Cuba - obstacle course for foreign investors

Cuba: obstacle course for foreign investors

By Carlos Batista | AFP



Foreign investors still face an obstacle course in Cuba despite the

passage of a new, more liberal law aimed at attracting capital from

outside the communist-ruled island.

Cuba's National Assembly unanimously approved the law on Saturday,

offering tax and other incentives to foreign investors, who are seen as

crucial to reviving the country's stagnant economy.

But even as he pitched the new law, Foreign Trade and Investment

Minister Rodrigo Malmierca acknowledged to lawmakers many impediments to

foreign investment remain.

He ticked them off in a speech to the assembly: "The economic,

commercial and financial blockade imposed by the American government,

the foreign debt situation, the past errors in terms of investment and

the restrictions imposed by the lack of foreign currency."

The US embargo, in place since 1962 and denounced daily by Havana and

annually by an immense majority of the UN General Assembly, is solidly

embedded in US law.

It prohibits Americans and Cuban residents of the United States from

investing in Cuba and threatens sanctions against companies who do

business in Cuba, whether they are US subsidiaries or foreign companies

that also operate in the United States.

Nevertheless, US President Barack Obama "holds out the possibility of

creating licenses to allow particularly Cuban-Americans to invest in and

promote the nascent Cuban private sector," says Arturo Lopez-Levy, a

Cuban academic at the University of Denver.

There are some exemptions to the embargo, obtained notably by the

powerful American agro-business lobby, and some Cuban exiles have

expressed interest in investing in sugar production in Cuba.

"The American government should seriously think about it, because Cuba

is a market that some Americans greatly wish to reconquer," said Esteban

Morales, of the University of Havana.

- Inertia and bottlenecks -

The high cost of servicing Cuba's foreign debt is another problem

limiting the island's capacity to borrow and adding to its need for

direct foreign investment.

The last official figure put Cuba's foreign debt at $13.6 billion in 2010.

Since then, Cuba has managed to cancel part of its foreign debt with

Russia, Japan and Mexico.

While Malmierca did not explain what he meant by "the errors of the

past," Lopez-Levy said that the new law faces many of the same pitfalls

as the 1995 foreign investment law it replaced.

"The 1995 law was never applied in full because of inertia on the part

of the administration and because of several bottlenecks," he told AFP.

For example, the old law like the new one authorized the creation of

enterprises with 100 percent foreign capital.

But in practice every foreign company operating in Cuba does so through

joint ventures in which the state has a majority stake.

To these problems, the Cuban government adds another: the hiring of

personnel.

Under the new law, as in the old, foreign investors have no direct

control over their personnel, who must be hired through a state-run agency.

"This measure should have been eliminated," said Morales, because it

both goes against workers' rights and undermines productivity and

healthy management.

Lopez-Levy, for his part, regrets that the new law fails to specifically

allow remittances from Cubans living abroad to be used and treated as

foreign investment.

The remittances amount to about $2.6 billion a year, making them Cuba's

second most important source of foreign revenues, on a par with tourism.

The nascent private sector, which today employs some 450,000 people --

compared to four million in the public sector -- benefits hugely from

remittances.

Addressing them in the new law would have created a legal framework for

business associations between the Cuban diaspora and those on the

island, he said.

"All these businesses should receive breaks and incentives, notably in

terms of taxes, because of their positive social impact," said Lopez-Levy.

Addressing them in the new law would have created a legal framework for

business associations between the Cuban diaspora and those on the

island, he said.

"It is a simple economic reform which incomprehensibly has been put

off," said Lopez-Levy.



Source: Cuba: obstacle course for foreign investors - Yahoo News Maktoob

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