New Venezuela currency devaluation set to impact major multinational cosmetic players
The latest measures, which were announced on Thursday, have been described as complex and have been quietly introduced by the government in an effort to not to cause alarm or panic in the market.
The country’s political head, President Nicolas Maduro, announced a 61% devaluation ‘free-floating’ currency system that builds on two previous devaluations introduced by his predecessor Hugo Chavez.
What the devaluation means
The devaluation does not mean an official change to the country’s currency, the bolivar, but instead changes implemented by the government mean that that companies doing business there will have to pay around 60% more for dollars acquired in state auctions that allow them to make international deals.
There are exceptions to the devaluation, with some importers of food and medicine able to buy the U.S. dollar at an official exchange rate of 6.3 bolivar, as opposed to 12 bolivar.
The aim of the devaluation is to reduce a chronic dollar shortage in the country following years of increases in the bolivar.
In recent months the country’s economy has been seriously impacted by a reduction in the average price of a barrel of oil, which has ground many aspects of the economy to a virtual standstill and resulted in serious shortages of essential consumer goods.
Currency manipulations balloon bolivar value
Historically, the devaluation of the bolivar began in 2003, and over the years the value it holds against the U.S. currency has continued to be inflated. A year ago the official exchange rate was 84 bolivars to $1. Today it is 186 bolivars to $1.
As a result of the economic volatility, last year big personal care names such as Estee Lauder, Unilever, P&G and Colgate-Palmolive all posted losses attributable to their operations in Venezuela running into hundreds of millions of dollars.
In its full-year 2014 results, beverage player PepsiCo announced that it had taken a $126m due to the devaluation of the bolivar against the U.S. dollar.
With the latest currency devaluation already in play, it appears that 2015 is shaping up to be another very challenging year for multinationals consumer companies in the country.
