The New Cuban Economy: What Roles for Foreign Investment?

December 2012



The New Cuban Economy: What Roles for Foreign Investment?

By: Richard Feinberg



The Cuban revolution defined itself in large measure in terms of what it

was not: not a dependency of the United States; not a dominion governed

by global corporations; not a liberal, market-driven economy. As the

guerrilla army made its triumphal entry into Havana and the infant

revolution shifted leftward, a hallmark of its anti-imperialist ethos

became the loudly proclaimed nationalizations of the U.S.-based firms

that had controlled many key sectors of the Cuban economy, including

hotels and gambling casinos, public utilities, oil refineries, and the

rich sugar mills. In the strategic conflict with the United States, the

"historic enemy," the revolution consolidated its power through the

excision of the U.S. economic presence.



For revolutionary Cuba, foreign investment has been about more than

dollars and cents. It's about cultural identity and national

sovereignty. It's also about a model of socialist planning, a hybrid of

Marxist-Leninism and Fidelismo, which has jealously guarded its

domination over all aspects of the economy. During its five decades of

rule, the regime's political and social goals always dominated economic

policy; security of the revolution trumped productivity.



Fidel Castro's brand of anti-capitalism included a strong dose of

anti-globalization. For many years, El Comandante en Jefe hosted a large

international conference on globalization where he would lecture

thousands of delegates with his denunciations of the many evils of

multinational firms that spread brutal exploitation and dehumanizing

inequality around the world.



Not surprisingly, Cuba has received remarkably small inflows of foreign

investment, even taking into account the size of its economy. In the

21st century, the globe is awash in transborder investments by

corporations, large and small. Many developing countries, other than

those damaged by severe civil conflicts, receive shares that

significantly bolster their growth prospects. The expansion of foreign

direct investment (FDI) into developing countries is one of the great

stories of recent decades, rising from $14 billion in 1985 to $617

billion in 2010.1 While FDI2 cannot substitute for domestic savings and

investment, it can add significantly to domestic efforts and

significantly speed growth.



Today's ailing Cuban economy, whose 11.2 million people yield the modest

GNP reported officially at $64 billion3 (and possibly much less at

realistic exchange rates), badly need additional external

cooperation—notwithstanding heavily-subsidized oil imports from

Venezuela. As with any economy, domestic choices made at home and by

Cubans will largely determine the country's fate. Yet, as Cubans have

been well aware since the arrival of Christopher Columbus, the

encroaching international economy matters greatly; it can be a source of

not only harsh punishments but also great benefits. In the Brookings

Institution monograph Reaching Out: Cuba's New Economy and the

International Response, I explored the modest contributions already

being made by certain bilateral and regional cooperation agencies and

the larger potential benefits awaiting Cuba if it joins the core global

and regional financial institutions— namely the International Monetary

Fund, the World Bank, the Inter-American Development Bank, and the

Andean Development Corporation. This sequel explores the contributions

that private foreign investments have been making, and could make on a

much greater scale, to propel Cuba onto a more prosperous and

sustainable growth path.



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