Venezuela Un(official) dollar exchange?: Bad news for small business..

Is the Venezuelan government competing with the street vendors now?

Currency Exchange Kiosk (courtesy of thenational.ae)

Currency Exchange Kiosk (courtesy of thenational.ae)

It seems that Venezuela is attracting bad news on an almost daily basis, and that the current government is running out of excuses to justify the dilapidated economy. The latest invention of the government it is almost as old as humanity, and unexpected for a country with a substantial oil and natural resources industry. In order to capitalize on the continuous devaluation of the Venezuelan currency, and in order to fill in the government coffers with hard currency, the government will launch next week a “Dollar auction” where private business will need to “compete” for the available dollars while the government and governmental entities and enterprises will be exempt from the perils of fluctuating international costs.

How will it affect private business in the country?

US - money drainThis trend could substantially affect any and all private and small business in the country since it will derail any attempts to plan and budget for future investment, and some of the most affected could be the multinational companies (small and large) equally. Those companies with international business that sell in Venezuela, will not be able to count with a challenging but consistent currency exchange ratio, and will need to compete with each other for the always diminishing dollars needed to import more products into the country.

Can we imagine what would happen to companies that need to purchase their raw materials, or products overseas to be resold in Venezuela. How could those private companies could compete with any state sponsored company?

Venezuela Currency Auction

Another page from Castro’s Playbook

U.S. DollarIt seems that the Venezuelan government has no original ideas, and has decided to copy another page from Castro’s playbook. In today’s Cuba, after the economic debacle of the 1990’s the government was forced to open its economy to foreign companies in order to survive, but as usual this never came without substantial communist government control and restrictions. One of their preferred strategies is to let foreign companies bring in the products to Cuba under their draconian conditions, force them to sell them using their government controlled currency (the so called CUC), and later prevent the companies from freely exchanging those CUC for dollars so they could go cash on their profits, and replenish their stocks in the country. It seems that Venezuela after it ripped off castro’s speeches, castro’s CDR (block snitches organization), castro’s nationalization strategies, now has resorted to the latest tool castro’s currency manipulation.

What can private companies do?

Private companies in Venezuela, and multinational companies in Venezuela need to learn to manage the situation, or pull completely out of the country. They will need to learn to pay their Venezuelan expenses with their venezuelan income, and they could potentially divert to the country any services that they could offer for dollars outside the country generating on that way the hard currency they may need to sustain their local operations. As an example if I was managing a multinational corporation as I used to do before here will be my plan:

a) Pay all my Venezuelan expenses directly out of my local revenue.

b) Create or move my regional call center to Venezuela. Pay my employees in Bolivares, and sell the services for dollars overseas

c) If after all that you still have an excess of Bolivares, implement or develop cross/payment agreements with companies that have employees or operations in the country. You could pay their local bills, while they give you the hard currency overseas.

With these and similar multinational operations processes, companies could attempt to adjust their financial expectations to the realities of the country. I don’t advocate to break the law, or to close their local operations, but companies with investments in the country will need to develop strategies to manage the always changing local challenges if they expect to survive in the long run. At the same time I will start to wind down my operations to reduce any short-term potential loses due to national instability in the next 30 days or so (remember there will be elections soon and who knows what may happen after that).

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*Venezuela: Crean sistema de divisas por subasta | El Nuevo Siglo Bogota.

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