Is Cuba ready to open up to foreign investment?

Is Cuba ready to open up to foreign investment?

By Sarah Rainsford

BBC News, Havana



"Socialism or death" is the stark choice that shouts down from the sign

above a Havana steel firm. The words surround a painted image of Fidel

Castro's face, a reminder that Cuba remains a very peculiar place to do

business.



But it seems a new, pragmatic mood has taken hold.



This weekend, Raul Castro - now in charge and overseeing a broad, albeit

snail-paced reform programme - convened an extraordinary session of

parliament.



The goal was to bring more foreign investment to the island.



Sense of urgency



Deputies duly approved a new law that Cuba hopes can attract more than

$2bn a year in investments and help treble economic growth to 5-7%.



Trade Minister Rodrigo Malmierca told deputies that the foreign

investment law was intended to help Cuba access advanced technology, new

management methods and export markets, and create jobs.



[It] "will not only help attract foreign capital with clear rules and

incentives, it will also allow us to use that potential to develop the

country, whilst preserving our independence and sovereignty," the

minister said.



Political unrest and economic problems in Venezuela have added urgency

to the move, as Havana has been forced to contemplate losing a vital

ally and financial prop.



It was the loss of a previous benefactor - the USSR - that first forced

Fidel to open Cuba's economy to outside investment.



Money poured into tourism in the 1990s as well as the island's nickel

mines and elsewhere.



But getting a venture approved has always been laboriously slow, with

some projects stalled for no apparent reason beyond lingering,

ideological concerns.



"The new law looks very promising as a strong incentive for foreign

investment," says British businessman Andrew McDonald, suggesting such

doubts have finally been overcome.



His own firm, Havana Energy, is part of a joint-venture building a

biomass power plant at a Cuban sugar mill.



"I think this will give a significant signal to the international

community that Cuba is ready for business," he adds, arguing that there

is strong interest in the market here - on the right terms.



In one indication that old attitudes die hard, the foreign press was not

given a copy of the new law or allowed into parliament for Saturday's

debate.



But details released to state media showed an eight-year exemption from

profit tax, moving to 15% - or half the current rate. They mention other

tax advantages and stress legal guarantees to prevent businesses being

expropriated by the state.



That addresses a serious concern given the mass nationalisations in the

wake of the 1959 revolution.



The dearth of investment over many years suggests Cuba is an attractive

market: over 11 million people, with many and varied needs.



US trade embargo



But there are obstacles for investors.



Cuba is still designated a "State Sponsor of Terrorism" by the US, which

complicates financial transactions with the island, and raising capital.



On top of that, restrictions imposed by the US trade embargo bar

Americans and any firms with US interests from doing business here, and

eliminate a major export market.



Then there's Cuba's own past.



"What the Cubans have to overcome is a record of nearly 20 years of

vacillating treatment of investors," believes former British ambassador

to Havana, Paul Hare.



Since 2002 he says the number of joint ventures on the island has

dropped by nearly a half.



He also highlights the arrest and opaque trial proceedings of several

well-established foreign businessmen, ostensibly linked to an

anti-corruption campaign, which spooked fellow investors.



"The regime may want a makeover, but the scars will be hard to erase,"

Mr Hare argues.



Phase one in that attempt was inaugurating the Mariel Special

Development Zone outside Havana, which offers even greater tax breaks

for foreign firms.



The investment law is phase two.



"Maybe some political prejudice against foreign investment was really

strong in the past but I think [policy] today is more rational," state

economist Juan Triana recently told the BBC.



He also believes business confidence can be restored.



Opportunities



"The way the government handled the legal framework before was really

discriminatory. I think we are building a new environment. But it takes

time," Mr Triana argues.



Cuba invited a delegation of Brazilian entrepreneurs to visit this week

as part of its new charm offensive.



"Of course there are a lot of obstacles. But this is a new opportunity,

too," Julian Pedro Carpenedo said after the three-day mission by 31 firms.



His company - Globoaves - already exports chicken meat to Cuba; the

government wants it to invest in reviving the domestic poultry

production industry too.



"We have to come and see what's going on in order to decide if it's

actually the right place to invest but we're still excited to check the

opportunities," Mr Carpenedo says.



As for Cubans themselves, Raul Castro's reforms allowing limited private

enterprise have made life a little easier for some but they can't give

the economy the boost it needs.



So most say they welcome foreign investment.



"We're all struggling," a pensioner tells me as he whips up a milkshake

in a porch for a thirsty customer.



"We manage. But maybe with a bit of outside help, life for us Cubans

could be a little better."



Source: BBC News - Is Cuba ready to open up to foreign investment? -

http://www.bbc.com/news/world-latin-america-26807489