Stakes are high for Cuba foreign investment law

Stakes are high for Cuba foreign investment law

By PETER ORSI / Associated Press / March 27, 2014



HAVANA (AP) — Cuban authorities are on the verge of enacting a new

foreign investment law considered one of the most vital building blocks

of President Raul Castro's effort to reform the country's struggling

economy.



The law is considered so important that an extraordinary session of

parliament has been scheduled for Saturday so the matter doesn't wait

several months until the regular summer session.



Foreign investment in the Communist-run country has lagged behind

expectations in recent years, and the shortfall is seen as a major

reason for disappointing economic growth. Analysts say that officials

must show they are truly committed to easing the way for foreign firms

if this latest attempt to lure overseas capital is to succeed.



''It's really about (creating) a business climate in which business

feels government at senior levels has an unambiguously favorable

attitude toward foreign investors,'' said Richard Feinberg, a professor

of international political economy at the University of California, San

Diego. ''That's the best guarantee.''



''If this law gives the right signals,'' Feinberg said, ''it would be a

major step forward in the economic reforms.''



Cuba isn't the easiest place for a foreign businessperson to make a buck.



Labor taxes are high, there is no open bidding for projects, the

approval process is opaque and cumbersome and the government has been

reluctant to let outsiders have majority ownership.



Companies often find themselves negotiating multimillion-dollar deals

with government officials who earn tiny salaries, and some say payoffs

are an unfortunate part of doing business in Cuba. At the same time, a

crackdown on graft in recent years, including the jailing of Canadian,

Chilean, Czech, English and French citizens, has sent a chill through

the foreign business community.



Then there's the 52-year-old U.S. embargo, which bars most American

trade with the island and effectively obliges many foreign companies to

choose between doing business with Cuba or the United States.



There's no sign the embargo will be lifted anytime soon, but observers

say Cuba can make itself more attractive to investors by doing things

like making approvals more transparent, easing payroll taxes, enabling

direct hiring of local employees and relaxing rules that require foreign

companies to purchase a certain amount of local inputs.



Few concrete details have been made public, but this week official media

gave some hints of what the draft law looks like.



The newspaper Juventud Rebelde said the law will allow foreign

participation in ''all sectors'' except health and education. Cuba will

permit foreign investment not only through joint partnerships with the

government, but also by ''international economic association contract,

or business of completely foreign capital.''



Juventud Rebelde said most companies would be taxed at 15 percent of

profits, half what they pay under current rules, and will be exempt from

paying for the first eight years of operation. Investors apparently will

not see their personal income taxed.



Duties may be higher for operations that exploit natural resources, such

as nickel and fossil fuels.



Such rules would be similar to slightly more favorable ones already in

place for a special economic development zone at Mariel, a massive port

project west of Havana that was formally inaugurated in January.



Officials are also talking of guarantees that the property of foreign

companies and individuals will not be nationalized as happened after the

1959 Cuban Revolution, except in cases of national interest and only

with due compensation.



In a recent report prepared for the online publication Cuba Standard,

which closely follows Cuban business news, former Cuban Central Bank

economist Pavel Vidal noted that foreign investment has remained flat

since Castro's economic reforms began, about 20 percent below forecast

on average. GDP grew just 2.7 percent last year, low for a developing

nation and again short of expectations.



Meanwhile, Cuba's financial present is heavily dependent on the billions

of dollars in oil it gets from petro-ally Venezuela. The socialist-run

South American nation is experiencing its own economic woes these days,

rocked for months by violent protests amid calls by some in the

opposition for President Nicolas Maduro to resign.



Vidal said the new law could help stimulate investment by limiting

government officials' discretion in decision-making on approvals, ending

a longstanding tendency to green-light only large-scale investment and

allowing investment in Cuba's emerging privately owned businesses and

independent cooperatives.



''The new foreign investment law is the last opportunity for the reform

to come close to the growth goals planned through 2016,'' wrote Vidal,

who is currently a professor at Javeriana University in Cali, Colombia.

''At the same time, it will help diversify the island's international

relations, as well as reduce vulnerability due to its links with

Venezuela.''



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Peter Orsi on Twitter: www.twitter.com/Peter_Orsi



Source: Stakes are high for Cuba foreign investment law - Caribbean news

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