By Nicole Encalada, International Business Writer
As Venezuela’s economy continues to be riddled with hyper-inflation and shortages of food and basic necessities, a number of multinational firms have decided to either scale back operations or shut down their operations completely in the South American country.
Companies including Kimberly-Clark Corp., Bridgestone Corp, and General Mills Inc. have announced that they will halt operations in the country. These decisions came about amidst the severe economic downturn that the country is currently facing.
While General Mills decided to sell its operations for a discount, receiving only half of the company’s book value, other companies such as Kimberly-Clark cut their losses and simply abandoned operations. The company stated Venezuela’s economic state, soaring inflation, and its inability to obtain enough raw materials as its rationale for retrenching their operations.
Nicolas Maduro, the President of Venezuela, commented on the situation. “Forty-eight hours ago, without notice, a U.S. company called Kimberly-Clark, violating national laws and the constitution, fired almost 1,000 workers from its production plant, closed the door and left the country”.
Even Citigroup has recently announced its plans to withdraw operations in the country which also did not sit well with President Maduro. Citigroup’s plan in Venezuela is to end correspondent banking with the central bank and private clients. While the company did ensure that they would not leave completely, the nation’s president regarded the situation as a “financial blockade”.
According to Bloomberg, Venezuela’s President seems to be placing the blame for all the withdrawals on the U.S. government. When referring to Kimberly-Clark and Citigroup, whom also decided to scale back its operations, President Maduro suggested that firms of such stature would not act without receiving orders from the government. Their supposed intentions, according to Maduro, are to destabilize the Venezuelan government by greatly slowing down production. President Maduro claimed this to be an “economic war”.
While it does seem justifiable for companies to sell-off and scale back due to Venezuela’s recession, doing so could further worsen the nation’s economy. In a country where its citizens deal with the hardships of supply shortages, sometimes waiting in line for an entire day to receive food and other basic necessities, the loss of jobs and the further detraction from the supply of goods will only make the problem worse. According to the Economist, the average Venezuelan spends approximately 35 hours every month waiting on line for food. With companies such as General Mills drawing themselves back, the amount of food options available will decrease, and time spent waiting for food will likely increase.
Once a thriving and wealthy nation, Venezuela is now ranked 86th in the world in terms of its GDP which is down from being the 4th wealthiest country in the world in the 1950’s.
While multinational firms once had very profitable businesses in Venezuela, the success took a turn after the oil price crash in 2014. The oil rich nation’s revenues took a toll when oil fell from over $100 per barrel to a low of under $30 per barrel last February. Employees of oil companies lost their jobs and the price crash took its toll on the broader economy.
Unfortunately, there does not seem to be a clear solution in the near future for Venezuela. The President of Conindustria, a trade organization, Juan Pablo Olalquiaga, stated that policies that restrict production, prices and impede the flow of materials” are pushing companies to abandon Venezuela”. Essentially, any multinational firm that continues in Venezuela or has been bought at a discount only has the hopes that the economic and political state will turn around.
A version of this article appeared in the Tuesday, November 22nd print edition.
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