Agreements between foreign firms and Venezuelan capital grow in the midst of the economic transition | International

The American cosmetics firm Avon operated in Venezuela for seventy years. The company, with a presence in 75 countries, announced in June the sale of its assets. Then there was the iconic restaurant chain TGI Fridays, which arrived in Caracas in the late 1990s. There are multinationals that could not resist the economic chaos, the official siege, the uncertainty and for which the economic opening promoted by Nicolás Maduro is late. However, another collaboration formula between multinational companies and local capital is taking hold in the country, which leads foreign groups to cede their brand temporarily, leaving open the possibility of a return in the medium term under a figure known as a Repurchase Agreement.

The economic crisis in Venezuela, hyperinflation and the practices of Bolivarian socialism, including the expropriations of Hugo Chávez, led to asset flight and alienated foreign investment. In recent years, large groups such as General Mills, Bridgestone, Kellogg, Clorox, Goodyear, Kimberly/Clark, Ford, Colgate Palmolive, Zara, General Motors, Louis Vuitton, Wendys, Intercontinental, Cargill, Citigroup, Pirelli, and various international airlines. However, other multinationals continue to operate in the country, such as Nestlé, Parmalat, DHL, Samsung, IBM, Heinz, McDonald’s, Mapfre, BBVA, KFC, Johnson & Johnson, Meliá, Diageo, Kraft, Toyota, Chevron, Coca-Cola, Hyundai, Marriott, Repsol and Procter and Gamble.

The departure of multinationals in a year in which economic growth of up to 10% is predicted, after eight years of a resounding drop in GDP, speaks of what the Venezuelan market has reduced and the loss of consumption. But it also suggests that in the new economy, where restaurants, bodegones (gourmet shops) and casinos are thriving, the rules are still unclear. The cost of formality can be very high for some companies, not only in taxes but also in operations that depend on irregular services and fuel, in addition to repeated complaints from the Venezuelan industrial and commercial sectors.

The closure of some foreign companies in Venezuela began in 2014 and began to precipitate in 2016. The exhaustion with the political situation in the country, the difficulties of the legal and economic framework of Chavismo, the deterioration in the purchasing power of the population and the shrinking of the local market.

Some multinational companies such as Nestlé and Marriot maintain excellent relations with the Maduro government. In the antipodes there are stories like that of Kellogg, who left the country abruptly four years ago. His plants were taken over by the government, which continued to produce versions of his brands, for which he faces an international lawsuit. However, in numerous cases, instead of leaving definitively, many firms cede the brand and the production environment available to national entrepreneurs, who continue with the operation under the name of the brand for a price to be agreed upon, under terms that allow the parent company to return if better conditions occur in the future. The instrument to regulate these agreements is the so-called Repurchase Agreement.

In the midst of the turn that Maduro has undertaken, these changes have sometimes favored businessmen linked to Chavismo with negotiations that have been criticized for the lack of transparency. “There are new national capitals adapted to these circumstances, to deal with Chavismo, imbued in a smaller market,” says economist Luis Vicente León, managing partner of the Datanalisis pollster. “Businessmen who for many reasons want to keep their money in the country. Plugged in, some, but not all necessarily. They know the terrain, they have contacts, they can solve the issues of the permission and the bureaucracy.

The sanctions and the sudden account blockages of Venezuelans due to strict compliance with bank surveillance have also fueled the exodus, as were the foreign exchange obstacles, which led some companies to leave —particularly many pharmaceutical companies— as they were unable to replenish dividends.

An economic transition is taking place in Venezuela, without the political actors having changed. “A new breed of national capitals is forming that occupy empty productive spaces, that is what Venezuela is today. This incipient recovery process is colliding with the credibility of the government team, ”says the economist at the firm Think Anova Omar Zambrano.

Since 2019, with his Ecuadorian advisers led by Patricio Rivera, Rafael Correa’s former finance minister, Maduro has opened up to the private sector and the dollar and lifted price controls with which he has achieved a slight rebound in the economy since the pit in which it finds itself and will come out of four years of hyperinflation at the end of 2021. The latest reforms of Chavismo include the sale of shares in state-owned companies such as the Cantv telephone company and the Bank of Venezuela, which Chávez nationalized when it was in the hands of the Grupo Santander.

For businessman Jorge Roig, the departure of some multinationals cannot be considered a trend. “I know of many multinationals totally determined to continue in Venezuela. At this time, the Maduro government plans to return some expropriated industrial assets. The return of farms and ranches has been taking place, not with the expected speed, but it is definitely underway”. New opportunities for businessmen —who have already begun to cross the border— also arise with the opening of trade relations with Colombia, after the change of government in Bogotá, with the arrival of Gustavo Petro.

Maduro is trying to attract new capital to a country where more than 90% of its population lives in poverty, according to various measurements. Financial analyst Alejandro Gristanti points out that although fatigue in the face of prolonged instability in the country may have caused the exit of some international companies, “there are private groups close to the government interested in keeping these companies operational” and, at the same time, clarifies: “In any In this case, Venezuela will need many years of strong economic growth to return to what it was and to be in the interest of the multinationals”.

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