Cuba and an Investment Law

Cuba and an Investment Law

March 20, 2014

Fernando Ravsberg*



HAVANA TIMES — On March 29, parliament debates the new foreign

investment law to govern "in almost all sectors of the economy" (1),

advanced José Luis Toledo Santander, head of the Constitutional Affairs

Committee of the National Assembly.

The issue is vital for Cuba, so much so that the former Minister of

Economy José Luis Rodríguez says that "the increase in the rate of

growth of the Cuban economy ( … ) represents a significant increase in

investment in the coming years". (2)



The law aims to attract more foreign entrepreneurs by offering greater

guarantees and assurances. Toledo added that it even "includes bonuses

and total tax exemptions in certain circumstances, as well as

flexibility in Customs."



The issue is closely linked to the Mariel Special Development Zone

project with financial and technological support from Brazil, which aims

to create a kind of Caribbean Hong Kong, with different rules than those

that apply in the rest of the country.



And other regulations will be needed because it is not difficult to

imagine the face of new investors when informed they have to pay a

quarter of a million dollars for each new car they buy for their

business in Cuba.



The amazement will repeat when they learn the cost of Internet service

and more so when they realize how slow the connection is, coming from

the same server used illegally for resale of connections on the black

market, the mechanism by which Cubans can gain access from home.



The contracting system in Cuba



José Luis Toledo ensures that among the concerns of the legislators is

the "labor rights of Cubans who would work on these projects," also a

concern of citizens who are already part of these companies.



Under the current rules, to hire staff for their companies investors are

forced to resort to the government's employment offices. For being the

intermediary in the contracting they keep 90% of the salary that the

employer pays its employees.



The remaining 10% is not enough to live on, so if the employer wants to

require efficient work they are forced to give an extra bonus in hard

currency, also taxed at 35%.



Employees of foreign companies can be considered privileged over other

Cubans. Nonetheless, many feel upset when they learn that the state

retains such a higher percentage, more than even paid in Scandinavia.



In this sense, José Luis Rodríguez proposes "more flexible contracting

arrangements for the workforce without relinquishing control of the

labor system of partnerships with foreign capital, using an appropriate

wage and fiscal policy."



Challenges for Cuba



Another obstacle is the state's import companies, the only ones

authorized. These are monopolies that enjoy enormous power of decision

and are known for very slow management and sometimes lack business

integrity.



And last but perhaps most important according to Rodriguez is "to

increase credibility by normalizing the payment of outstanding debts

with different creditors" and the timely payments to business people who

currently trade with the island.



For those late payments, sometimes due only to bureaucratic reasons,

Cuba spends more on imports. Foreign entrepreneurs increase the profit

margin to cover the interest to be paid to the banks financing their

operations.



The challenges facing the Cuban parliament in its attempt to promote

foreign investment are huge and their success will depend on their

understanding what they are saying when they assure that in the new

foreign investment law "there will be no concessions or setbacks."



If not making "concessions" means that national interests will be

defended and that "in no way will mean selling the country" can be a

long-term guarantee that a nation that already belongs to the new

generations of Cubans will not be mortgaged.



But if to avoid "setbacks" the Kafkaesque web of irrational regulations

and inefficient agencies remains, Mariel will be no more successful than

the failed free trade zones opened with equal fanfare two decades ago.

—–

(*) Visit Fernando Ravsberg's blog (in Spanish).



Source: Cuba and an Investment Law - Havana Times.org -

http://www.havanatimes.org/?p=102526