Cuba Opens the Gates to Foreign Capital / Ivan Garcia
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.
Photo: Container ship entering Havana’s harbor. Operations at the Port of Havana will move once the port at Mariel is fully operational. Photo from Martí Noticias.
*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