Cuba Opens the Gates to Foreign Capital

Cuba Opens the Gates to Foreign Capital / Ivan Garcia

Posted on April 10, 2014



When a government's financial figures are in the red, everything takes

on new urgency. By now the formulas to address the problem are

well-known. Often new tax measures are imposed while bloated public

spending is slashed.



But if the goal is to attract American dollars, euros or other forms of

hard currency, then any reforms must tempt likely foreign investors and

Cuban exiles alike.



The situation is pressing. Venezuela, the spigot from which Cuba's oil

flows, is in a firestorm of criminal and political violence and economic

chaos. China is an ideological partner but only makes loans if it can

reap some benefit.



The Cuban government does not have a lot of room to maneuver. Its

solution has been to open things up a little but not completely. Except

in the areas of health, education and defense, Cuba is for sale.



The communist party's propaganda experts have been trying to sugarcoat

the message to its audience. In recent months government officials have

been working to attract foreign capital by offering investors a more

important role in the Cuban economy.



"Foreign financial resources would do more than provide a complementary

role to domestic investment initiatives and would play an important

role, even in areas such as agriculture, where foreign investment has

been rare," said Pedro San Jorge, Director of Economic Policy at the

Ministry for Foreign Trade and Foreign Investment, in January.



In an interview with the newspaper Granma on March 17, José Luis Toledo

Santander, Chairman of the Standing Committee of the National Assembly

of People's Power for Constitutional and Legal Affairs, said the new law

"will also provide for a range of investments so that those who wish may

know the areas of interest in the country."



"This action will also be a breakthrough in terms of the paperwork

required to make an investment by creating a more streamlined process,"

the official added in response to a common complaint by business people

that the Cuban bureaucracy is too slow.



Toledo Santander said the new law "also includes incentives and tax

exemptions in certain circumstances, as well as an easing of customs

duties to encourage investment."



He stressed that "the process of foreign investment will be introduced

without the country relinquishing its sovereignty or its chosen social

and political system: socialism. This new law will allow foreign

investment to be better targeted so that it serves the best interests of

national development without concessions or setbacks."



On Saturday March 29 the national television news broadcast reported

sometime after 1 PM that the single-voice Cuban parliament had

unanimously passed a new foreign investment law without providing more

details



The new law provides for an exception to one passed in 1995 which

assigned foreign capital a "complimentary" role in Cuban state

investments. This meant that foreign investors could hold no more than a

50% stake in any joint venture.



The proportion was higher when it came to technology and retail

businesses but only because of a strong interest in these sectors on the

part of military autocrats. Between 1996 and 2003 roughly 400 firms in

the mining, hospitality, food, automotive and real estate sectors were

created in Cuba with foreign capital.



All were small-scale and supervised closely by authorities. Now it's a

choice of life or death. Fidel Castro's revolution generated many

promises and speeches, but these did nothing to foster the economic

development that the country needed.



Cuba imports everything from toothbrushes to ball-point pens. Large

areas of arable land are overrun with the invasive Marabou weed, and

produce little or nothing. In 2013 the government imported almost two

billion dollars worth of food.



Since 1959 government leaders have continuously promised ample harvests

of malanga, potatoes and oranges coffee as well as a glass of milk per

person per day, but the inefficient economic system hampers any such

nationial initiatives.



Finally the last trump card was played. It involved opening the gates by

luring foreign investors with generous tax exemptions. They included

Cubans living in the United States and Europe but not virulent

anti-Castro Cuban-Americans from Florida.



If they toned down their strident anti-Castro rhetoric, then perhaps

Alfonso Fanjul, Carlos Saladrigas and company might come under

consideration also.



Of course, it is not all clear sailing. The U.S. embargo presents a

powerful obstacle to any business venture on the island. And the Castro

brothers are not serious business partners.



On the contrary. They have changed or corrected course at whim in

response to shifting political dynamics. Of the roughly 400 foreign

firms that existed in 1998, only about 200 remained in operation as of

spring 2014.



Several foreign businessmen, including Canadians, have been threatened

with imprisonment while others, like Chilean Max Marambio*, have had

arrest warrants issued against them by Cuban prosecutors.



Raul Castro, who inherited power by decree from his brother Fidel in

2006, has tried to clean up government institutions and establish more

legal coherence, abolishing absurd laws that prevented the Cubans

renting hotel rooms, having mobile phones and selling their own homes

and cars.



In January 2013 a new emigration law was adopted that made it easier for

Cubans, including dissidents, to travel abroad. Internet access became

available, though at jaw-dropping prices, and Peugeot cars went on sale,

though priced as if they were Lamborghinis.



For many European and American politicians, Cuba is in the process of

becoming a modern nation whose past sins as well, as it's the lack of

democracy and freedom of expression, must be forgiven. Others say it's

just a ploy to buy time.



The average Cuba, whose morning coffee does not include milk, who has

only one hot meal a day and who wastes two hours a day commuting to and

from work on the inefficient public transport system, is not likely to

be impressed with the much hyped opportunities.



Those who open private restaurants or receive remittances from overseas

can weather the storm. Those who work for the state — in other words,

most people — are the ones having it the worst.



Although the regime may try to camouflage its new policies by resorting

to various ideological stunts, the person on the street realizes that

the new Cuban reality is nothing more than state capitalism painted over

in red.



For a wide segment of the Cuban population, the new investment law is a

distant echo. It is yet to be see if it bring them any benefits.



Ivan Garcia



*Translator's note: In 2010 Cuban prosecutors accused Marambio and his

firm, Río Zaza, of corruption. Marambio claimed the actions were

retribution on the part of Fidel and Raul Castro for his support for

Marco Enríquez-Ominami, a candidate in Chile's 2009 presidential

election. Marambio filed suit with the International Court of

Arbitration in Paris against his Cuban business partner, Coralsa, a

state-owned juice and dairy company. On July 17 the court found in favor

of Marambio and ordered Coralsa to pay over $17.5 million dollars in

damages "for refusing to cooperate in good faith" in the process of

liquidating Rio Zaza.



30 March 2014



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