Skepticism as Cuba OKs law to lure foreign investors
Alan Gomez, USA TODAY 6:52 p.m. EDT March 29, 2014
MIAMI — A new law approved by the Cuban National Assembly on Saturday
designed to lure more foreign investment to the island nation has many
wondering what it will mean.
The new law has Cuba observers wondering whether it will energize the
country's struggling economy, whether it represents a step from the
county's centrally planned economy to a more capitalist one, and whether
the success of foreign companies there will prompt American businesses
to push for a change in the U.S embargo on the Communist country.
For some, the question is far simpler.
"Would you put your money in Cuba?" says Jaime Suchlicki, director of
the Institute for Cuban and Cuban-American Studies at the University of
Miami. "It's a system that's not transparent, there's no legal system
that protects foreign investment."
"They can change the law," he adds, "but they have to change the system
for people to jump in and invest."
That skepticism is exactly what government officials are trying to
change in Cuba, which has a complicated history with foreign investment.
While Cuba has allowed foreign investors from across the globe to
participate in selective, carefully monitored enterprises, its
government has permitted those companies to maintain only 49% ownership
of their operations.
Under the new law — endorsed by President Raúl Castro and approved
Saturday by the Cuban parliament — foreign companies will be able to
hold a 100% ownership in ventures. For companies that engage in joint
ventures, the profits tax will be cut from 30% to 15%, and most
investors would be exempt from paying that tax for at least eight years.
The law also would allow the free transfer of profits and dividends off
the island without additional tax and ensure legal protections for
companies engaged in disputes.
The law follows a series of economic reforms that have been instituted
since Raúl Castro assumed power over his ailing brother, Fidel, six
years ago. Cubans can now buy and sell their homes and cars, and the
government cut more than a half-million workers from the state payroll
and has encouraged more private operation and ownership of small businesses.
"They've made a bunch of positive changes, but so far they have not seen
the growth and the job creation and the foreign exchange earnings that
they need," says Phil Peters, president of the Virginia-based Cuba
Research Center. "They've made progress, but the economy needs a bigger
lift and foreign capital can do that."
Carmelo Mesa-Lago, a Cuba native who has studied the country's economy
as a professor at the University of Pittsburgh, says the lower taxes,
higher ownership stakes in investments and streamlined process to open a
business in Cuba are all things that any company would look for.
"I know companies who negotiated for over a year and then get denied,"
he says. "The law limits the process for that to two months. That's very
While the country's biggest economic lures — tourism and mining for
natural resources — are already being handled by foreign companies, some
see openings in the lagging agricultural industry and emerging sectors,
like biotechnology and pharmaceutical production.
But as with most things related to Cuba, there's a catch. Cuba passed
another foreign investment law in 1995 that allowed for such things as
100% ownership by foreign companies. But Mesa-Lago says the legions of
government functionaries never permitted that to be carried out.
"There is little confidence investing in Cuba," he says. "The question
is, how is this new law going to change that mentality? This is going to
depend on how they implement this new law in reality."
The new law does not change the fact that foreign companies must still
go through a government-run workforce agency, meaning the government
will still oversee the hiring and firing of all employees. The new law
also prohibits Cubans on the island from investing in any new companies
or joint ventures, meaning residents of Cuba can still only own
small-scale businesses like restaurants and barber shops.
And despite the welcoming tone, every decision is still made by a
government that, as one of its first acts in power more than 50 years
ago, nationalized foreign companies.
"If you were a businessman in France and you want to invest in the
Caribbean, you wouldn't go to Cuba," Suchlicki says. "You'd go to Mexico
or the Dominican Republic or, if you want to sell in the United States,
you got Puerto Rico. Why would you go to Cuba?"
If enough companies invest in Cuba and they prove successful, that could
reignite a debate in the U.S. over the embargo on the island.
"American companies are interested," says Yosbel Ibarra, a Miami-based
corporate attorney at Greenberg Traurig who co-chairs the firm's Latin
American and Iberian practice. "I think that there is some nostalgia for
the possibility of being one of the first American companies in Cuba."
That could prompt business leaders to press Congress for a change in
U.S. policy toward Cuba.
"Certainly what we're going to see in the coming months is that new
investment opportunities are going to open up in Cuba and everyone but
the United States is going to seize them," Peters says. "If that prompts
efforts to change U.S. law, then that would be a good thing."
Rep. Ileana Ros-Lehtinen, R-Fla., dismisses any talk of weakening the
embargo and says the idea of a bright, new day for investment in Cuba is
"This is the latest desperate effort to maintain its brutal totalitarian
control over the Cuban people," she says. "It's just an old regime ploy
to hide its failed policies that have shown that Cuba is not open for
business because the Castro regime continues to owe billions of dollars
to foreign entities."
Still, some say it's impossible to simply dismiss what has now been six
years of economic changes in Cuba.
"When an adversary adopts a position you suggested, let them. Celebrate
it," says Rep. Joe Garcia, D-Fla. "Yes, it's a step for them to continue
to survive. But it's a step in the direction that all of us want, which
is the further liberalization of the Cuban economy."
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