSIFICATION was the answer!
From this situation, you can take two insights into your life. The first is that no matter how good and perfect everything seems, there's always a chance that something unexpected will happen. After all, there's no way to know when something unexpected will happen, which is why it's unexpected. And the second is that one way to prepare is by diversifying your sources of income and investments!
