- Kimberly-Clark became latest company to pull out this month
- Goverment blames U.S.-led conspiracy and backs factory seizure
The multinationals that remained in Venezuela through more than a decade of nationalizations, dollar shortages and losses, did so with expectations that things would eventually get better in the oil-rich nation. Now, even that hardy bunch are throwing in the towel as the economy implodes.
Kimberly-Clark Corp., the maker of Kleenex and Huggies, said July 9 that it was suspending operations in the South American nation. In the previous two months, Latam Airlines Group SA, Latin America’s largest carrier, Deutsche Lufthansa AG and Grupo Aeromexico SAB all said they would stop flying to Venezuela. General Mills Inc. and Bridgestone Corp. also said they were pulling out earlier this year.
The announcements show how bad things have got in a a country that sits on the world’s largest oil reserves and was once one of wealthiest in the world. Those companies probably won’t be able to return any time soon to the nation of 30 million, and some will lose many of their assets. President Nicolas Maduro was in an unforgiving mood on Tuesday night, calling the latest companies to end or scale down operations in Venezuela “bandits” who are taking orders from the U.S. government.
“To leave Venezuela is not an easy decision because the Venezuelan market has a lot of potential,” Henkel Garcia, director of Caracas-based consultancy Econometrica, said in a telephone interview. “Many companies are operating at a loss to try and keep putting off that decision until the very end because of the importance of this market.”
Kimberly-Clark cited a “persistent deterioration” in Venezuela’s economic and business conditions for its decision to leave as inflation soars and the economy contracts.
The price of pulling out of Venezuela couldn’t be clearer.
Any factories that are “abandoned will be recovered,” Maduro said, as he backed the takeover of Kimberly-Clark’s facilities by the workers. The government promoted the same response when Clorox Co. announced it was closing its doors in 2014. That same year, Maduro warned airlines that pulled out they would not be allowed to return.
Citigroup Inc. also announced this week that it was scaling back some operations in Venezuela, ending so-called correspondent banking with the central bank and other private clients. While the company was quick to stress it was not pulling out, Maduro was equally quick to call foul. Citigroup’s decision was part of a “financial blockade,” he said.
“We are now evaluating all the legal measures against all these bandits,” Maduro said on Tuesday night, referring to both Kimberly-Clark and Citigroup. “Do you think that two companies, one industrial and another among the main financial firms, would act without receiving orders and the approval of the U.S. government?”
A spokesman for Citi said the decision wasn’t politically motivated and that the bank has taken similar action in other countries earlier this year.
Government threats are failing to keep companies operating at full capacity in Venezuela. Oil contractors have been scaling back drilling activity this year after the cash-strapped country fell more than $1 billion behind in payments, threatening production of the commodity that provides the government with 95 percent of its export revenue. Crude output fell to a 13-year low in June.
“It’s not profitable to stay anymore, and they are not foreseeing a change in the economic model in the short-term,” Garcia said. “The destruction of the productive apparatus of the economy has been going on for a long time.”
At least 52 S&P 500 companies, more than 10 percent of the total index, have warned investors about potential exposure to Venezuela’s currency so far this year, according to a search of company filings compiled by Bloomberg. Many companies have taken charges for hundreds of millions of dollars as they switch to an alternative, weaker currency rate.
PepsiCo Inc. said on July 7 that it took a $1.4 billion hit last year as it deconsolidated its operations in Venezuela in the face of ongoing currency devaluation, while Mondelez International Inc., the maker of Oreo cookies, reported a currency loss of $778 million.
The decision by Kimberly-Clark is likely to add to shortages that have gripped Venezuela for the past few years after the ruling socialists capped the price on many consumer basics below production costs. Desperate shoppers now routinely spend hours in front of stores to purchase essential products ranging from toilet paper to rice, with food riots and looting becoming increasingly frequent.
“Policies that restrict production, prices and impede the flow of materials” are pushing companies to abandon Venezuela, said Juan Pablo Olalquiaga, president of Caracas-based trade organization Conindustria. “The expropriation is another sign of how the government uses illegal measures, and will further erode confidence in the country.”