Skepticism as Cuba OKs law to lure foreign investors

Skepticism as Cuba OKs law to lure foreign investors

Alan Gomez, USA TODAY 6:52 p.m. EDT March 29, 2014



MIAMI — A new law approved by the Cuban National Assembly on Saturday

designed to lure more foreign investment to the island nation has many

wondering what it will mean.



The new law has Cuba observers wondering whether it will energize the

country's struggling economy, whether it represents a step from the

county's centrally planned economy to a more capitalist one, and whether

the success of foreign companies there will prompt American businesses

to push for a change in the U.S embargo on the Communist country.



For some, the question is far simpler.



"Would you put your money in Cuba?" says Jaime Suchlicki, director of

the Institute for Cuban and Cuban-American Studies at the University of

Miami. "It's a system that's not transparent, there's no legal system

that protects foreign investment."



"They can change the law," he adds, "but they have to change the system

for people to jump in and invest."



That skepticism is exactly what government officials are trying to

change in Cuba, which has a complicated history with foreign investment.



While Cuba has allowed foreign investors from across the globe to

participate in selective, carefully monitored enterprises, its

government has permitted those companies to maintain only 49% ownership

of their operations.



Under the new law — endorsed by President Raúl Castro and approved

Saturday by the Cuban parliament — foreign companies will be able to

hold a 100% ownership in ventures. For companies that engage in joint

ventures, the profits tax will be cut from 30% to 15%, and most

investors would be exempt from paying that tax for at least eight years.

The law also would allow the free transfer of profits and dividends off

the island without additional tax and ensure legal protections for

companies engaged in disputes.



The law follows a series of economic reforms that have been instituted

since Raúl Castro assumed power over his ailing brother, Fidel, six

years ago. Cubans can now buy and sell their homes and cars, and the

government cut more than a half-million workers from the state payroll

and has encouraged more private operation and ownership of small businesses.



"They've made a bunch of positive changes, but so far they have not seen

the growth and the job creation and the foreign exchange earnings that

they need," says Phil Peters, president of the Virginia-based Cuba

Research Center. "They've made progress, but the economy needs a bigger

lift and foreign capital can do that."



Carmelo Mesa-Lago, a Cuba native who has studied the country's economy

as a professor at the University of Pittsburgh, says the lower taxes,

higher ownership stakes in investments and streamlined process to open a

business in Cuba are all things that any company would look for.



"I know companies who negotiated for over a year and then get denied,"

he says. "The law limits the process for that to two months. That's very

fast."



While the country's biggest economic lures — tourism and mining for

natural resources — are already being handled by foreign companies, some

see openings in the lagging agricultural industry and emerging sectors,

like biotechnology and pharmaceutical production.



But as with most things related to Cuba, there's a catch. Cuba passed

another foreign investment law in 1995 that allowed for such things as

100% ownership by foreign companies. But Mesa-Lago says the legions of

government functionaries never permitted that to be carried out.



"There is little confidence investing in Cuba," he says. "The question

is, how is this new law going to change that mentality? This is going to

depend on how they implement this new law in reality."



The new law does not change the fact that foreign companies must still

go through a government-run workforce agency, meaning the government

will still oversee the hiring and firing of all employees. The new law

also prohibits Cubans on the island from investing in any new companies

or joint ventures, meaning residents of Cuba can still only own

small-scale businesses like restaurants and barber shops.



And despite the welcoming tone, every decision is still made by a

government that, as one of its first acts in power more than 50 years

ago, nationalized foreign companies.



"If you were a businessman in France and you want to invest in the

Caribbean, you wouldn't go to Cuba," Suchlicki says. "You'd go to Mexico

or the Dominican Republic or, if you want to sell in the United States,

you got Puerto Rico. Why would you go to Cuba?"



If enough companies invest in Cuba and they prove successful, that could

reignite a debate in the U.S. over the embargo on the island.



"American companies are interested," says Yosbel Ibarra, a Miami-based

corporate attorney at Greenberg Traurig who co-chairs the firm's Latin

American and Iberian practice. "I think that there is some nostalgia for

the possibility of being one of the first American companies in Cuba."



That could prompt business leaders to press Congress for a change in

U.S. policy toward Cuba.



"Certainly what we're going to see in the coming months is that new

investment opportunities are going to open up in Cuba and everyone but

the United States is going to seize them," Peters says. "If that prompts

efforts to change U.S. law, then that would be a good thing."



Rep. Ileana Ros-Lehtinen, R-Fla., dismisses any talk of weakening the

embargo and says the idea of a bright, new day for investment in Cuba is

naive.



"This is the latest desperate effort to maintain its brutal totalitarian

control over the Cuban people," she says. "It's just an old regime ploy

to hide its failed policies that have shown that Cuba is not open for

business because the Castro regime continues to owe billions of dollars

to foreign entities."



Still, some say it's impossible to simply dismiss what has now been six

years of economic changes in Cuba.



"When an adversary adopts a position you suggested, let them. Celebrate

it," says Rep. Joe Garcia, D-Fla. "Yes, it's a step for them to continue

to survive. But it's a step in the direction that all of us want, which

is the further liberalization of the Cuban economy."



Source: Skepticism as Cuba OKs law to lure foreign investors -

http://www.usatoday.com/story/news/world/2014/03/29/cuba-foreign-investment-law/7050617/