Tread carefully in Cuba's 'open' economy - Experts

Tread carefully in Cuba's 'open' economy: Experts

By Adam Molon



The Cuban government said this week that it will open most of the

nation's economic sectors to international investment and allow the

existence of wholly owned foreign firms in Cuba, as part of a new

foreign investment law that is expected to pass on Saturday.



The Cuban government is also expected to cut the profit tax it charges

foreign enterprises operating on the island to 15 percent from the

current 30 percent.



But experts like John Kavulich, a senior policy advisor at the U.S.-Cuba

Trade and Economic Council, said that while these proposed initiatives

have the potential to bring positive, liberalizing reform to Cuba's

economy, international firms should still approach with cautious skepticism.



"What they've announced they'd do, does it sound progressive? Yes. Does

it have the potential to be progressive? Yes," Kavulich said,

referencing the Cuban government and the newly proposed foreign

investment legislation.



"But Cuba's had a foreign investment law since the 1980s. And one of the

problems has been that when the government feels that they've made

enough progress, they reverse course and try to take back or eliminate

the opportunities that they've presented to companies. Any changes

announced now have to be looked at in that historical context."



Currently, international firms are allowed to operate in Cuba only as

minority stakeholders in so-called mixed companies that are

majority-controlled by the government.



Kavulich pointed to a lack of legal and procedural transparency as a key

issue affecting Cuba's business environment, noting that some of the key

challenges foreign firms face in Cuba include repatriation of profits,

arbitration of conflicts and disputes, and regulations requiring that

Cuban personnel be hired through a state-run employment agency.



"On a plate of appetizers, it's not going to be the first appetizer that

you select," said Kavulich of Cuba's international investment

environment. "There are many countries throughout the world that are far

more transparent and have a less hostage-like relationship with

cooperating partners."



John McAuliff, executive director of the Fund for Reconciliation and

Development, a nonprofit organization advocating warmer relations

between the U.S. and Cuba, said that a new foreign investment law

enacted within an opaque and evolving system like Cuba's could lead to

misunderstandings for international investors, and, in some instances,

even something potentially as bad as jail time.



"In a transitional situation where not all the rules are clear or not

all the laws are clear, people could, through overreach, or greed, or

ignorance, get themselves into trouble with local laws," said McAuliff.

"There have been serious issues with people cutting corners and getting

into trouble with the law, and facing criminal charges in Cuba."



Robert L. Muse, an attorney who specializes in U.S. laws relating to

Cuba, said that in order for new Cuban foreign investment policies to be

effective, specificity of terms and clarity of process are key.



"I would encourage Cuba to go very quickly from the general to the

highly specific. What are the timelines? What are the approval

processes? How are they going to be enforced? Then, move on to

specificity of rule-making and regulations," said Muse. "It's not going

to be good enough to make broad pronouncements that Cuba is now seeking

foreign investment. Some questions are going to have to be pre-emptively

answered."



Muse cautioned that international companies considering investment in

Cuba should do so with their eyes wide open to the opportunities and

risks present in the island's economy and politics.



"This is a country that is opening up after 60 years of dormancy in the

investment sectors," said Muse. "You're almost pioneering your way in,

but there are risks associated with it."



Andrew MacDonald, director and chief executive of Esencia Group, said he

finds those risks worth taking. His company plans to build biomass power

plants in Cuba through a joint venture formed with a state-owned company

in Cuba's Ministry of Sugar.



"There are some unique factors," said MacDonald of international

investment in Cuba. "It can be a tad bureaucratic at times, but the

country is developing economically in the right direction."



"One of the issues in Cuba is that it is a little bit chicken-and-egg.

You've got to do a lot of prework and invest a lot of resources before

you get the joint venture approved, and then you can actually do the

real work," said MacDonald. "From a foreign investment point of view,

it's an attractive proposition to be able to own 100 percent of your

company and not have to form a joint venture."



Whether working in joint venture arrangements or as a wholly owned

entity, MacDonald said his company has no plans to exit Cuba.



"The opportunity side is enormous, because Cuba is a country rich in

natural resources," he said. "We believe in the Cubans, and we respect

them for their technical abilities and the resources they have."



Source: Tread carefully in Cuba's 'open' economy: Experts - Yahoo

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