What could you do with 5 billion dollars?

April 28, 2008

You can’t help but be awed by the growth of China in the last three decades. I was here twenty-two years ago and the changes are simply staggering. You hear and read mostly about the great modern infrastructure projects of China, such as the building of a whole city of modern skyscrapers in the Pudong region of Shanghai, which now has more tall buildings that New York, or the Three Gorge Dam project, where I am today. But the basic infrastructure is what has impressed me more.


In small towns like Guilin in the South, right north of Vietnam, or in Yichang along the Yangtze River, cities you may have never heard of, the highways, schools, buildings and airports have nothing to envy the best and now old infrastructure of Venezuela. In fact, it is us that should envy that infrastructure, each and every one of the airports, for example, was as modern as the Maiquetia airport. And secondary highways near the small cities I mentioned are in better shape and better maintained that Venezuela’s main highway, the Autopista Regional del Centro.


All of this infrastructure requires planning and money. What is perhaps most interesting about the planning part is that in many cases, these highways were the first things to go in, even before housing was built. Of course, by now the Chinese have lots of experience in large scale planning such as the relocating of 1.4 million inhabitants along the Yangtze River or moving a few million people from the old residential areas of Shanghai to new housing.


Which leads me to the initial question of this post: What could you do with US$ 5 billion in Venezuela, if you spent it in infrastructure projects. The question comes up, because that is precisely the amount President Chavez will be spending on buying out the cement companies and steel company Sidor.  It is not a moot question, the nationalization of these well functioning companies is being done at the expense of using the funds in new infrastructure to benefit the population, rather than power grabbing, ideological projects with no added value to the “people”.


Let’s take for example housing. Chavez has been in power nine years and in not one of them has he been able to match the lowest number achieved by the Caldera II administration in any year, despite the much lower income of those lean years.


A small apartment 80 squared meters is sold on Venezuela for Bs. 60 million. This is roughly US$ 28,000 at the official rate of exchange, which is the only one the Government recognizes. Thus, with US$ 5 billion, if you spent it all on housing, you could build 185,000 apartments, which is probably an underestimate, given that the Government would not have to buy the land to build them and I am likely overestimating the cost, since my assumptions give you a cost per square meter 350 dollars per squared meter, which is high for low income housing. But in any case, the Chavez administration has yet to exceed half that number in any given year.


Or take hospitals. I don’t know what a hospital costs, but I know somebody building a hotel In Caracas told me that each room costs US$ 4,500 per square meter, including all costs.  So, suppose we build a 200-bed hospital with 6×4 meter two bedroom rooms. This means that you have to spend some US$ 21.6 million for the rooms. Since it is a hospital and you need equipment like surgery rooms, MRI and the like, I will throw in another US$ 20 million for the rest of the infrastructure or US$ 41.6 million per 200 bed hospital. Which means you could build at least 120 200 bed hospitals with this money. Quite a few for a Government that can’t even maintain the existing ones, let alone having built a single one in nine years. (Even failed Presidential candidate Rosales has built a couple)


I am on a boat in the Yangtze, there is actually an Internet connection, but it is less than modem speed, so I don’t know how much it would cost to build a mile of highway, but maybe some reader can enlighten us.


In any case, the point is that you could do so much with US$ 5 billion for the people. The Chinese with all the quirks of their system that I am still trying to digest have proven it over and over, as I see town after town that has been built from scratch along the shores of this magnificent river. But they have also understood the power of free enterprise and markets and how when you combine the two, everything investment gets magnified for the benefit of the people.


Just the opposite of what Chavez believes in.


But in the end it takes more than money to get things done. You need money, but also management capability and the ability to dream, not dream fantasies of power and grand epic gestures, but real concrete accomplishments for the people.


As I saw the Three Gorges Dam this morning, a US$ 25 billion project, I was reminded that Venezuela has the Guri dam, the fourth largest dam in the world, finished 38 years ago. Guri was conceived, designed and completely built by year 22nd. of the now much maligned and despised Fourth Republic. At the rate we are going, one day that Republic’s revindication will be absolute.

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