US businesses getting hammered by Venezuela crisis

Monday, April 24, 2017    

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WASHINGTON, DC, United States (AFP) — The political and economic crisis in Venezuela is costing US companies dearly, as General Motors can attest following the unexpected nationalisation of its plant there.

The big auto-maker shut down its operations in Venezuela and laid off its 2,700 workers after the Government last Wednesday seized the plant, which had been idle because of the chaotic market environment. The group had been operating in the South American country for 69 years.

GM isn’t the only US business to be walloped by Venezuela’s crisis.

Kimberly-Clark, a personal-care paper group, had its factory taken over last July, and posted a charge of US$153 million to deconsolidate its Venezuela operations.

Biscuit-maker Mondelez — behind America’s well-known Oreo brand — also took a one-time charge of US$778 million to reconfigure its Venezuela operations as an investment in its accounts, to prevent them dragging the group’s earnings down. Although Mondelez products still sell in Venezuela, it’s unable to track sales.

Same story for Pepsi, which reported a US$1.4-billion loss last October from its Venezuela business.

The conditions in Venezuela are a formidable challenge for any company, with hyperinflation, capital controls, political turbulence, mass demonstrations and consumers who have barely enough money to buy food and basic items.

The country was once considered one of the juiciest markets for US businesses, boasting the biggest oil reserves in the world, a free-spending middle class with a taste for American products, and proximity.

But a slump in global crude prices coupled with mismanagement have devastated the country’s economy.

And nearly two decades of socialist rule by late president Hugo Chavez and his successor Nicolas Maduro have badly frayed ties with the US, which has halved the amount of Venezuelan oil it imports.

Venezuelan authorities regularly accuse Washington of being behind the unrest they are dealing with.

US Secretary of State Rex Tillerson is in an uncomfortable position, having been the boss of American oil giant ExxonMobil before becoming President Donald Trump’s diplomatic chief.

In 2014 the Venezuelan Government was ordered by a World Bank disputes tribunal to pay ExxonMobil US$1.4 billion for nationalising an oil field. But that ruling was overturned on appeal in March this year to the World Bank’s International Center for Settlement of Investment Disputes.

ExxonMobil also plans to drill for oil in an offshore field in a zone that both Guyana and neighbouring Venezuela lay claim to. The find is a source of friction between the two countries since 2015.

Another point of contention between Venezuela and the United States is Citgo, a network of gas stations in America owned by Venezuela’s State oil company PDVSA.

US lawmakers, especially former Republican presidential candidates Marco Rubio and Ted Cruz, have expressed concerns that the Russian oil company Rosneft might end up owning Citgo, which is based in Houston, Texas.

That stems from the fact that PDVSA put Citgo up as collateral for a corporate bond issue in December that Rosneft underwrote. If PDVSA defaults, Rosneft could demand Citgo as compensation.

“We are extremely concerned that Rosneft’s control of a major US energy supplier could pose a grave threat to American energy security, impact the flow and price of gasoline for American consumers, and expose critical US infrastructure to national security threats,” Rubio, Cruz and four other senators wrote in an April 10 letter to US Treasury Secretary Steven Mnuchin.

According to Matthew Taylor, an expert on Latin America at the Center for Foreign Relations in Washington, the Trump Administrations policies towards the Venezuelan crisis seem to be the same as those of predecessor Barack Obama.

“The United States has imposed targeted sanctions against individual Venezuelans, including Vice-President (Tareck) El-Aissami, but has wisely avoided the temptation to more directly and unilaterally confront the regime, allowing Latin America to lead,” he said in a blog.

“But patience is wearing thin in Washington.”





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