Report - Law will let Cubans abroad invest on the island

Posted on Wednesday, 03.26.14



Report: Law will let Cubans abroad invest on the island

BY JUAN O. TAMAYO

JTAMAYO@ELNUEVOHERALD.COM



Cuba's new foreign investment law cuts taxes, opens new sectors to

foreigners and allows investments by Cubans living abroad as part of

ruler Raúl Castro's efforts to lure fresh capital to his long-stagnant

economy, according to published reports.



But the law continues to require government approval for each deal and

hiring from widely criticized state-run labor agencies, and does not

allow investments by individual Cubans on the island.



Castro is pushing the new law as part of his campaign to inject market

reforms into the country's Soviet-style economy, which shrank by 35

percent after Moscow ended its massive subsidies to the island in the

early 1990s.



The rubberstamp legislature, the National Assembly of People's Power,

will meet in a special session Saturday to vote on the draft that

officials say was designed to offer investors "facilities, guarantees

and legal security."



The bill has not been published, but reports in the Juventud Rebelde

newspaper and two Web sites Wednesday pointed to a wider opening of

Cuba's doors to foreign investments, fixes for some of the problems with

the current investment law but no fix for others.



Under the existing 1995 law and regulations, all but a handful of

foreign investors are limited to 49 percent ownership of joint ventures

with the government. The law calls for a 30 percent tax on profits and a

20 percent tax on labor, plus taxes and fees on personal incomes and a

half-dozen other categories.



Cuba reported barely over 400 joint ventures in 2002, and the number has

since plunged to about 200. Businessmen have complained the government

has been favoring Venezuelan and Chinese enterprises and shuttering

others on suspicion of corruption.



The new law cuts the tax on profits to 15 percent, eliminates the labor

tax and offers several exemptions. It also eases baking restrictions and

allows investors to import and export supplies directly, now largely a

function of state enterprises, according to articles in the Miami-based

digital magazines OnCuba and Progreso Semanal.



Goods imported for the investment projects will be exempt from duties,

and projects that exploit natural resources, such as mining, beaches,

forests and bays, may be required to pay extra taxes and fees, the draft

reportedly said, giving no details.



But the draft appears to limit the tax incentives to joint ventures and

leaves out projects 100 percent owned by foreigners, according to the

Reuters news agency, which reported that it had seen a copy of the

draft. The full law is expected to be published next week.



Cubans living abroad will be able to invest like any other foreigner,

OnCuba noted. The government has never opened its doors to Cuban

investors — although the 1995 law allows it — but officials have been

talking recently about embracing exile capital. The U.S. embargo outlaws

investments by all residents of the United States.



"In the case of us Cubans who live abroad, it seems that our country is

opening the doors to us, either because of right or need," said OnCuba

owner Hugo Cancio. "Who better than Cubans living abroad to invest in

our country? Who would do it with more enthusiasm and eagerness than a

Cuban who not only recognizes and values the opportunity, but from his

heart desires the best for his country, his people?"



The draft also lays out procedures for negotiations, banking and

environmental requirements and ways to resolve conflicts between the

foreign and Cuban sides of an investment, according to the OnCuba report.



Investments approved will be aimed at increasing and diversifying Cuban

exports, replacing imports — especially in agriculture and energy — as

well as creating new jobs and bringing fresh technology and managerial

know-how to the island, it added.



But cabinet ministers or other top government officials must still sign

off on each deal – a process that in the past has taken months and even

years -- and no foreign investments will be allowed in the health,

education or armed forces, OnCuba added.



The draft also notes that the local partners in joint ventures must be

legally registered companies, ruling out participation by individual

Cubans but perhaps leaving the doors open to some of the recently

established private cooperatives, the magazine added.



Cuba does not allow private individuals to register companies, and the

455,000 licensed small-scale businessmen on the island are engaged in

"self-employment," such as carpenters, and do not own companies.



The state-run labor agencies, which pocket the lion's share of the

salaries paid by foreigners to local employees, have been accused of

corruption, undermining the loyalty of workers to their bosses and

making it difficult for investors to hire good employees.



Carmelo Mesa-Lago, a veteran Cuban economist, said the draft offered

some positive changes but left some negative aspects of the 1995 law in

place and adds some new limitations.



"Cuba must demonstrate that it will really be more flexible on foreign

investments if it really wants to change the mistrusts that exists among

investors," Mesa-Lago wrote in an email to El Nuevo Herald.



Castro has been enforcing a string of market-style reforms in an attempt

to jump-start the economy since he succeeded older brother Fidel after

he underwent emergency surgery in 2006.



Private economic activity has expanded and medical personnel working

abroad are expected to earn more than $8 billion this year. But the

purchasing power of the peso remains at pre-1990 levels, productivity

remains stagnant and prices are spiking.



Cuba's economy expanded by 2.7 percent last year and is expected to hit

2.2 percent this year, both meager levels for a country whose unique way

of counting its Gross National Product exaggerates the final tally.



Concerns over the stalled economy have sharpened amid the violent

protests racking the leftist government of Venezuelan President Nicolás

Maduro, which provides Cuba with subsidies estimated at up to $10

billion per year — far more than Moscow provided in the 1970s.



Source: Report: Law will let Cubans abroad invest on the island - Cuba -

MiamiHerald.com -

http://www.miamiherald.com/2014/03/26/4021068/report-law-will-let-cubans-abroad.html