Bloomberg News

Venezuela Forces Employment With Shuttered Factories: Jobs (1)

July 10, 2013

World’s Toughest Labor Law Staffs Venezuela’s Idle Plants

Belgian owner Anheuser-Busch InBev NV, the world’s largest brewer, halted production of Brahma beer at the plant that produced the beer four months ago. Photographer: Marcos Issa/Bloomberg

Jean Salero gets up at dawn to clock in for his daily shift at a shuttered beer factory in the Venezuelan city of Barquisimeto. After eight hours of checking valves and taking temperatures of idle machinery, he clocks out to earn his 4,700 bolivar ($746) monthly paycheck.

The former supervisor is among 220 workers who continue to draw wages at the plant that produced Brahma beer until Belgian owner Anheuser-Busch InBev NV (ABI), the world’s largest brewer, halted production four months ago.

Salero has kept his job because of a 2012 labor law that obliges companies to obtain government permission to fire anyone. The state has yet to approve a single dismissal, said Aurelio Concheso, the labor committee director at Venezuelan business chamber Fedecamaras. It’s a deterrent to investment in a country that already had the world’s most restrictive hiring and firing practices, according to rankings by the Geneva-based Global Economic Forum.

“These measures are a straightjacket for companies, who prefer not to fill job openings and don’t have any incentives to invest,” said Leon Arismendi, the labor law professor at the Central University of Venezuela in Caracas.

Salero, who has worked at the brewery since 2011, doesn’t see it that way.

“We are confident the government will declare this production halt illegal,” Salero, 33, said on the way to a labor union meeting. “In the meantime, we are doing our regular shifts, keeping the plant in order.”

Prolonged Fall

Inbev closed its only Venezuelan plant after a prolonged fall in sales and rising costs made further investments unviable, the company said in an e-mailed statement on March 20. Brahma will “comply with all Venezuelan laws, including first of all, the labor rights of its workers,” the statement said. InBev external press official Fernanda Doniani in Sao Paolo declined further comment July 8.

The closure reflects an overall contraction of Venezuelan industry. Manufacturing fell 3.6 percent in the first quarter from a year earlier, according to central bank data.

In addition to the firing restrictions enacted last year, companies are also adapting to legislation in May that limited workers’ hours to 40 a week, down from 44.

“The private sector is reducing production to comply with the labor law,” said Efrain Velazquez, president of the National Economic Committee, a group of academics and businessmen advising President Nicolas Maduro. “We are already seeing the impact in lower growth and higher inflation.”

May 1 Speech

The changes to labor regulations “ensure job security for all workers in the country,” Maduro said in a speech in Caracas on May 1, after signing the new legislation into law. An Information Ministry official, who asked not to be identified because of government policy, didn’t immediately respond to requests for comment.

Contracting consumer goods production has coincided with a scarcity of dollars that has crimped imports, leaving shops without goods from toilet paper to milk and meat. The shortages pushed inflation to 39.6 percent in June, the fastest among 103 economies tracked by Bloomberg.

The central bank’s scarcity index fell to 19.3 in June from 20.5 in May, meaning that one out of every five consumer staples were out of stock at any given time.

Currency Restrictions

Foreign companies are also reluctant to expand because currency restrictions make it hard to send profits abroad. Phone maker BlackBerry said June 28 that the restrictions contributed to a surprise loss in the second quarter.

Businesses that can’t get access to a limited supply of dollars at the official rate of 6.3 bolivars pay five times as much on the black market.

Venezuela needs local industry to invest and lift production, yet the labor laws make companies unwilling to hire workers they will never be able to fire, said Concheso.

“There’s a total denial by officials to process dismissal requests,” said Concheso. Moreover, “workers have no motivation to work as they know they can’t be dismissed.”

When InBev stopped paying workers at its Barquisimeto plant, Salero went straight to Labor Minister Maria Cristina Iglesias. He presented his plea during one of the 540 “Street Government” community meetings held by Maduro and his ministers around the country. Brahma paid wage arrears within weeks, Salero said.

Imerys Closure

French industrial company Imerys SA (NK) halted production at its Calderys building materials plant in Venezuela in December because unpaid invoices to government customers left it broke, Calderys’ marketing vice president Cyprien Maugras said in an e-mail April 15.

Imerys was able to dismiss 65 of its 85 workers by paying them “unjustified dismissal” compensation, the company’s local legal representative Leonardo Mata said by phone from Puerto Ordaz on July 9, without specifying the amount. The other 20 are holding out for the government to take over the plant, he said.

Imerys share price fell 0.7 percent today in Paris to 46.89 euros.

“There is a strong policy not to authorize layoffs,” Juan Carlos Pro Risquez, a labor lawyer at Norton Rose legal firm, said in an interview in Caracas. “It’s like being stuck in a broken marriage: companies do leave eventually, but it costs them more.”

Foreign Investment

Foreign companies invested $5 million in Venezuela’s non-oil sectors in the first quarter of this year, compared with $1.3 billion in the same period of 1998, the year before self-professed socialist Hugo Chavez came to power, according to central bank data. Neighboring Colombia received $1.67 billion of non-oil or mining foreign direct investment, or FDI, from January to March.

Venezuela’s FDI, at 0.6 percent of GDP, represents the smallest share of economic activity among the 33 Latin American and the Caribbean countries tracked by the World Bank.

Still, strong employee rights and social welfare programs helped Chavez and his handpicked successor Maduro win five presidential elections in a row.

The unemployment rate has been cut almost in half since Chavez took office under the slogan of “21st Century Socialism.” Venezuela’s jobless rate was 7.8 percent in May, according to the National Statistics Institute, known as INE.

Chavez nationalized more than 1,000 companies or their assets in his 14-year-rule before dying from cancer in March. The campaign against private industry means most new jobs have been created in the state sector, which employed 35 percent of the workforce at the end of 2012, up from 15 percent in 1999, INE’s figures show.

Public sector wages rose 500 percentage points more than in the private sector in the period.

Slowing Down

Venezuela’s economy grew 0.7 percent in the first quarter, the slowest pace since the last three months of 2010. Maduro said in a televised speech in June that the government’s response to the slowing economy, shortages and inflation will be “production, production, and more production.”

The president drove a Caracas subway train before becoming the subway system’s union leader and then was in charge of rewriting the labor section of the constitution, which was changed by Chavez in 1999.

Small and medium-sized companies, the core of the government’s strategy to increase production, have been particularly hit by the tighter firing restrictions and shorter work week rules, which also require giving workers two consecutive days off.

Andean Oven

The Little Andean Oven, a family-owned restaurant in Caracas’s Campo Alegre district, used to have a brisk Sunday brunch business serving dishes of flatbreads, fresh cream and white cheese typical of Venezuela’s mountainous west. Since June, The Oven has been boarded up on Sundays.

The new rules on working hours make it impossible to staff the restaurant that day, said a waiter at the restaurant.

“We would all prefer to keep working, as Sunday was our busiest day with the best tips,” said the waiter, who declined to give his name because he isn’t authorized to speak publicly.

Small businesses that can’t adjust are shutting their doors. The number of employers in Venezuela declined by 94,000 to 400,000 in the last six and a half years, according to a report published July 1 by local consultancy Econometrica.

Foreign companies are closing down at an even faster rate, withdrawing a net $400 million in non-oil FDI in 2012, as they sold out to local partners or had their assets expropriated by the government.

‘A Joke’

Salero and his co-workers are calling on the government to force InBev to sell its Barquisimeto plant to Ricardo Cisneros, a Venezuelan billionaire whose Cerveceria Regional brewery was Brahma’s distribution partner.

“This closure is illegal,” Salero said. “As Regional was a partner, it should become the new owner and restart the plant.”

Cerveceria Regional President Cristina Pieretti was not available for comment.

“The private sector doesn’t have any incentive or capacity to replace public spending,” said Francisco Ibarra, partner at Econometrica, by phone from Caracas. “Businessmen invest in what they think will make them more money. Thinking that you can force them to invest is a joke.”

To contact the reporters on this story: Anatoly Kurmanaev in Caracas at akurmanaev1@bloomberg.net; Corina Pons in Caracas at crpons@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net


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