Perils of Investing in Cuba

Perils of Investing in Cuba

[21-05-2014 12:04:03]

Pedro Roig

Historiador y Abogado



(www.miscelaneasdecuba.net).- The Economist, a respected magazine,

portrays Cuba's new Foreign Investment Law as an "economic

liberalization," adding the subjective judgment that the regime is

becoming "less communist." (1) The Economist is calling on foreign

companies to trust the Cuban leadership and invest in Castro's

impoverished island. Yet these opinions do not fit the facts or the

policies of the Castro government. First and foremost, the Cuban

Constitution is the active and prevailing law of the island. It frames

and controls the Cuban legal system.

1. Cuba's Constitution: An Investor's Nightmare?



Written in 1976, and extensively revised in 1992 and later in 2002, the

Constitution clearly defines the power vested in the Communist Party.

Article 5 states that "the Communist Party is the superior leading force

of the State." Article 3 of the Constitution adds that the socialist

system "shall be irrevocable and Cuba will never return to capitalism."



As a communist regime, the national economy is centralized, planned and

run by the State (Article 9). It is also based on a socialist ownership

of the means of production (Article 14). These laws are specific and a

prevalent part of Cuba's legal system. They have not been set aside by

the new Foreign Investment Law.



The communist constitution does not allow room for doubts on the issue

of property ownership rights. On the contrary, it is clear, direct and

precise. It states that "sugar mills, factories and all enterprises,

banks and installations that have been nationalized and expropriated

from imperialists, large estate owners and the bourgeoisie" (Article 15)

are the property of the state.



The State controlled legal system in Cuba fails to protect foreign

investors. Judges and lawyers are not independent and follow party and

military orders. A recent example is the arrest 3 years ago of Cy

Tokmakjian, a Canadian investor that has been languishing in jail

without trial. On April 30, 2014, Peter Kent, Chairman of the Canadian

House of Commons Defense Committee, complained publicly about the arrest

of Mr. Tokmakjian and criticized Cuba for not protecting foreign

investors. (2)



The Economist praise of Cuba's new Foreign Investment law is an absurd

misinterpretation of the island's prevailing legal system. Factually,

General Raul Castro's military oligarchy is no "more liberal" or "less

communist." The Economist's baseless praise is without merit.



The issue is that General Raul Castro is opening for business but in his

own communist terms. The second problem for potential investors is that

Cuba's physical infrastructure is moving rapidly from acute decay to

fatal collapse.





2. Deteriorated Roads, Bridges and Railroads



The island's roads and bridges are unsafe and in need of urgent repair

and the state lacks the needed funds to make the repairs. The fatigue,

cracking and exacerbated deterioration of the bridges and roads are

caused by low quality materials combined with inconsistent repair

practices. As noted by a relevant study, "the lack of investment and

maintenance are reflected in the deteriorated condition of the

transportation system." (3) In addition, hundreds of bridges throughout

Cuba are in need of rehabilitation. (4)



In the global market, trucking is a vital commercial component and the

decay of the national highway system presents a major obstacle for the

safe and timely transportation of commercial cargo.



Cuba's railroad system suffers from multiple infrastructure problems

including rotten cross beams, rusted rails and loose tie plates. The

dilapidated conditions of the railroad grid demand that in some areas

the trains go at a maximum of 20 km an hour to avoid accidents. (5)

Railroad bridges are also in precarious conditions with sinking

foundations that disrupt the angles on the tracks. (6) Railroads are

excellent forms of moving bulk commodities in cargo such as sugar and

minerals. The task of repairing the infrastructure is beyond Cuba's

financial capacity. The acute deterioration of the transportation system

is among the perils of investing in Castro's Cuba.





3. Inadequate Ports With Mariel as the Exception



With the exception of the mega transshipment Port of Mariel, with a

draft up to 49 feet and a capacity to store over 3 million containers,

Cuba's principal ports (Havana, Matanzas, Santiago de Cuba and

Cienfuegos) are unable to accommodate large, modern vessels.



Experts have pointed out that in Cuba's ports "all basic

infrastructures, including connectivity to ground transportation

networks, energy, telecommunication and water have suffered. All such

systems are antiquated, unreliable and incapable of supporting the

demands associated with a consumer-oriented economy." (7)



The U.S. Trade Commission stated that the ports' poor maintenance has

created a situation where loading and unloading cargo can be a hazard.

Furthermore, there is limited availability of cold storage, a crucial

infrastructure component necessary for perishable food products. In

addition, the availability of equipment and trucks used for moving loads

on to and off the ports is inadequate and they lack spare parts needed

for repair and maintenance.



The modern Port of Mariel, just 45 km West of Havana, is designed to

serve super-container ships. However, the future possibility of serving

as a container transshipment facility for a U.S. (post-embargo) commerce

has major competition from high-tech Port of Miami, the closest American

port to the new Panama Canal expansion. The Port of Miami enlargement

has a dredge of up to 50 feet in depth and is capable of berthing even

the largest container vessels in the world, including the future Maersk

Triple E Class, which will have a draught of 47 feet and will be nearly

200 feet wide.



The mega Port of Miami has completed an under the bay tunnel for trucks

to bypass Downtown Miami, doubling the port's traffic capacity. So, why

would the Pacific exporters choose the Port of Mariel if they could

bring their cargoes directly into the U.S. via the excellent highway

infrastructure of the Port of Miami? This fact should be a major concern

for the Port of Mariel investors.



Source: Perils of Investing in Cuba - Misceláneas de Cuba -

http://www.miscelaneasdecuba.net/web/Article/Index/537c7a133a682e1840be48db#.U3yNffmSwx4