Venezuela’s paint and coatings manufacturers are under severe pressure both to produce and to sell because of a shortage of raw materials, a limited access to hard currency and a depressed local economy. Pablo Olalquiaga, the president of Asociación Venezolana de la Industria Química y Petroquimica (Asoquim), the national chemical industry association, recently said, “the industry is going through a very difficult time.” Indeed, Alejandro Werner, the director of the International Monetary Fund’s Western Hemisphere department warned in early October that the economic situation in Venezuela is “unsustainable...without adjustments.”
While the new Venezuelan president Nicolas Maduro is attempting to rebuild the country’s decimated economy, his task is formidable. Inflation is running close to 30 percent per year, product price controls are still in effect for many products – including paint and coatings, and the weak and overvalued domestic currency – the bolivar – is making imports more expensive. Ex-strongman Hugo Chavez died in March after a long and contentious term as president, marked by such business stifling activities as nationalizations of foreign companies.
Continued raw material imports by paint makers are being slowed by large outstanding debt payments to the suppliers, both domestic and foreign. According to figures cited by Olalquiaga, the paint and coatings industry now owes foreign suppliers close to $700 million, while domestic suppliers are owed close to $400 million. One impact is that suppliers are raising prices: at mid-2013 the Central Bank of Venezuela (BCV) estimated that overall prices in the construction industry went up more than 50 percent over the prior year, against an inflationary rise of only 30 percent.
Asoquim statistics show that most Venezuelan paint producers registered double-digit increases in sales over the first two quarters of this year; however continued sales growth is being threatened by very low stock levels. Nearly half of the association membership reported production down during the first two quarters by over 17 percent. Over the same period, paint and coatings exports were reported by members to have slid approximately 15 percent. Paint can shortages are forcing some manufacturers to produce only quarts, Olalquiaga noted in one recent interview. Overall idle capacity is running close to 70 percent, he noted in another.
The Venezuelan economy is grinding to a halt, with expansion forecast at no more than 1.0 percent this year, compared with 5.6 percent last year. More pessimistic, Spain’s BBVA bank group forecast that Venezuelan economy would contract 0.4 percent this year while Peru expands by 5.8 percent, Chile by 4.2 percent, Mexico and Argentina by 3.0 percent, and Brazil by 2.5 percent. The Latin American region is expected by BBVA to expand by 3.1 percent this year, according to the bank’s third-quarter analysis.
One of the government’s plans for recovery is to auction $900 million worth of U.S. dollars over the next few months to help companies with import payment problems. The government has also raised the minimum wage twice this year, but is in a constant battle with inflation. And finally, following Venezuela’s 2012 entry into the South American Mercosur trade block, more imports and exports are expected with Brazil and Argentina.