Month: December 2014

The dramatic fate of public enterprises


Here is a dramatic example of how bad things can go when populist governments take over private enterprises.

América Textil (Ametex) was a Bolivian private company that manufactured textiles and exported its product mainly to the US. Ametex benefited from trade preferences offered by the American government (ATPDEA) and up to the early 2000s it exported more than $20 million worth of textiles to that country. Its clients included Polo Ralph Lauren, Express and other famous brand names. Ametex employed almost 3,000 workers in seven factories and the average wage was 135% higher than the Bolivian minimum wage. Indeed, a successful entrepreneurial story.

And here comes the government…

The ATPDEA preferences were conditional on positive results on the war against drugs. As the production of cocaine and coca plantations increased since the early 2000s (together with the confrontational rhetoric of Evo Morales against the US government), Bolivia finally lost its ATPDEA treatment in late 2008. And that was the beginning of the end. Ametex lost its main market and started to lose money. The situation turned unsustainable and Ametex was going bankrupt. In a typical populist move, the government of Evo Morales decided to buy the company to save the many jobs that were on the line. The company was purchased by the government for $15 million.

And then things got worse…

Ametex was renamed “Enatex” as a public enterprise in 2012 and things turned ugly. As usually happens with public enterprises in Latin America, the company became a political trophy and has seen three CEO changes in three years. The original, and very populist idea, was for the workers to run the company. They quickly realized and admitted that the managerial aspects were not their forte and so the government started to appoint executives. At some point a movie maker was in charge and now the company is led by a PR person. The main markets for Enatex are now Cuba and Venezuela which we all know cannot afford to buy even toilet paper. The company employs now only 1,600 employees and they haven’t been paid in four months. The cotton imported to make the textiles is getting ruined at the ports in Chile because the company cannot make payments to the suppliers. The workers have organized massive protests and have accused the government for poor management. And here is the cherry on top of the cake. In a pathetic effort to make things better, the Bolivian Minister of Productive Development has publicly appealed to the “consciousness” of the public so they can buy products from Enatex. The government is actively trying to sell “400 pieces of clothing” to the Bolivian people to “save Enatex.” Isn’t that remarkable? A populist action gone bad that all Bolivians now have to pay by buying the products.