By Corina Pons and Tibisay Romero
CARACAS/VALENCIA, Venezuela (Reuters) – Unilever’s factory in the outskirts of the northern Venezuelan city of Valencia once bustled with activity as it produced everything from soap to toothpaste for one of South America’s wealthiest economies.
Now, with Venezuela struggling with a fifth year of recession and its economy wracked by hyperinflation, there are few signs of activity. A handful of workers loiter inside the compound with only the occasional truck passing through its gates.
The Anglo-Dutch conglomerate has quietly scaled back its output in the crisis-stricken oil-producing nation to a single product – Tio Rico ice cream – produced in Valencia and at another plant in Barquisimeto, some 90 miles (145 km) to the west.
Production of Tio Rico ice cream halted at another factory in the sweltering city of Maracaibo in western Venezuela over a year ago.
“Until last year, we were producing 800 containers of 1,000 litres of ice cream per month,” said one worker at the Valencia plant, who asked not to be identified because he was not authorized to speak to the media. “Now, we’re sending out 40 per month.”
Slashing product portfolios has allowed the handful of multinationals that remain in Venezuela to survive shrinking demand and could pave the way for some to make an exit, according to a dozen advisors to large companies.
Unilever Plc <ULVR.L> said it was staying in Venezuela and was focussed on strengthening its ice cream unit. A spokesman for the company said its “production is in line with market demand.”
But the gradual exodus of companies, from cleaning products firm Clorox Co <CLX.N> to cereal maker Kellogg Co <K.N>, along with diminishing hope for political change, has led to speculation among company advisors that more will follow suit.
That is true more than ever after President Nicolas Maduro announced this month higher corporate taxes and a 60-fold minimum wage increase, advisors say.
On Monday, workers protested at the Venezuelan unit of tire-maker Pirelli after they arrived to find the factory gates locked. It was not immediately clear if the plant was temporarily shut or closing for good. “Transnational companies are not putting new money into Venezuela. And if they stay, it is because they found a financial balance to sustain themselves,” said Luis Vicente Leon a well-known pollster, economist and business adviser.
“But if this balance is severely disrupted, you will most likely see more companies leaving this market.”
Some multinationals have stopped selling some of their best-known products due to currency controls that left them struggling to import raw materials and a ban on price hikes despite inflation projected to reach 1,000,000 percent this year.
Ford Motos Co’s <F.N> plant, already operating at severely reduced capacity, scaled back in July to a single model, one of its sport utility vehicles, said union leader Eliecer Cohen.
Ford said in a statement it had no plans to leave Venezuela, but acknowledged that it had “faced a significant decrease in demand” in recent months.
General Motors Co <GM.N> left Venezuela last year after a protracted court case with two former auto dealers who ended taking control of the plant as part of a concession dispute.
Consumer goods giant Johnson & Johnson <JNJ.N> has for more than a year only produced a feminine hygiene product called panty liners after halting its production of sanitary napkins and Q-tips, according to a union representative who asked not be identified.
Johnson & Johnson did not respond to a request for comment.
Companies have provided less advance notice about plans to shut down Venezuela operations, in part to minimize potential government blowback, according to business leaders and consultants interviewed by Reuters.
When Clorox Co <CLX.N> and Kimberly Clark Corp <KMB.N> closed their operations, top management had already left the country, according to union leaders.
Kimberly Clark said its operations had suffered from high inflation and difficulty in obtaining raw materials due to currency controls.
Kellogg still had three weeks worth of raw material on hand when it closed operations in May, according to a employee who asked not to be identified. Employees and managers alike were taken by surprised when they arrived at the factory gates to find them padlocked.
The company said at the time that it discontinued operations due to “economic and social deterioration.”
The plant was taken over by the government. State television days later broadcast images of production being restarted by the governor of the state of Aragua.
Such state administrators often fall behind on paying suppliers, according to business advisors, which is bad news for providers like packaging and cereal box maker Smurfit Kappa Group Plc <SKG.I>.
Government officials last week occupied Smurfit Kappa’s unit on the grounds it was not following labour legislation, was refusing to sell to state-run companies and was charging too much for its products.
Venezuelan military intelligence arrested two of the company’s executives, according to state price control agency Sundde.
Smurfit Kappa denied the allegations and said it was seeking the release of the executives.
Union leaders said one of Smurfit’s plants had not been operational since July and had sent its workers home – a strategy of many foreign companies who want to maintain a presence in Venezuela to avoid lengthy processes of obtaining permits if they later decide to return.
(Additional reporting by Mayela Armas in Caracas and Keren Torres in Barquisimeto, writing by Brian Ellsworth; Editing by Daniel Flynn, Christian Plumb and Marguerita Choy)