KIMBERLY-CLARK OPERATIONS IN VENEZUELA

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 000426

SIPDIS

E.O. 12958: DECL: 04/02/2019
TAGS: ECON EFIN PREL EINV PGOV VE
SUBJECT: KIMBERLY-CLARK OPERATIONS IN VENEZUELA

REF: A. CARACAS 213

B. CARACAS 397

Classified By: Economic Counselor Darnall Steuart for reasons
1.4 (b) and (d).


1. (C) Summary. Following extensive press coverage the
week of March 23 of a government "investigation" of a plant
owned by Kimberly-Clark, EmbOffs met with the company March

27. Kimberly-Clark reported it was not concerned by the
"routine government inspection" of its Venezuelan factory.
The company's Venezuelan operations are profitable and it
plans additional investments to expand its three main product
lines. As with the majority of companies operating in
Venezuela, Kimberly-Clark faces hurdles in obtaining foreign
exchange approval to import finished products and repatriate
dividends and payment of approved foreign currency exchange.
In the short-term, Kimberly-Clark may decide to repatriate
dividends using the parallel exchange rate, a move which
would result in a large currency exchange loss for the
company and may undermine its profitability in Venezuela.

--------------
WHAT'S All THE FUSS???
--------------


2. (C) On March 27, EmbOffs met with Luis Marcel Padilla
(please protect throughout) head of Kimberly-Clark operations
in Venezuela to discuss the recent high-profile inspection of
its small local toilet paper factory by Indepabis, the
government of the Bolivarian Republic of Venezuela (GBRV)
consumer protection agency. The smallest player in the
Venezuelan toilet paper market, Kimberly-Clark has ten
percent market share, providing both regulated and
unregulated toilet paper. The main players are Paveca and
Manpa, which have experienced labor unrest in the past few
months that have contributed to national toilet paper
shortages. (ref A.) Kimberly-Clark does not have labor
issues at the factory and has a contract with the single
workers' union.


3. (C) Padilla characterized Indepabis's recent inspection
as routine. Padilla said that Indepabis simply tracked the
factory's operations to ensure that all toilet paper is
produced and distributed within the company's four day
production cycle. Padilla claimed that Indepabis was neither
concerned with increasing production of regulated toilet
paper nor sanctioning the firm. The company, Padilla said,
was surprised by the extensive press coverage of the
inspection, which inaccurately portrayed it as an
"investigation."

--------------
KIMBERLY-CLARK OPERATIONS IN VENEZUELA
--------------


4. (C) Kimberly-Clark's profitable Andean operation is the
company's second largest in Latin America. Its three main
product lines are toilet paper, diapers and feminine care
products. Other than toilet paper, its products are imported
from Colombia and are subject to the CADIVI dollar process.
(Note: CADIVI is the GBRV agency that controls the buying and
selling of foreign currency at the official exchange rate.
Companies seeking to import products at the official rate of
2.15 BsF per USD face a series of hurdles, including a GBRV
process to certify domestic non-production. (ref B.) End
Note.) Kimberly-Clark is still waiting on CADIVI approvals
for dividend repatriation from 2007 and onward. Absent
approval, Kimberly-Clark's recourse is to repatriate
dividends using the parallel exchange rate, which would
result in a large currency exchange loss.


5. (C) According to Padilla, MilCo, the GBRV Ministry of
Commerce, was previously very quick to approve certificates
of non-production. Kimberly-Clark now experiences six-month
delays in the approval process. The company, Padilla said,
received approval from CADIVI the week of March 16 for a
large currency exchange request to import heavy equipment.
However, the company has been experiencing a 100 day delay in
payment by the Central Bank following receipt of the CADIVI
approval. CADIVI does not normally approve 100 percent of
the amount requested, but does approve, in Padilla's words,
"a large portion of the amount Kimberly-Clark requests."
Despite CADIVI delays, the company and the GBRV agreed on
preferential CADIVI treatment along with a 30 million USD
investment plan to expand Kimberly-Clark's product lines,
although Kimberly-Clark has not yet fully approved the
investment.

--------------

CARACAS 00000426 002 OF 002


COMMENT
--------------


6. (C) Kimberly-Clark exemplifies the case of other foreign
companies weighing risk against opportunity in the Venezuelan
market. It believes its relationship with the GBRV will
allow the company's operations to remain profitable.
However, its CADIVI approval and payment problems once again
underscore the risk of doing business in Venezuela.
CAULFIELD