AMBASSADOR DUDDY'S VISITS VALENCIA TO PROMOTE THE

C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 002144 SIPDIS SIPDIS E.O. 12958: DECL: 11/02/2017 TAGS: ECON PGOV VE SUBJECT: AMBASSADOR DUDDY'S VISITS VALENCIA TO PROMOTE THE PRIVATE SECTOR Classified By: Economic Counselor Andrew N. Bowen for Reason 1.4 (D) ¶1. (SBU) Ambassador Duddy's visit to the industrial city of Valencia on OCTOBER 31 to November 1, 2007 included meetings with the three largest American auto manufacturers in Venezuela, American owned agricultural feed conglomerate Protinal, three of the largest industrial and commercial chambers in Valencia, Valencia's Mayor, and a breakfast with the largest regional daily in Venezuela. Press coverage was very good, straightforward, and provided the Ambassador the opportunity to highlight the importance of American investment to the national economy and in generating jobs. -------------- American Firm Invested in Venezuela -------------- ¶2. (C) Upon his arrival in Valencia, the Ambassador visited Protinal/Proagro, a pioneer in the agriculture and aviculture business in Venezuela and producer of poultry, animal feed, and deli products. The company directly employs 4,600 workers, and is majority owned by Ag Processing Inc. (AGP), the largest farm-owned cooperative and soybean producer in the United States. Although Protinal publicly claims to control 18 percent of the poultry market, country manager Ernesto Vogler Mendoza told the Ambassador that the number is closer to 28 percent. He added that Protinal has been able to work around the crippling price controls on poultry by combining different poultry products in one package and by selling its products mainly to specialty butchers rather than supermarkets. In the last four years, Protinal has invested USD 115 million in Venezuela. -------------- Regional Chambers Welcome Ambassador -------------- ¶3. (C) During the Valencia visit, the Ambassador attended a large luncheon hosted by the Industrial Chamber of the Carabobo State (CEIC),a reception hosted by Valencia regional chapter of the Venezuelan-American Chamber of Commerce, and a lunch with the presidents of the major Carabobo state commercial chambers hosted by the Venezuelan Federation of the Chambers of Commerce (FEDECAMARAS) Carabobo. During a Q & A session, CEIC members expressed their desire to maintain preferential GSP trade agreements with the United States and requested support in reducing the drug traffic coming out of the port of Puerto Cabello, Venezuela's largest commercial port. The President of the CEIC also requested that the USG not punish its friends and supporters in the private sector if the tense political situation with the BRV were to escalate. Throughout the chamber events, the participants expressed their gratitude for the Ambassador's visit and their appreciation of his message that the private sector, including U.S. companies, generates jobs and opportunities for the Venezuelan people. -------------- Hummers and Hubris -------------- ¶4. (C) The Ambassador met with General Motors Venezuela (GMV) country manager, Ronaldo Znidarsis and had the opportunity to tour the plant. With 2718 workers producing 85,000 units in 2007, GMV is the largest domestic assembler of cars in Venezuela. Although GMV has had some public run-ins with the BRV, including the recent declaration by President Chavez that no foreign exchange would go to the importation of GM's Hummers, Znidarsis told the Ambassador that he was very optimistic about the auto market and GM's future in Venezuela. He said that GM's net sales have increased from USD 321 million in 2003 (the year of the National Strike),to USD 1.723 billion in 2006, and projected USD 3.192 billion in sales for 2007. Despite the government's harsh reaction against the Hummer, Znidarsis told the Ambassador that within 24 hours of launching the website announcing the sale of Hummers in Venezuela, they sold 800 units, 3,000 additional units after two weeks, 700 more units after Chavez' speech denouncing them, and have had only had three cancellations since Chavez' tirade. GMV was also surprisingly optimistic about the shortening of the work day from eight hours to six hours, explaining to the Ambassador that this would hypothetically allow them to open up a fourth shift, increasing productivity. Znidarsis also told the Ambassador that he thought the BRV's new foreign exchange policy for the importation of vehicles would help large domestic producers like GMV (septel). GMV also will import 75,000 assembled units in 2007 from the United States and other Latin American countries, and forecasts total sales of 160,000 units. CARACAS 00002144 002 OF 003 -------------- Chrysler's Wait and See Approach -------------- ¶5. (C) Like GM, Chrysler's country manager Luis Perez de la Cruz confirmed that these were indeed profitable times for the auto manufacturers and importers. Chrysler has a smaller operation than GM, assembling 14,700 units and importing 7,600 from the United States and Mexico. The Chrysler country manager also told the Ambassador that the major auto manufacturers in Venezuela, including GM and Ford, had an October 30 meeting with the Minister of MILCO Maria Cristina Iglesias, CADIVI President Manuel Antonio Barroso, and SENIAT President Velma Mora. During the meeting, the BRV told the country presidents that the BRV would publish a new policy for receiving foreign exchange for the importation of vehicles in Venezuela. The new national plan would "promote national investment and rationalize imports." Approximately 66 percent of the estimated 450,000 to 500,000 cars sold in Venezuela will be imported in 2007 while the remaining 33 percent will be assembled locally. (Note: According to the Venezuelan Automobile Chamber (CAVENEZ),the number of total cars sold in Venezuela has increased from 134,357 in 2004 to 457,678 units from OCTOBER 2006 to September 2007, a 241 percent increase. End Note.) Perez de la Cruz also told the Ambassador that it was nearly impossible for the manufacturing industry to develop investment plans when the rules for investment, property, and import policy were so unclear and constantly changing. -------------- Ford: Worried About the Future -------------- ¶6. (C) During the Ambassador's tour of Ford's Valencia plant, Ford's country manager Gabriel Lopez (strictly protect throughout) was more pessimistic on the future Venezuelan auto market. He confirmed that the BRV would announce a new auto importation policy in the coming days and foresaw that Ford might have to increase the number of shifts to two a day to comply with the six hour work day. Lopez also believed that the wait time for a car in Venezuela could increase from six months to two years if the BRV were to limit the ability of car companies to import. He added that the main challenges for Ford in Venezuela were access to foreign exchange, draconian labor laws, uncertainty stemming from constitutional reform, and the long delay in the repatriation of profits. Ford's wait for foreign currency authorization has been 70 days, forcing Ford Venezuela to reach its limit on the credit line available to it in the United States. Lopez told the Ambassador a constant worry was whether the BRV would honor its foreign exchange obligations if there were a devaluation. Previous Venezuelan governments have not recognized certain obligations following a devaluation. He added that long delays in profit repatriation and the terms of local financing have left auto assembly operations exposed. -------------- Meeting with the Independent Mayor -------------- ¶7. (C) The Ambassador also met with Valencia's popular mayor, Francisco "Paco" Cabrera Santos (strictly protect throughout),who was re-elected for a third term in OCTOBER ¶2004. Cabrera Santos is credited with the revitalization of Valencia. He described himself to the Ambassador as a political independent, believing in a low profile approach, social investment, and modest projects. Despite his independent spirit, the Mayor was very frank with the Ambassador in his bleak analysis of constitutional reform, Chavez' PSUV party, and the BRV's complicity with the drug trade. The Mayor told the Ambassador that he was very worried that President Chavez would use the new "reformed" constitution to centralize power and marginalize opposition leaders and governors. He also was skeptical that Chavez wanted the PSUV to succeed, citing Chavez' distaste for the development of potential rivals. Cabrera Santos also told the Ambassador that he was convinced that elements of the BRV, from the police to the National Guard, were complicit in the trafficking of all contraband including drugs. -------------- Press Coverage -------------- ¶8. (U) Press coverage of the Ambassador's visit to Valencia was excellent, both in print and on television. El CARACAS 00002144 003 OF 003 Carabobeno carried articles both November 1 and 2 on the visit, including a full page interview with the Ambassador on November 2. Internet news service "Notitarde" also carried a piece quoting the Ambassador as to the extent of U.S. business interests in Venezuela, a theme echoed by all media. National cable network Globovision carried a long segment the evening of November 1 from the Ambassador's press availability the same day, and highly-rated national network Televen carried footage from the visit on its November 1 and 2 newscasts. All the coverage was straightforward and factual, and highlighted the business-oriented nature of the Ambassador's visit to Valencia and his emphasis on the benefits U.S. companies have generated in Valencia as well as elsewhere around Venezuela. DUDDY