Venezuela has been giving Smurfit Kappa grief for years

Time for Smurfit Kappa to give up on Venezuela? The country has been giving the paper packaging giant grief for years and a cursory glance over the International Monetary Fund’s outlook for the South American economy doesn’t bode well.

The IMF estimated last week inflation in Venezuela, already the world’s highest last year at 275 per cent, will top 700 per cent in 2016 as gross domestic product contracts 10 per cent.

The political opposition accuses president Nicolas Maduro and his predecessor Hugo Chavez for the country’s economic crisis, as a slump in oil prices has crushed the Opec nation’s socialist economic model and led to widespread shortages of consumer basics.

Smurfit Kappa said in its second-quarter report on Wednesday its Venezuelan business “remains very challenging” with business volumes having “contracted considerably” – standing out like a sore thumb in a generally buoyant South American market.

With the country representing less than 1 per cent of group operating earnings, Cantillon asked chief executive Tony Smurfit if it was time for Smurfit Kappa to cut its losses and get out. “That’s not the way we operate,” he said. “We have no intention of leaving the country [where we’re] one of the few exporting companies out of Venezuela.”

The “resilient” local management at the Venezuelan business also got a special shout-out in the group’s release.

Meanwhile, Smurfit Kappa’s foray into the Brazilian market last year, after spending three decades searching for a suitable takeover target, won’t deliver the immediate return management had hoped for this year. With the cost of waste paper used to make some of the containerboard for cardboard boxes having surged 50 per cent so far this year, it’ll take a while to pass on the costs to its own customers.

Still, the quality of the businesses it bought in Brazil is shown in the fact its business volumes grew 4 per cent in a cardboard box market that is contracting.