Cuba Opens the Gates to Foreign Capital

Cuba Opens the Gates to Foreign Capital / Ivan Garcia
Posted on April 10, 2014

When a government's financial figures are in the red, everything takes
on new urgency. By now the formulas to address the problem are
well-known. Often new tax measures are imposed while bloated public
spending is slashed.

But if the goal is to attract American dollars, euros or other forms of
hard currency, then any reforms must tempt likely foreign investors and
Cuban exiles alike.

The situation is pressing. Venezuela, the spigot from which Cuba's oil
flows, is in a firestorm of criminal and political violence and economic
chaos. China is an ideological partner but only makes loans if it can
reap some benefit.

The Cuban government does not have a lot of room to maneuver. Its
solution has been to open things up a little but not completely. Except
in the areas of health, education and defense, Cuba is for sale.

The communist party's propaganda experts have been trying to sugarcoat
the message to its audience. In recent months government officials have
been working to attract foreign capital by offering investors a more
important role in the Cuban economy.

"Foreign financial resources would do more than provide a complementary
role to domestic investment initiatives and would play an important
role, even in areas such as agriculture, where foreign investment has
been rare," said Pedro San Jorge, Director of Economic Policy at the
Ministry for Foreign Trade and Foreign Investment, in January.

In an interview with the newspaper Granma on March 17, José Luis Toledo
Santander, Chairman of the Standing Committee of the National Assembly
of People's Power for Constitutional and Legal Affairs, said the new law
"will also provide for a range of investments so that those who wish may
know the areas of interest in the country."

"This action will also be a breakthrough in terms of the paperwork
required to make an investment by creating a more streamlined process,"
the official added in response to a common complaint by business people
that the Cuban bureaucracy is too slow.

Toledo Santander said the new law "also includes incentives and tax
exemptions in certain circumstances, as well as an easing of customs
duties to encourage investment."

He stressed that "the process of foreign investment will be introduced
without the country relinquishing its sovereignty or its chosen social
and political system: socialism. This new law will allow foreign
investment to be better targeted so that it serves the best interests of
national development without concessions or setbacks."

On Saturday March 29 the national television news broadcast reported
sometime after 1 PM that the single-voice Cuban parliament had
unanimously passed a new foreign investment law without providing more
details

The new law provides for an exception to one passed in 1995 which
assigned foreign capital a "complimentary" role in Cuban state
investments. This meant that foreign investors could hold no more than a
50% stake in any joint venture.

The proportion was higher when it came to technology and retail
businesses but only because of a strong interest in these sectors on the
part of military autocrats. Between 1996 and 2003 roughly 400 firms in
the mining, hospitality, food, automotive and real estate sectors were
created in Cuba with foreign capital.

All were small-scale and supervised closely by authorities. Now it's a
choice of life or death. Fidel Castro's revolution generated many
promises and speeches, but these did nothing to foster the economic
development that the country needed.

Cuba imports everything from toothbrushes to ball-point pens. Large
areas of arable land are overrun with the invasive Marabou weed, and
produce little or nothing. In 2013 the government imported almost two
billion dollars worth of food.

Since 1959 government leaders have continuously promised ample harvests
of malanga, potatoes and oranges coffee as well as a glass of milk per
person per day, but the inefficient economic system hampers any such
nationial initiatives.

Finally the last trump card was played. It involved opening the gates by
luring foreign investors with generous tax exemptions. They included
Cubans living in the United States and Europe but not virulent
anti-Castro Cuban-Americans from Florida.

If they toned down their strident anti-Castro rhetoric, then perhaps
Alfonso Fanjul, Carlos Saladrigas and company might come under
consideration also.

Of course, it is not all clear sailing. The U.S. embargo presents a
powerful obstacle to any business venture on the island. And the Castro
brothers are not serious business partners.

On the contrary. They have changed or corrected course at whim in
response to shifting political dynamics. Of the roughly 400 foreign
firms that existed in 1998, only about 200 remained in operation as of
spring 2014.

Several foreign businessmen, including Canadians, have been threatened
with imprisonment while others, like Chilean Max Marambio*, have had
arrest warrants issued against them by Cuban prosecutors.

Raul Castro, who inherited power by decree from his brother Fidel in
2006, has tried to clean up government institutions and establish more
legal coherence, abolishing absurd laws that prevented the Cubans
renting hotel rooms, having mobile phones and selling their own homes
and cars.

In January 2013 a new emigration law was adopted that made it easier for
Cubans, including dissidents, to travel abroad. Internet access became
available, though at jaw-dropping prices, and Peugeot cars went on sale,
though priced as if they were Lamborghinis.

For many European and American politicians, Cuba is in the process of
becoming a modern nation whose past sins as well, as it's the lack of
democracy and freedom of expression, must be forgiven. Others say it's
just a ploy to buy time.

The average Cuba, whose morning coffee does not include milk, who has
only one hot meal a day and who wastes two hours a day commuting to and
from work on the inefficient public transport system, is not likely to
be impressed with the much hyped opportunities.

Those who open private restaurants or receive remittances from overseas
can weather the storm. Those who work for the state — in other words,
most people — are the ones having it the worst.

Although the regime may try to camouflage its new policies by resorting
to various ideological stunts, the person on the street realizes that
the new Cuban reality is nothing more than state capitalism painted over
in red.

For a wide segment of the Cuban population, the new investment law is a
distant echo. It is yet to be see if it bring them any benefits.

Ivan Garcia

*Translator's note: In 2010 Cuban prosecutors accused Marambio and his
firm, Río Zaza, of corruption. Marambio claimed the actions were
retribution on the part of Fidel and Raul Castro for his support for
Marco Enríquez-Ominami, a candidate in Chile's 2009 presidential
election. Marambio filed suit with the International Court of
Arbitration in Paris against his Cuban business partner, Coralsa, a
state-owned juice and dairy company. On July 17 the court found in favor
of Marambio and ordered Coralsa to pay over $17.5 million dollars in
damages "for refusing to cooperate in good faith" in the process of
liquidating Rio Zaza.

30 March 2014

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