Colombia is a major supplier of cosmetics and personal care products to Venezuela but following the decision by Venezuelan president Hugo Chavez to devalue the currency, imported cosmetic products have become prohibitively expensive in the country.
Furthermore, the president has also introduced a scheme requiring Colombian businesses exporting cosmetics into the country to have a health permit, a move that the National Association of Colombian Entrepreneurs, Andi, says has effectively blocked Colombian cosmetics exports into the country.
In 2008 it was estimated that Colombia exported approximately $135m worth of cosmetics products into Venezuela, a figure that had already fallen 12 percent compared to 2008, the association claims. In 2008 sales of cosmetics in Venezuela totaled $2.6bn.
Colombian cosmetics exporters hit a wall
However, it is feared that the new measures will effectively reduce the volume of cosmetics exports from Colombia to Venezuela to a mere trickle, as traders are either priced out of the market, or simply not able to trade legally.
In an official statement on the Andi website, the trade association referred to the moves by the Venezuelan government as being clearly discriminatory and contrary to the rules of the Andean Community of Nations.
Venezeula left the political and economic orgnaization in 2006, but is bound to respect its regulations until 2011.
On January 10 the Venezuelan government announced the devaluation of the currency in an effort to shore up demand for locally produced goods.
The move serves to prop up the Venezuelan economy. As a major exporter of oil worldwide, the country’s economy has been hard hit by falling demand for oil in light of the global recession.
Exchange rate is halved
The government cut the exchange rate of the Venezuelan bolivar against the US dollar – the main currency for international trade in the country – to 4.3 bolivars per US dollar to 2.15, while maintaining a subsidized rate of 2.6 bolivars per US dollar for essential products such as food and medicines.
Cosmetics and personal care products have not been classified as essential products by the government and as a result this is likely to lead to a long list of imported cosmetics increasing significantly in price. Indeed, many analysts believe prices could more than double.
Several global personal care players, including Colgate-Palmolive and Avon, have said they are also likely to be significantly impacted by the decision to devalue the currency because they have traditionally traded in US dollars in the country.
As a result of the currency devaluation Colgate has announced that it expects to take a series of charges throughout 2010, starting with a one time gain of $60m due to its current unpaid taxes and balance sheet in the country.