An economic survey ranks the communist country among the world's worst
business environments
By Doreen Hemlock
Havana Bureau
February 11, 2007
Havana · Think of the nightmares possible in doing business overseas:
Tight government regulations. Supply shortages. Sky-high utility bills.
Unmotivated workers. Dismal customer service.
International companies in communist-run Cuba face all of those -- and more.
The London-based Economist Intelligence Unit ranks Cuba among the
world's worst business environments -- No. 80 of 82 nations surveyed,
with only Iran and Angola rated lower for the past five years.
And with little policy change expected, the Caribbean nation likely will
stay among the worst for business over the next five years, the EIU
predicted in a recent survey.
Even managers of Chinese companies favored these days by Havana cite
headaches.
"Our company does business with 46 countries, and Cuba is the only one
where we can't have a commercial representative to find clients and
service them," said a Chinese executive who declined to be named for
fear of Cuban reprisals.
Most U.S. companies can't do business with Cuba because of Washington's
four-decade embargo aimed to squeeze the island's communist regime. But
those few with permission -- like U.S. food exporters -- also face
obstacles, from reams of U.S. paperwork to Havana's prodding that U.S.
suppliers lobby on Cuba's behalf.
"And you've basically got one customer: the Cuban government," said Jay
Brickman, vice president of government services for Jacksonville-based
Crowley Maritime Corp., whose shipping service hauls authorized U.S.
food exports from Broward County's Port Everglades to Cuba.
Havana cracked open the door to foreign capitalists in the 1990s after
the collapse of the Soviet Union and the end of generous Soviet
subsidies sent the island's economy crashing. But foreign investment has
always been more tolerated than embraced by authorities, analysts said.
"It's seen as bitter medicine, like castor oil," said independent
economist Oscar Espinosa Chepe in Havana. "Some hardliners call it
`ideological contamination.'"
Nowadays, as hefty Venezuelan oil subsidies and Chinese loans lift Cuba
from its economic hole, the government is getting more selective about
what foreign investment it approves and what foreign companies can do.
Decline in partners
Numbers tell the story. The tally of Cuba's foreign "economic
partnerships" fell to 236 last year from more than 400 in the year 2000,
authorities have said.
Cuba now seeks foreign partners mainly for large, costly projects, such
as oil exploration and mining. And it gives priority in joint ventures
to Venezuela and China, nations with a fellow leftist bent, said Paolo
Spadoni, a teacher at Rollins College in Winter Park. who specializes in
Cuba.
Smaller European firms once welcomed even for limited retail operations
are now being turned away, as Cuba's government expands its own
restaurant and store network.
"Every day, Italians come in and say they want to put up a pizzeria or
clothing store. That type of business, the government says, we generally
don't need," said Miriam Martinez, a spokeswoman at the Cuban Chamber of
Commerce.
Once approved, operations in Cuba are increasingly centralized in
government hands, foreign executives said.
Though Cuban law permits 100 percent foreign ownership, most foreign
companies operate through partnerships with the government and hold only
minority control.
Even foreign embassies generally can't hire their own staff, but must
hire through government staffing agencies. Some foreigners bemoan
nepotism at the agencies.
Foreign businesses pay their staff through the government agencies, but
employees get only a sliver paid to them in local currency. The
government pockets the bulk, saying it needs the cash for Cuba's free
education, health care and welfare programs.
Local salaries don't stretch to pay the bills, so foreign employers
generally pay a bonus to their employees, sometimes up to $1,200 a
month, executives said.
Then, there's the delay issue, especially long waits to obtain imported
supplies. Few imports are warehoused because Cuba faces foreign currency
and credit shortages and won't tie up its cash.
What's more, Cuban bureaucracy can be painstakingly slow.
Italian clothier Benetton, which operated as many as five shops in Cuba
in the 1990s, has closed at least two permanently, said Tania Hernandez,
a manager of the Old Havana shop now temporarily shut amid renovations.
Benetton's Cuba sales have drooped, partly because of rising costs and
import difficulties, she said.
Some executives say the only way to operate in Cuba is to plan ahead --
way ahead.
"For example, if I know in six months I'll need to change the chair
covers in the hotel, I try to ask six months in advance for what I
want," said hotelier David Ocete, a Spaniard who runs the 437-room
Occidental Miramar in Havana, one of three hotels operated in Cuba by
Spain's Occidental Hotel Group.
Tight government controls can have some advantages for business, however.
Minimum room rates set by Cuba's Tourism Ministry, for example, avert
price wars, keeping tour operators from playing one hotel off another
and squeezing hotel profits.
"I wish the Canary Islands and Mallorca had minimum rates," hotelier
Ocete said.
And Cuba offers some advantages envied elsewhere in Latin America: high
literacy rates and low crime.
Those gains clearly don't outweigh the problems, especially when
business faces a unique external pressure exerted by the U.S. embargo
both on American and international companies.
U.S. scrutiny and sanctions against banks and other companies that do
business both with Cuba and the United States have become so tough that
some international firms are opting not to work with Cuba and to
safeguard their larger and more lucrative U.S. operations.
At least two Swiss banks, UBS and Credit Suisse, and one American money
transfer company, MoneyGram International of Minneapolis, announced an
end to financial operations with Cuba in recent months amid the U.S.
crackdown.
Amid all the hurdles, many foreign executives are focusing outside Cuba
to more attractive spots for business.
Doreen Hemlock can be reached at dhemlock@sun-sentinel.com or 305-810-5009.
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