Cuban Investment And Competition

Cuban Investment And Competition

Published: Sunday | April 6, 2014

David Jessop, Contributor



On March 29, Cuba's National Assembly passed a new foreign investment

law. Its content has far-reaching implications for the future economic

organisation of the country.



It has also stimulated a lively public and private debate in the rest of

the Caribbean about whether it represents a new economic challenge to

the rest of the region.



Unusually, the changes that the new law contains had been widely trailed

in Cuba's national and provincial media before its passing. This was

because of its contentious nature within Cuba and the challenge it

offered to many Cuban conservatives' belief in the need to maintain full

control over national sovereignty and economic decision making.



The result was the slow progress, as sometimes challen-ging political

and technical discussions took place in provincial assemblies and in

consultations with mass organisations such as the trades unions.



At these meetings, various concerns were expressed. Particularly

contentious was whether the same investment rights would be granted to

Cuban Americans; who, having left the island, significant numbers of

Cubans believe, should not be able to benefit.



There were also voices at the liberal end of the debate questioning

whether the law should enable investment by a small group of

increasingly wealthy Cubans living in Cuba and paying taxes.



The passing of the new investment law marks a clear victory for

President Raul Castro, and those at high levels within the Cuban

Communist Party who recognise the need for change.



It reflects, too, a view that fundamental reforms within Cuba are more

likely to take place during the period up to 2018, while Raul Castro

remains as president and retains the moral authority to argue for and

ensure change.



The lengthy debate speaks also to the fault lines that continue to exist

between those who are seeking to maintain a more pure socialist line and

those who believe Cuba has no option but to reform and modernise.



Details of the new law have been well publicised, but in essence the new

legislation will modify the existing foreign investment law that dates

back to 1995, bringing it in line with the government's broader project

of updating its socialist economic model.



According to a front page article in Granma, the official newspaper of

the Cuban Communist Party, the legislative proposal is intended to

increase the rate of economic growth and increase funds for investment

so as to 'accelerate the development of prosperous and sustainable

socialism'. It allows for foreign investment in all sectors except

education, health and 'armed institutions', and will offer tax

exemptions to overseas companies.



In a break with the past, the new law establishes foreign investment as

a priority for the future development of Cuba; aiming to revive local

industry and making Cuban goods competitive on the world market through

new financing, and access to advanced technology and know-how in key

areas, such as agriculture, industry, tourism, biotechnology and

renewable energy.



Under the new law, investors will be exempted from paying tax on profits

for eight years upon the signing of an agreement; investors will be

exempted from income tax; 100% foreign ownership will be allowed, but

such companies will be denied the same tax benefits afforded to joint

ventures with the Cuban state or associations between foreign and Cuban

companies; the new law does not specifically exclude Cubans living abroad;



and state-run companies, private farm and non-farm cooperatives can be

authorised to form ventures with foreign investors.



One of the interesting side effects of the law's passing has been a

debate in parts of the rest of the Caribbean about the possible negative

effects of Cuba's emergence at some future date as a significant

beneficiary for foreign investment and its potential to outcompete near

neighbours.



The comments, while understandable, perhaps say more about much of the

region's continuing failure to understand that competition is not a zero

sum game, that the rest of the region has had more than 50 years to

prepare while Cuba has been economically isolated; the lamentable

failure of Caricom to create a viable single economy or to address the

economic imbalances between its smaller and larger members; and many

nations' continuing failure to recognise that to succeed it is first

necessary to identify where future competitive advantage might lie.



Cuba's unusual process of trying to adapt market economics reality to

the needs of its unique social model should therefore be a moment not

for handwringing in the Caribbean, but a change to be welcomed if, as

seems likely, it portends further gradual and stable change.



Whether what has been agreed will transform Cuba or, as seems more

likely, as with much of the Cuban economic reform process, this may

involve a kind of learning through doing process rather than planning,

remains to be seen, but it should be welcomed.



As the year goes on, at least two leading US private-sector associations

are expected to take high level delegations involving a number of major

US corporations to Cuba.



Although many pressures still surround the process of US economic

re-engagement, it is clear that US business is acutely aware of the

potential opportunity now opening up.



This seems to have spawned an increasingly aggressive approach on the

part of the US Treasury by placing pressure on the international banking

system and individuals in Europe and elsewhere to reserve the future

Cuban market for US business alone.



For its part, Europe is in the process of re-engagement through

negotiations for an association agreement that could lead eventually to

a freer trade and development relationship. The first formal exchanges

on this are expected to take place very soon.



That said, the biggest challenge now lies within Cuba itself as it

weighs how flexibly and rapidly it will implement its new law, and how

its seeks to balance competing interests between a future improved

relationship with Washington, which it genuinely wants, a closer

relationship with Europe, an interest in resuming a closer relationship

with Russia, and its desire to see stability return to Venezuela.



David Jessop is director of the Caribbean

Council.david.jessop@caribbean-council.org



Source: Cuban investment and competition - Business - Jamaica Gleaner -

Sunday | April 6, 2014 -

http://jamaica-gleaner.com/gleaner/20140406/business/business10.html