globalEDGE Blog: Venezuela's Economy and its Effects on International Companies

Venezuela's Economy and its Effects on International Companies

Venezuela's economy is spiraling downward with no end in sight. The country has the highest inflation in the world, topping countries such as Sudan and Iran. There are five apparent causes that have led to the downfall in Venezuela's economy, including political instability, food crisis, oil prices, currency exchange rates, and the country's default. Because of Venezuela's hurting economy, many companies from around the world are taking hits on profits and cutting back business within the country.

Political instability within Venezuela, with their government led by Nicolas Maduro, has come from an increasingly authoritarian regime.  Maduro has been taking over supermarket chains and incarcerating critics of the government. There is also a massive food crisis in Venezuela; citizens have to wait in line for hours to buy goods at local supermarkets. A food shortage is happening within the country caused by Venezuela's government not having enough money to import food. The price of oil has also contributed drastically to the economy. For Venezuela to break even on the sale of a barrel of oil it needs to sell for $120, currently the price of a barrel is selling around $30. Venezuela's currency is also losing value faster than any other currency in the world. When one U.S. dollar equated to 88 bolivars a year ago, today one U.S. dollar can buy 1,000 bolivars on the black market. This is one of the reasons companies doing business in Venezuela are losing profits. Venezuela also has a large debt crisis adding a fear of default to the country's list. All of these factors are catalysts for Venezuela's economic demise.

Venezuela might be small but its downward spiraling economy is having large impacts on international markets. With the high inflation and currency devaluation companies such as Kellogg and PepsiCo are losing profits from sales and operations in Venezuela.  American Airline also recently had to write off around $500 million in profits stuck in Venezuela as their government owes a combined $4 billion to a group of airlines. Of which Maduro will not negotiate. These are just a few of the international effects that Venezuela's economy is having on businesses.

Make sure to check out globalEDGE's Venezuela country insights page to review their economy, rankings, government, trade statistics, and risk.

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