Two malls tell a tale of Venezuelan capital flight

When Hugo Chávez ordered the government to take over a nearly finished shopping center in central Caracas in late 2008, he told a cheering crowd that the mall would be better used as a hospital, a school, or a university.

“No, no and no!” he said of the luxurious Sambil mall slated to open in the Candelaria neighborhood.

Before a single product was sold, the mall became one of the more than 1,000 businesses and properties Chávez expropriated during his 14 years as president.

Four and a half years later, the mall-that-wasn’t takes up an entire city block. It’s cordoned off from the public for most of the year. Since the seizure, its parking garage has seen service as a makeshift shelter for Venezuelans who have lost their homes to flooding. Designed to uplift a decaying neighborhood, its brick and granite façades are covered by a mosaic of murals marred with graffiti and campaign slogans.

Compare that to a $200-million sister mall in the Dominican Republic — built by the same Venezuelan developer, Sambil.

When it opened earlier this year off a busy highway in the capital of Santo Domingo, President Danilo Medina cut the ribbon. With a 16,000-square-foot indoor aquarium, a grocery store, movie theater and 325 shops, this Sambil mall is thriving.

The stark contrast between the two malls provides a window into the lasting effects of Chávez’s populist-driven relationship with Venezuela’s private sector.

Chávez, who died in March, antagonized private businesses, especially small and medium-sized enterprises, spurring them to take their money elsewhere — leaving Venezuela struggling to attract investment to fix its crumbling infrastructure.

Not only has money failed to come in, but Barclays Capital, an international investment bank, estimates companies have taken some $150 billion out of the country since currency exchange controls were instituted a decade ago. In part, they were supposed to prevent capital flight. An average of $20 billion a year has been sent abroad over the past five years.

Chavez’s successor, Nicolás Maduro, is now picking up the pieces of the government’s broken relationship with the private sector.

Faced with a polarized country and stumbling economy, Maduro recently met in private with prominent business leaders, raising hopes he might be willing to work with those who Chávez alienated.

Economists said a fresh round of investment could help stock the shelves of stores that have sporadic shortages of products as basic as toilet paper, milk and sugar.

And without the investment, they say, the government is unlikely to stem rampant inflation, now at nearly 43 percent.

“There have been many meetings and announcements, but there has yet to be any substantial changes,” said Alejandro Arreaza, an economist with Barclays Capital.

Legacy of Chavez

Chávez’s policies drastically reduced poverty by providing housing, education and pensions to the poor. But in the process, he chased away private businesses, despite instituting measures to try to keep their investments from flowing abroad.

As the government’s relationship with private industry deteriorated, Chávez increasingly turned to expropriations as a means to achieve his goals. Many expropriations took place after a business refused to go along with Chávez’s policies, such as price regulations.

“The government then had a decision to make: bow to private pressure or give the price regulations teeth by expropriating those who refuse to follow them,” albeit with compensation, said George Ciccarielo-Maher, a Drexel University professor and author of We Created Chavez. “In every case it’s a question of negotiation between social demands and market demands, private profit and public good.”

As Venezuelans pulled their money out of their home country, the Dominican Republic counted itself among the many beneficiaries. Through the years, South Florida with a population of more than 70,000 Venezuelans also has reaped the benefits of capital and know-how from Venezuela.

In recent years, Venezuelan investments have changed Santo Domingo’s skyline, planting an office tower with an art house movie theater below, hotels, and a shopping mall replete with Cartier and Louis Vuitton shops.

Outside the capital, Venezuelans built a $120 million golf resort and an oceanfront residential development with an artificial island.

“As painful as it has been for many Venezuelans to leave the country, there has also been a veritable growth of businessmen abroad," said Moises Bittan, director of a Caracas-based consultancy, Finantop, which advises business on how to expand abroad.

In recent years Venezuelan companies have invested $920 million in the Dominican Republic, according to the Dominican Republic Export and Investment Center.

Forbes magazine ranks Gustavo Cisneros as Venezuela’s richest man. But now Cisneros, who is also a shareholder in the Sambil company, holds Dominican citizenship and his daughter, Adriana — recently named chief executive of the Cisneros Group — is overseeing development of an enormous tourist development in the untouched rural northeast of the Dominican Republic.

Although the Cisneros Group still has substantial holdings in Venezuela, it moved its operational headquarters to Coral Gables in 2000.

Sambil success

In the Dominican Republic, few projects have been as visible as the Sambil mall, the country’s largest shopping center.

Shoppers filter past vintage sports cars that line the hallways. The aquarium, offering starfish petting tanks, draws a long line of gawkers.

“We get people from all over the country to visit. It’s an experience,” said Alexis Hernandez, the Sambil executive who is managing the mall’s opening.

Hernandez acknowledged Chávez’s expropriation of the Candelaria mall in Caracas, but said it had not affected the company’s investment strategy. The company declined to say whether it had received compensation for the Venezuelan mall.

“As a company, we felt that it was time to use our experience and success in Venezuela to branch out,” he said.

The company has seven malls in Venezuela, including a popular shopping center in Caracas. It is also building a mall in Curaçao in the southern Caribbean.

“We continue to look for opportunities to expand in Venezuela,” Hernandez said.

However, in private discussions with U.S. officials in Venezuela, company officials expressed their dismay over the government’s handling of the Candelaria mall.

A 2009 diplomatic cable released by WikiLeaks, stated the principal owners of the company, the Cohen family, were “ready to negotiate, to give the government what it wants … but no one will talk to them,’” a lawyer who represents the family said, according to the cable.

The diplomat who wrote the cable added, “The Cohens were losing money because of the delay … and planned to concentrate new investment outside Venezuela.”

At that point Chavez had already expropriated several other properties, and the Sambil seizure became a tipping point, business leaders said.

“It accelerated the rhythm [at which companies] internationalized,” Bittan said.

Makeshift Shelter

Closed most of the year, the Candelaria mall recently opened for a temporary scholastic fair. Shoppers could buy everything from government-subsidized school clothes to a backpack featuring Chávez’s smiling face.

But the site is better known for its parking garage.

Since 2010, the garage has served as a makeshift shelter for hundreds of Venezuelans who lost their homes to floods. Many families have since been relocated as part of Chávez’s signature housing program, Gran Misión Vivienda, but locals say as many as 500 still live there.

Jerardo Canavire, 28, a motorbike taxi operator who lived for six months in the shelter, said that inside the garage, the government “provides everything for you — even the shampoo.”

Outside, dozens of DIRECTV dishes are fixed to garage walls. Faded presidential posters dangle from the building’s upper levels, a reminder of the government’s promise to provide new homes.

Iron bars and young guards separate the makeshift refuge from curious visitors and the press.

“We’re all revolutionaries here,” said a slight Jose Valera, 21, while manning the gate. Valera said residents like him, who make up a Marxist vigilante group who call themselves Colectivo Catedral Combativa and wear black shirts with Che Guevara insignias, provide security free of charge.

“It’s what Chávez would have wanted,” he said.

Ezra Fieser reported from Santo Domingo and Andrew Rosati from Caracas.