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Thursday, November 24, 2016

Cuba is reaching out to the world for foreign investors

Cuba is reaching out to the world for foreign investors
BY MIMI WHITEFIELD
mwhitefield@miamiherald.com

For $2.5 million, a foreign investor can help create an international
equestrian club in the Province of Havana or plunk down $10 million to
create a network of eco-lodges across the island with a Cuban partner.

For an estimated investment of more than $15 million, the welcome mat is
out for a potential manufacturer of air conditioning equipment in Cuba's
Mariel Special Economic Development Zone, and investors are also invited
to negotiate the right to set up a plant capable of producing 10,000
light automobiles a year at the zone.

These are just a few of the 395 joint venture projects, management
contracts and other economic partnerships that Cuba is offering foreign
investors in the latest edition of its portfolio of opportunities,
released early this month.

Under Law 118, Cuba revamped its foreign investment code in 2014, even
allowing investors to set up factories with 100 percent foreign capital.
Although the law offered tax breaks and other benefits to investors,
foreign companies still can't directly hire Cuban workers and must go
through a government agency for their labor needs.

But as Cuba courts foreign investors from around the globe, U.S.
businesses may be getting further behind in their tentative efforts to
make inroads in Cuba. President-elect Donald Trump has said he may
reverse Obama administration rules that allowed a rapprochement with
Cuba unless the island's leaders respect human rights and release
political prisoners. And that throws even more uncertainty into the
equation.

Meanwhile, the Cuban government is forging ahead with efforts to attract
foreign capital. In addition to the Mariel zone and tourism, the new
investment portfolio also includes projects in the agriculture, sugar,
energy, mining, transportation, biotech/pharmaceutical, health,
construction, business services, telecommunications, banking and finance
and industrial sectors.

Investment priorities
Here are a few more examples of what Cuba wants:
▪ Foreign capital for a clean, energy-efficient soybean processing plant
and soy oil refinery. It would require an investment estimated at $149
million.
▪ Hundreds of millions of dollars to set up various biotech factories.
▪ A joint venture partner for Cuba's CIMEX to build and operate a
wholesale operation for food and industrial products. Cuba's private
business sector has long complained about the difficulty of finding
products for their businesses at wholesale prices.

"There is now a new set of priorities for foreign investment. Foreign
companies know what Cuban companies are looking for, so there can be a
match," said Carlos Gutierrez, secretary of commerce in the George W.
Bush administration and now chairman of the Albright Stonebridge Group,
a commercial diplomacy and strategic advisory firm.

All the projects in the Cuban portfolio have been thoroughly studied and
are ready to go as soon as suitable foreign partners and capital are
found, said Rodrigo Malmierca, Cuba's minister of foreign trade and
investment.

Until the 1990s, when the collapse of Cuba's benefactor, the former
Soviet Union, sent its economy into crisis, forcing it to make its first
overtures to foreign investors, Cuba wasn't really interesting in
reaching out to the world for investment. But Malmierca emphasized that
Cuba's increased interest in foreign investment now "isn't a necessary
evil." Instead, he said, it's a cornerstone of Cuba's current
development strategy.

In addition to financing projects that will create jobs and help Cuba
realize its goals of broadening export markets and replacing imports,
Cuba also wants foreign investment to increase its access to
state-of-the-art technologies and management practices.

"The idea is to make Cuba a producer of products that were imported for
domestic use and eventually a net exporter," said Saul Cimbler, a Coral
Gables businessman who is working on joint venture deals with Cuba for
himself and clients. "The whole idea is to make Cuba self-sufficient."

Cuba's profile
Helping raise Cuba's profile as a foreign investment target: The
renegotiation of $2.6 billion in debt to the 14 wealthy nations that
comprise the Paris Club and making the first installment on that
renegotiated debt ahead of schedule in October.

Some of the larger Paris Club creditors, including Japan, Spain,
France,and Italy, also have worked out bilateral deals so that some debt
payments are deposited in Cuban accounts for use in joint development
projects on the island.

So far, Cuba has received the heftiest dose of foreign capital in the
tourism industry, which is poised to receive an estimated 3.8 million
foreign visitors this year. However, Cuba's aspirations for foreign
investment still far outstrip reality.

Cuba estimates that to reach a goal of 7 percent economic growth
annually, it will need foreign investment of around $2.5 billion each
year. Since Law 118 went into effect in early 2014, Cuba has attracted
$1.3 billion in investments, said Malmierca.

But earlier this month Cuban media reported that two big foreign
investment projects had broken ground at the Mariel zone: a joint
venture of Unilever and Cuba's Intersuchel to build a $35 million
factory that will turn out shampoo, deodorant, Lux soap, Omo detergent
and Close-Up toothpaste and also BrasCuba Cigarillos, a Cuban and
Brazilian joint venture that will make Popular, Cohiba and H. Upmann
cigarettes in a $100 million state-of-the-art factory.

Last summer, two French companies — Bouygues Batiment International and
Aeroports de Paris — also were granted concessions to manage and
renovate Havana's José Martí International Airport and the aerodrome of
San Antonio de los Baños, in Artemisa. Details of the contract are still
being worked out.

The U.S. opening toward Cuba that began in December 2014 also seems to
have spurred other nations around the world to take a second look at
Cuba in the belief that the next step would be the lifting the U.S.
embargo, increasing competition for prime Cuban investment opportunities.

"Other countries became more interested when they thought U.S. companies
would get in, and they have continued their interest," said Gutierrez,
who accompanied a group of 30 or so executives and members of the U.S.
Chamber of Commerce to the Havana International Fair in early November.
About two dozen U.S. companies had booths at the fair.

Other nations
But their presence was far outweighed by other nations such as Spain,
with more than 150 booths promoting everything from olives and
decorative tiles to industrial products that sprawled over five
pavilions, and Italy with 93 registered exhibitors, and Germany with 65.

No deals were announced for U.S. businesses during the fair, Gutierrez
said, but there were a lot of "behind-the-scenes" conversations.

New U.S. regulations carved out by the Obama administration as
exceptions to the embargo allow more — but still limited — trade with
Cuba, and permit American companies to invest in the Cuban telecom
industry. U.S. firms also are allowed to offer their services in
infrastructure projects that benefit the Cuban people, sign hotel
management agreements and engage in negotiations for contracts and pacts
contingent on getting future approval from Treasury's Office of Foreign
Assets Control or the lifting of the embargo.

U.S. companies have signed deals under these exceptions to the embargo,
Gutierrez said, but he added that "the process has stalled."

Cuba has intensified its call for the U.S. Congress to lift the embargo,
because despite the opening, the changes made by President Barack Obama
are just executive orders and rules that can be unraveled by a new
administration. That poses business risks for both Cuba and U.S. companies.

American firms' competitive stance also has been hampered by the
debt-related trade and investment concessions that other countries have
been able to negotiate and a U.S. prohibition on financing nearly all
exports headed to Cuba.

Analysts say Cuban officials also may have thought they had the luxury
of time in considering potential deals with U.S. businesses.

"I suspect the Cubans — and others — anticipated a Clinton
administration and a continuation of President Obama's policies. In
their mind, the time frame was four more years," said Augusto Maxwell, a
lawyer with the Miami-based Akerman firm. He works with clients
interested in entering the Cuban market.

Now with Trump saying on the campaign trail that he would reverse Obama
administration executive orders that allowed the rapprochement with
Cuba, the few American deals that did go forward may be threatened.

"We'll be at a serious disadvantage if Obama policies [on Cuba] are
reversed and if sanctions on Cuba aren't eventually lifted," Gutierrez said.

But Cuba seems to be hoping normalization will continue under Trump. "I
have talked with Cuban officials recently and they said they have an
open mind to the new administration and plan to continue the policy of
engaging U.S. businesses until further notice," said Maxwell.

Source: Cuba courts investors from around the world as prospects for
U.S. business are unclear | Miami Herald -
http://www.miamiherald.com/news/nation-world/world/americas/cuba/article116773683.html
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