Argentine companies in crisis in Venezuela

There is a dark history related to Argentine companies that have already done business with Venezuela. Many of them, especially those with the most volumes marketed and more dependent on the demand from this Caribbean country, have found themselves in crisis.

Some went bankrupt. Others participated in the contest and ended up getting started. A very important case, like Ternium, was left in the middle of the corruption scandal revealed in "cahiers" and its presence, and its exit from this market, were for many.

Thus, in record time, Venezuela became an almost ideal destination market for local businesses – as it guaranteed fast-moving businesses and in many cases paid above-average prices – become a "commercial trap" from which many companies had no way out.

Today, the nation that is going through a historic crisis in the midst of the power struggle between the Nicolás Maduro regime and the opposition – represented by Juan Guaidó – is the sad shadow of what it was in terms of trade flows for Argentina.

But even considering the record moment, even taking into account that it has become the fifth largest destination for local businesses, the experts consider that it was an unsustainable "experiment".

"Venezuela was an important destination for our exports, but the experience between Kirchner and Chavez was not good. The relationship was very much dependent on the political impulse. And when it was over, the company disappeared", says the consultant Marcelo Elizondo.

By badyzing the evolution of the flow of exports to this destination, it is clear how the good relations between Néstor and Cristina have turned into businesses. In particular, after having concluded the "oil-for-food" agreement, with which Venezuela guaranteed a large supply of essential products, such as poultry meat and powdered milk, while Argentina was taking advantage energy, whose domestic production was declining.

So things, Between 2012 and 2013, shipments to this destination exceeded US $ 2 billion for the first time.

The Caribbean country has become the largest buyer of national milk powder; the third largest applicant for boneless beef and the eighth largest in soybean oil, according to a report from the consulting firm of the DNI. But also, Venezuela was relevant in other areas, such as corn, vehicles, seamless tubes and auto parts.

However, this flow became untenable, mainly because it no longer had the funds to store these imports.

"Maduro has ended up destroying the economy.In economic terms, they suffer from hyperinflation, there is an absolute loss of confidence on the part of economic operators and a decline of all variables: consumption, investment , production and savings. Today, selling in Venezuela is very risky because there is no guarantee of payment, neither legal nor of conformity to the contract.", Details Elizondo.

And just as at the record time, Argentina has managed to ship goods worth more than 2.2 billion dollars, in recent years, especially since Cambiemos came to power, flows have collapsed.

For 2016, it amounted to 700 million US dollars; in 2017, exports dropped to US $ 245 million and Last year, they barely reached $ 156 million, the worst result in more than a decade.

Currently, this market has an absolutely marginal weight in total national exports, with a share of only 0.25%.

What is currently sold? Fundamentally Commodities, which explain the bulk of shipments, starting with oil and soy flour, beans, corn kernels and milk powder.

In addition, some industrial products are exported, but for unimportant figures, such as aluminum sheets, worth just US $ 240,000 per year.

However, how is it that, despite the political, financial and economic setback that is punishing this country, commercial operations are continuing?

On this point, Raúl Ochoa, co-chair of the Argentine Council for International Relations (CARI) of the T20 Investment and Tax Cooperation Working Group, G20 think tank, warns that "these are all ongoing operations to be made subject to advance payment . they pay first and then the goods are released. This is the only way to do it, today, Venezuela offers no guarantee of recovery.

In this context, Ochoa believes that "as the political and economic crisis worsens, as is happening now, it is likely that exports, already weak in themselves, will eventually paralyze" .

"The collapse of trade is widespread in all the countries of the region and it is now only supported by its relations with Russia and China," added the expert. .

Affected companies

SanCor is the symbol of Venezuelan economic decline. In 2006, at the time of Kirchnerism, he received an 80 million US dollar loan from the Chávez government. The dairy company was then an important part of the oil-for-food agreement.

However, this aid, almost a decade later, has become a major lifeline. The collapse of the Caribbean country resulted in the firm leaving a series of unpaid exports, which were channeled through a trust that no longer received funds .

For 2017, we reported by Cambio that the debt was about $ 70 million. In mid-2018, when the transfer to Adecoagro was under negotiation, there was talk of an amount of 20 million US dollars.

Similarly, largely because of the imbalance generated by Venezuela, the company has undergone a major restructuring: between layoffs and voluntary withdrawals, 3,100 people were affected in three years. In addition, it had to close factories and sell some of the badets to Adecoagro.

Among the agricultural machinery companies, one of the most affected is Vasalli, located in Santa Fe. The crisis caused an explosion when the Caribbean Government violated the contract of purchase of 245 gatherers. It absorbed just 50, while a large part remained in stock, unable to sell.

The losses, at that time, amounted to about 15 million US dollars. In May 2018, the company's factory was taken for several days by employees who wanted to avoid emptying the factory, while claiming the salary owed. Towards the end of last year, the company initiated bankruptcy proceedings, seeking new investors to ensure the continuity of the company.

Avian meat has also played an important role in relations with Venezuela. Y One of the most punished companies is Red Crest, which shows the cost of transactions solely because of political influences.

For years, the country then headed by Chavez had become the main support. In addition, for each tonne shipped, they enjoyed a price premium of almost 40% for risk insurance. Given the large volume sold, the structure has grown and mobilized 700 additional employees.

However, as soon as the flow of money from the Caribbean country was cut, the disaster occurred, which resulted in the bankruptcy of the company. In 2018, she was absorbed by Granja Tres Arroyos.

By the way, this last company has also been affected by the relationship with Chavismo. At the time, they owed them about $ 8 million. The company had to reorient its exports to Russia and the Middle East, but applying a price much lower than that agreed with the Venezuelan government.

How much would a standardization of the economy be?

The diagnosis made by all the experts in international trade is the same: to talk about economic normalization, one must first make a political change.

However, with a political crisis of proportions and an uncertain outcome, it is not yet clear that this will happen in the short term.

Similarly, there are those who put figures on the reconstruction of Venezuela. Raúl Ochoa quotes an badysis of the famous Venezuelan economist Ricardo Hausmann, who stated thatBetween credits and subsidies, the Caribbean country would need more than 80 billion US dollars. to start the economy, starting with the production of oil, whose structure is completely deteriorated and, in some cases, dismantled.

The reality is that today all indicators are at critical levels. According to IMF estimates, the economy collapsed by 18% in 2018, with hyperinflation generating figures that are hard to believe and big: it will rise from 2,000,000% last year to around 10%. 000 000% for previous years. this 2019.

Country risk, meanwhile, has recently reached 7,000 points, nearly ten times higher than that of Argentina.

Oil production, which generates 96% of the country's revenues, is in free fall. In 2018, volume reached the lowest level of the last 30 years.

"If the Maduro plan comes to an end, as the funds come in and there is serious work, it takes no less than three years to start thinking about how to revive the economy." It is that the commercial and industrial organization is destroyed, in a very complex social context, "he said.

Of course, if we give him some variables, Ochoa thinks that Venezuela could once again become a major buyer of food products, medicines and industrial products.

Elizondo agrees: "Venezuela is one of the four largest economies in South America, and if it came back to its crisis, demand for Argentine products would be stronger."

However, he states that "the first thing to do is an institutional normalization.In the current circumstances, it is impossible to think of any type of business.It is in limbo. in the future, a democratic government is not enough. You need an economy based on conventional market rules. "

But no one can predict when this could happen. Elizondo points out that "the process will not be short, there is institutional chaos, the country is looted financially … we are talking about years of work, but the most important step has not been taken yet. and we do not know when it will begin. "

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