“CRISIS IN THE VENEZUELAN MALLS INDUSTRY”

By Mario Castro F., CRX, CSM, CMD, CLS, CDP

February 6^th, 2014

 Caracas. On November 29, 2013, the socialistic Venezuelan government dictate the Emergency Decree 602 with the intention of regulating the Shopping Centers industry and looking to lowering Merchants Occupancy Costs so these will lower the price of their products and services to the population.

Decree 602 focused on four main pillars of the industry endangering its very existence, as we know it in Venezuela, since the last fifteen years. The regulations of Decree 602 established in its essential part:

a) A maximum fixed lease rent at Bs.250 /m2/month (USD$22/m2/month at the official rate or USD$2,94 at the free market rate)

b) Ban percentage of sales as a variable lease rent freely subscribed between Malls and retailers

c) Maximum common expenses as 25% of the maximum fixed lease rent

d) Ban of fines payment for breaches of rules and regulations

Clearly, observing Decree 602 makes shopping centers industry unsustainable, as we know it for the last fifteen years, because:

a) Destroy and precludes the formation of national capital, which has allowed huge investments in the fifteen years of development of this industry with significant public housing complexes built in the major cities of Venezuela.

b) Puts a straitjacket on the essence of the business partnership between merchants and owners of the centers, who share the risks with the sales volumes they can achieve based on the services provided to the community.

c) It precludes the daily operation of shopping centers to set common expenses well below those necessary to maintain the level and quality of service, as we know it for fifteen years.

d) Create anarchy in daily business operations by prohibiting the application of fines for breaches of rules and regulations that are the basis of security and quality of services provided by Malls to their communities.

The effects of Decree 602 are already being seeing and in the coming days will be increasingly notorious for these reasons. Moreover, we do not refer to the very issue of retail, now with controlled prices and enormous difficulties to replenish inventories in the current legal context. It is an aggravating of the situation of Shopping Centers beginning to look their professional associates retailers base, who have they have built with so much effort, it is been diluted and disappears.

Compounding the situation furthermore, on January 23, 2014, the Venezuelan socialistic government, protected by the Enabling Act granted powers to legislate on economic matters to the President, issued Organic and Fair Prices Act (LOPJ). The Act sets out regulations for the prices of ALL goods and services and include penalties, fines, closures, interventions, expropriation, confiscation, imprisonment, and disqualification for directors, executives and employees of companies that violate its provisions.

The LOPJ creates enormous legal uncertainty alone, in addition to the violation of clear provisions of the Constitution, to make it a clearly unconstitutional and legally unsafely instrument that will be subject to the protest of citizenship. The LOPJ states: "Section 7. Declare and therefore are of public utility and social interest, ALL goods and services required for the activities of production, manufacture, import, storage, transport, distribution and marketing of goods and services .“, making this expropriated and forfeitable at government will.” Any official of government is responsible for the implementation of the Law.

The spirit of the implementation of the LOPJ has already been demonstrated when the rector, Mrs. Tarazón, of the body set up to coordinate implementation of the law, SUNDDE for short, insulted, offended and assaulted the maximum business executives body of the country, FEDECÁMARAS, when these apply for protection  before the Supreme Court, comparing them with war criminals.

There seems to be no spirit of understanding, dialogue or negotiation by the regime to reach a balance that allows private enterprise to carry out activities for the benefit of the population, with the return on investment logic for taking risk and compensation of the amount invested.

Either way, is compromised the sustainability of the Malls industry in Venezuela, in addition to the existence of private enterprise and constitutional individuals freedom rights.