one of President Hugo Chavez’s favorite targets. U.S. staple brands operate under very difficult conditions in Venezuela, including high governmenttaxes, price controls and the alwayspresent threat of expropriation. An analysis of nationalized companies found significant operational problems and, in some cases, a complete halt in operations in the state-run companies. The study, “Management in the Red: An Evaluation of the Performance of 16 State Companies and General Results of the Socialist Production Model,” was conducted by experts from the Institute for Higher Studies in Management (IESA) in Caracas. “Government ownership of companies is often accompanied by deficit problems and lack of incentives to be effective andefficient,” said economist Richard K. Obuchi. One case study showsthat the Venezuelan operation of a Pennsylvania-based aluminum company has been paralyzed for months since it was expropriated by Chavez. Another case study addresses the evolution of a giant, productive, U.S.-based food companyinto an inefficient and unproductive version of its former self. In the case of local paper producer Invepal, the study showsa decline in production from 15 to 12 percent in one year, resulting in the production of only 5 million books instead of the 30 million that were forecasted. foreign QZ risk 26H QYbusiness 2 = Possibility’, 5 eiexpropriation > restrictionsy E@country xe sclimateSs Ce 2 Pai a OE = 2D "Ss &ao @ Venezuela faces at least 18 arbitration proceedings before the International Centre for Set- tlement of Investment Disputes (ICSID). Claimants include major U.S. brands. Experts agree it’s highly unlikely that these compa- nies will receive fair or timely compensation for their seized assets, especially now that Chavez has taken the initial steps to pull out of ICSID. The Chavez government has taken over 988 foreign and domestic companies, according to the Venezuelan Confederation of Industries (Conindustria). Venezuela’s policy of expropriations “only creates legal uncertainty; drives investments away; and reduces the possibility of increasing production,” said Conindustria. Data from the Central Bank of Venezuela show that in the second quarter of 2011, investment fell to 3.6 percent, its lowest level in five years. It remains to be seen what the future holds for U.S. companies in Caracas. In the meantime, it may be time for some U.S. firms to consider saying adids to Venezuela.
