Tread carefully in Cuba's 'open' economy - Experts

Tread carefully in Cuba's 'open' economy: Experts
By Adam Molon

The Cuban government said this week that it will open most of the
nation's economic sectors to international investment and allow the
existence of wholly owned foreign firms in Cuba, as part of a new
foreign investment law that is expected to pass on Saturday.

The Cuban government is also expected to cut the profit tax it charges
foreign enterprises operating on the island to 15 percent from the
current 30 percent.

But experts like John Kavulich, a senior policy advisor at the U.S.-Cuba
Trade and Economic Council, said that while these proposed initiatives
have the potential to bring positive, liberalizing reform to Cuba's
economy, international firms should still approach with cautious skepticism.

"What they've announced they'd do, does it sound progressive? Yes. Does
it have the potential to be progressive? Yes," Kavulich said,
referencing the Cuban government and the newly proposed foreign
investment legislation.

"But Cuba's had a foreign investment law since the 1980s. And one of the
problems has been that when the government feels that they've made
enough progress, they reverse course and try to take back or eliminate
the opportunities that they've presented to companies. Any changes
announced now have to be looked at in that historical context."

Currently, international firms are allowed to operate in Cuba only as
minority stakeholders in so-called mixed companies that are
majority-controlled by the government.

Kavulich pointed to a lack of legal and procedural transparency as a key
issue affecting Cuba's business environment, noting that some of the key
challenges foreign firms face in Cuba include repatriation of profits,
arbitration of conflicts and disputes, and regulations requiring that
Cuban personnel be hired through a state-run employment agency.

"On a plate of appetizers, it's not going to be the first appetizer that
you select," said Kavulich of Cuba's international investment
environment. "There are many countries throughout the world that are far
more transparent and have a less hostage-like relationship with
cooperating partners."

John McAuliff, executive director of the Fund for Reconciliation and
Development, a nonprofit organization advocating warmer relations
between the U.S. and Cuba, said that a new foreign investment law
enacted within an opaque and evolving system like Cuba's could lead to
misunderstandings for international investors, and, in some instances,
even something potentially as bad as jail time.

"In a transitional situation where not all the rules are clear or not
all the laws are clear, people could, through overreach, or greed, or
ignorance, get themselves into trouble with local laws," said McAuliff.
"There have been serious issues with people cutting corners and getting
into trouble with the law, and facing criminal charges in Cuba."

Robert L. Muse, an attorney who specializes in U.S. laws relating to
Cuba, said that in order for new Cuban foreign investment policies to be
effective, specificity of terms and clarity of process are key.

"I would encourage Cuba to go very quickly from the general to the
highly specific. What are the timelines? What are the approval
processes? How are they going to be enforced? Then, move on to
specificity of rule-making and regulations," said Muse. "It's not going
to be good enough to make broad pronouncements that Cuba is now seeking
foreign investment. Some questions are going to have to be pre-emptively
answered."

Muse cautioned that international companies considering investment in
Cuba should do so with their eyes wide open to the opportunities and
risks present in the island's economy and politics.

"This is a country that is opening up after 60 years of dormancy in the
investment sectors," said Muse. "You're almost pioneering your way in,
but there are risks associated with it."

Andrew MacDonald, director and chief executive of Esencia Group, said he
finds those risks worth taking. His company plans to build biomass power
plants in Cuba through a joint venture formed with a state-owned company
in Cuba's Ministry of Sugar.

"There are some unique factors," said MacDonald of international
investment in Cuba. "It can be a tad bureaucratic at times, but the
country is developing economically in the right direction."

"One of the issues in Cuba is that it is a little bit chicken-and-egg.
You've got to do a lot of prework and invest a lot of resources before
you get the joint venture approved, and then you can actually do the
real work," said MacDonald. "From a foreign investment point of view,
it's an attractive proposition to be able to own 100 percent of your
company and not have to form a joint venture."

Whether working in joint venture arrangements or as a wholly owned
entity, MacDonald said his company has no plans to exit Cuba.

"The opportunity side is enormous, because Cuba is a country rich in
natural resources," he said. "We believe in the Cubans, and we respect
them for their technical abilities and the resources they have."

Source: Tread carefully in Cuba's 'open' economy: Experts - Yahoo
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