Report - Law will let Cubans abroad invest on the island

Posted on Wednesday, 03.26.14

Report: Law will let Cubans abroad invest on the island
BY JUAN O. TAMAYO
JTAMAYO@ELNUEVOHERALD.COM

Cuba's new foreign investment law cuts taxes, opens new sectors to
foreigners and allows investments by Cubans living abroad as part of
ruler Raúl Castro's efforts to lure fresh capital to his long-stagnant
economy, according to published reports.

But the law continues to require government approval for each deal and
hiring from widely criticized state-run labor agencies, and does not
allow investments by individual Cubans on the island.

Castro is pushing the new law as part of his campaign to inject market
reforms into the country's Soviet-style economy, which shrank by 35
percent after Moscow ended its massive subsidies to the island in the
early 1990s.

The rubberstamp legislature, the National Assembly of People's Power,
will meet in a special session Saturday to vote on the draft that
officials say was designed to offer investors "facilities, guarantees
and legal security."

The bill has not been published, but reports in the Juventud Rebelde
newspaper and two Web sites Wednesday pointed to a wider opening of
Cuba's doors to foreign investments, fixes for some of the problems with
the current investment law but no fix for others.

Under the existing 1995 law and regulations, all but a handful of
foreign investors are limited to 49 percent ownership of joint ventures
with the government. The law calls for a 30 percent tax on profits and a
20 percent tax on labor, plus taxes and fees on personal incomes and a
half-dozen other categories.

Cuba reported barely over 400 joint ventures in 2002, and the number has
since plunged to about 200. Businessmen have complained the government
has been favoring Venezuelan and Chinese enterprises and shuttering
others on suspicion of corruption.

The new law cuts the tax on profits to 15 percent, eliminates the labor
tax and offers several exemptions. It also eases baking restrictions and
allows investors to import and export supplies directly, now largely a
function of state enterprises, according to articles in the Miami-based
digital magazines OnCuba and Progreso Semanal.

Goods imported for the investment projects will be exempt from duties,
and projects that exploit natural resources, such as mining, beaches,
forests and bays, may be required to pay extra taxes and fees, the draft
reportedly said, giving no details.

But the draft appears to limit the tax incentives to joint ventures and
leaves out projects 100 percent owned by foreigners, according to the
Reuters news agency, which reported that it had seen a copy of the
draft. The full law is expected to be published next week.

Cubans living abroad will be able to invest like any other foreigner,
OnCuba noted. The government has never opened its doors to Cuban
investors — although the 1995 law allows it — but officials have been
talking recently about embracing exile capital. The U.S. embargo outlaws
investments by all residents of the United States.

"In the case of us Cubans who live abroad, it seems that our country is
opening the doors to us, either because of right or need," said OnCuba
owner Hugo Cancio. "Who better than Cubans living abroad to invest in
our country? Who would do it with more enthusiasm and eagerness than a
Cuban who not only recognizes and values the opportunity, but from his
heart desires the best for his country, his people?"

The draft also lays out procedures for negotiations, banking and
environmental requirements and ways to resolve conflicts between the
foreign and Cuban sides of an investment, according to the OnCuba report.

Investments approved will be aimed at increasing and diversifying Cuban
exports, replacing imports — especially in agriculture and energy — as
well as creating new jobs and bringing fresh technology and managerial
know-how to the island, it added.

But cabinet ministers or other top government officials must still sign
off on each deal – a process that in the past has taken months and even
years -- and no foreign investments will be allowed in the health,
education or armed forces, OnCuba added.

The draft also notes that the local partners in joint ventures must be
legally registered companies, ruling out participation by individual
Cubans but perhaps leaving the doors open to some of the recently
established private cooperatives, the magazine added.

Cuba does not allow private individuals to register companies, and the
455,000 licensed small-scale businessmen on the island are engaged in
"self-employment," such as carpenters, and do not own companies.

The state-run labor agencies, which pocket the lion's share of the
salaries paid by foreigners to local employees, have been accused of
corruption, undermining the loyalty of workers to their bosses and
making it difficult for investors to hire good employees.

Carmelo Mesa-Lago, a veteran Cuban economist, said the draft offered
some positive changes but left some negative aspects of the 1995 law in
place and adds some new limitations.

"Cuba must demonstrate that it will really be more flexible on foreign
investments if it really wants to change the mistrusts that exists among
investors," Mesa-Lago wrote in an email to El Nuevo Herald.

Castro has been enforcing a string of market-style reforms in an attempt
to jump-start the economy since he succeeded older brother Fidel after
he underwent emergency surgery in 2006.

Private economic activity has expanded and medical personnel working
abroad are expected to earn more than $8 billion this year. But the
purchasing power of the peso remains at pre-1990 levels, productivity
remains stagnant and prices are spiking.

Cuba's economy expanded by 2.7 percent last year and is expected to hit
2.2 percent this year, both meager levels for a country whose unique way
of counting its Gross National Product exaggerates the final tally.

Concerns over the stalled economy have sharpened amid the violent
protests racking the leftist government of Venezuelan President Nicolás
Maduro, which provides Cuba with subsidies estimated at up to $10
billion per year — far more than Moscow provided in the 1970s.

Source: Report: Law will let Cubans abroad invest on the island - Cuba -
MiamiHerald.com -
http://www.miamiherald.com/2014/03/26/4021068/report-law-will-let-cubans-abroad.html