WASHINGTON”•The political and economic crisis in Venezuela is costing US companies dearly, as General Motors can attest following the unexpected nationalization of its plant there.
The big auto-maker shut down its operations in Venezuela and laid off its 2,700 workers after the government on 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 $153 million to de-consolidate its Venezuela operations.
Biscuit-maker Mondelez”•behind America’s well-known Oreo brand”•also took a one-time charge of $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 $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 has 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 $1.4 billion for nationalizing 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 neighboring 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.