In Venezuela, foreign companies are in survival mode

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On June 28, after nearly sixty years in the country, Avon Venezuela announced that all shares of the company had been purchased by a Venezuelan corporate group, which took over all operations and payroll to continue its activities under another brand. No more Avon products will be made in Venezuela.

But that doesn’t tell the whole story. After the rush of multinationals in 2007 that accompanied the wave of seizures and confiscations, some stayed and others who had left decided to return. Even new ones have come in recent years to invest in strategic industries.

How can this be explained in a country with no legal certainty, no respect for private or intellectual property, with an economy that has emerged from an eight-year recession, four-year hyperinflation and three monetary redenominations?

Not all transnational corporations left, at least not to the end. Large companies still operate in Venezuela, such as the soft drink company Coca Cola-FEMSA; food producers Nestlé, Kraft and Mondelez International; Procter & Gamble: and Chevron of the United States; The Spanish companies BBVA (Banco Provincial) and Telefónica (Movistar), which have been much talked about in recent days because they have recognized having tapped approximately 20% of their Venezuelan telephone lines, at the request of the Venezuelan state.

Those who left

Under Maduro’s government, 21 multinationals left, according to estimates by several business associations in Venezuela. There is no official data on the subject.

Irish paper giant Smurfit Kappa left in September 2018, after the government arrested several senior executives for “profit” and demanded the company cut prices, even if that meant selling below production costs. Kimberly-Clark, maker of facial tissue and toilet paper, was seized in 2016, renamed Cacique Maracay, and continues to manufacture paper under the Scottex brand, without the authorization of the American company. Something similar happened to Kellogg’s in 2019, whose Zucaritas brands (Frosted Flakes) and Corn Flakes were even used for chavista Propaganda.

The oil industry is something else, but there were also goodbyes, even from close friends: the Russian company Rosneft left in 2020. Of the American oil companies, the only one that remained was Chevron. Exxon, ConocoPhillips and others ended up leaving because they did not accept the terms offered by Hugo Chávez in the amended contracts. Chevron agreed to the terms and was still operating until international sanctions were imposed on PDVSA. Now the American multinational is content with a more flexible operating license than the one it currently has – which does not allow it to produce and export Venezuelan oil – in order to be able to collect the state debt. Venezuelan.

Some of the multinationals that left the country sued Venezuela in international courts, and the country lost most of those cases. The state owes around 30,000 million dollars ($30 billion), according to the estimates of lawyer Ramón Escovar Alvarado, who compiled a database for the Cedice, in which all the cases are mentioned.

Those who stayed

Other multinationals have decided to stay because stopping operations is not as simple as liquidating staff, turning off lights and rolling down rolling doors. This means sell it all or give it all up, as Clorox did; a particularly hard thing to do for brands that have built their presence in the market for decades. Also, as long as their operations are making a profit, they usually stay.

All senior executives from Procter & Gamble’s headquarters in Caracas moved to Panama more than a decade ago. Then they moved other key units to Chile and Brazil. The company’s headquarters in Caracas, where successful global brands such as Pampers and Pantene were developed, has been sold and entrepreneurs Luis Cifuentes and Carlos Aguilo are now developing an incubator for technological innovations there: the Wave Technology Center, a risky bet in a country plagued by slow internet connections, power outages and an unpredictable business environment. P&G still produces a few lines at two factories in Venezuela.

Coca-Cola – Femsa cut its workforce by 40% after a drop in demand, but it’s not gone either.

The case of BBVA Banco Provincial shows how much commercial space has shrunk in our country. When confiscations began in 2007, the financial sector was booming. In 2017, that was ancient history. Since then, the Venezuelan banking system has been reduced to its bare minimum. Spanish bank Santander managed to sell at least its subsidiary, Banco de Venezuela, to the government for $755 million in 2009. BBVA kept Provincial, a brand that has existed in Venezuela for six decades, waiting for better times.

For Telefónica, despite everything that has happened in Venezuela since 2013, the telecommunications sector had to make sense and progress on the horizon, even, due to the massification of social media and telephones in the country. “Since it was gaining ground against rival Movilnet (given that national company had collapsed) and they still had an opportunity to continue doing business, maybe that’s what made them stay,” says economist Leonardo Vera. Despite Telefónica being an important player in what was a booming domestic telecommunications market, at the end of the third quarter of 2017, Telefónica Venezuela posted revenue of €88 million, 96% less than at the same time of year booming. of 2012, when its revenues reached 2.3 billion euros. The devaluation played a big role in this collapse of the figures.

The return of the airlines

Almost all international airlines have left the country in the past eight years. Air Canada and Alitalia were the first to come out, in 2014. Then come Lufthansa, Latam, Aeromexico, Tiara, United Airlines, Avianca, Delta, American Airlines, Continental, TAP, Iberia and Air France.

But dollarization and flexibilization at this point in the pandemic, along with the fact that Venezuela will still hold a geographic advantage, are helping airports recover. The diaspora must visit their country of origin and this will generate requests for tickets. Also, companies need mobility of human resources, and this is starting to show.

In this regard, Venezuela is once again starting to look like a possibility for some companies. Now, according to the Instituto Nacional de Aeronáutica (INAC), seven international airlines operate in Venezuela (Copa from Panama; Turkish Airlines, Air Europa, Iberia and Plus Ultra from Spain; TAP Portugal; and Cubana de Aviación), and seven others will begin to do so in the next quarter. Air France could be part of it.

Copa left when the government stopped paying a multimillion-dollar debt so it could bring back its capital, but it renewed operations in Venezuela in 2018. There are also low-cost airlines working in this region of the Caribbean . With the victory of Gustavo Petro in Colombia and the forthcoming normalization of diplomatic relations with Venezuela, other air routes will certainly be activated: there are more than two million Venezuelans in this country.

“There is a window of opportunity opening there and many airlines want to recover some old routes that they considered profitable,” added the economist.

One of these routes is Caracas-Miami, due to the huge Venezuelan colony in Florida and the ties it has with Venezuela, not only family members, but also businesses. The same goes for Caracas-Madrid, Caracas-Portugal, Caracas-Caribbean. The airlines of the United States, because of the sanctions, will have a hard time.

An uncertain future

Those who stayed had to deal with market conditions. “We had to start from scratch. From selecting a portfolio to importing the products, with all the steps that entails: reconnecting with customs officers, processing health permits for each product and complying with registration requirements. In addition to taking back the shelves, regaining spaces, reaching a market that has new rules and learning to communicate with consumers with the new tools available”, said Michele Bovy, marketing manager of the multinational Unilever Venezuela. The company responsible for brands like Dove, Sedal or Pond’s has had to adapt to the dramatic changes in purchasing power, but since January 2021 it has seen an increase of 40% and 45%, with measures such as the use smaller packages. Sedal shampoos, for example, are now sold in 200 ml bottles, instead of the classic 340 ml.

The minimum wage announced by the executive this year for Venezuelan workers is $30 per month, and for private industry, base salaries range between $70 and $100 per month on average. But the multinationals are trying to retain their human capital by equalizing the salaries of their staff with those of the rest of the region.

Tighter foreign exchange controls in 2013 and subsequent shortages hit all businesses, while GDP fell by 80%. Many multinationals have gone into “survival mode”, like most Venezuelans, operating at minimal capacity without abandoning the market, financing themselves with operations abroad. “Now they are in a different situation, after taking this beating they are facing a very slow transition with a very anemic recovery. With only the hope that Venezuela can enter a more stable recovery process in the years to come,” says Vera.

However, from the economist’s point of view, the scenario is still negative. Laws issued by the National Assembly and the executive, such as the Ley Antibloqueo (anti-blockade law), are not enough to attract quality foreign investment. “The only investment that could enter Venezuela is that which is brought by the executive through bilateral agreements from allied countries, such as Turkey, Iran, etc. And sometimes, these are companies whose experience and quality of service are unknown to us. It’s not really the best investment we could receive.

In other words, as Venezuela continues to be economically and financially isolated, it will be very difficult for it to become a hub for international investment, as it has been in the past.

“Transnational companies bet on the long term. If there is a war or there is legal uncertainty, if there are no laws, if they kill me, if they threaten or imprison my employees, if I cannot profit, because I am forced to sell at a loss, they won does not remain either. With some exceptions. And maybe these exceptions will last for a while, but they won’t last forever. So when it no longer makes sense for shareholders to stay, they will also leave,” says the former vice president of a company that no longer operates in Venezuela who asked to remain anonymous.

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