Corrupción – Cuba – Corruption
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Investors Beware

Investors Beware
[11-03-2014 11:49:40]
José Azel
Investigador, Universidad de Miami

(www.miscelaneasdecuba.net).- Since the 2006 announcement by the Cuban
government that octogenarian Fidel Castro had transferred power to his
brother Raul, there has been increasing speculation regarding political
and economic changes in Cuba. More recently, some potential investors
seem to have bought the narrative that the Cuban government has embarked
on a process of genuine political and economic reforms. But investors
beware.
In its 2014 “Index of Economic Freedom” report, the Heritage Foundation
ranks Cuba as one of the world’s least free economies with a score of
28.7 compared to a world average of 60.3, and an average of 84.1 for the
free economies of the world. Cuba’s economic milieu continues to
deteriorate in terms of most of the factors considered in the Heritage
Foundation methodology such as trade freedom, fiscal freedom, monetary
freedom, and particularly freedom from corruption.

One implication for enterprises seeking to do business with Cuba is that
this legacy manifests itself in areas such as official corruption.
Notice that my expression is not doing business in Cuba, but rather
doing business “with” Cuba since the Cuban government (read the Castro
brothers and the military) will obligatorily be the majority partners in
any foreign investment under current Cuban law.

As noted in the Index, in Cuba, official corruption is a serious
problem, “with a culture of illegality… and a vast state-controlled
economy in a country where there is little respect for the rule of law.”
American companies, particularly publicly traded firms subject to myriad
anti-corruption and disclosure regulations, would find it nearly
impossible to operate lawfully in such an environment of systemic and
endemic corruption.

Let’s take just one aspect of doing business “with” Cuba to illustrate
how it offends our values and morality, our labor and business laws, and
our expectations of corporate behavior.

Foreign investors operating in Cuba may not establish contractual
relationships with Cuban workers. The foreign firm must negotiate with
the Labor Ministry a “Contract for the supply of its labor force”
indicating the quantity and qualifications of needed employees. The
state staffing agency for foreign enterprises then sends its
pre-screened personnel to the foreign firm. The foreign employer pays
directly to the staffing agency in foreign currency, or equivalent Cuban
convertible pesos (CUC). Cuban workers are then paid by the staffing
agency in non-convertible Cuban pesos (CUC). Under this arrangement the
state pockets over 90 percent of the worker’s purported salaries.

This practice, of course, violates International Labor Organization
conventions as slavery by another name, or as Cuban writer Carlos
Alberto Montaner has aptly named it: Cuba the pimp state.

Foreign firms are also required to be a minority partner in a
relationship where the Cuban government-the majority partner- is
fiercely hostile to free enterprise and has a history of acting
arbitrarily and capriciously against the interests of its minority partners.

In the early 1990s, after the collapse of the Soviet Union, Cuba
restructured the island’s economy by allowing limited foreign investment
through joint ventures and other economic associations. Some foreign
investors misinterpreted these crises measures as the beginning of a
genuine and irreversible transition to a free market economy. The same
misinterpretation is taking place today.

Investors beware, by the end of the 1990s the regime reversed the
liberalization measures and recentralized economic power. It is likely
to happen again if the regime feels threatened.

In 2009, facing a collapse in bank credits and declining cash flow from
meager exports, Raul Castro froze all bank accounts held by foreign
companies. The following year, state banks offered a non-negotiable
payback plan for the frozen bank accounts over a five-year period.
Investors beware, your stakeholders will not be happy.

In Cuba, foreign investors must partner with the Cuban government. The
Cuban government expects foreign investments to generate revenue for the
state on its terms. If the venture fails to meet the expectations of the
state, the government may arbitrarily terminate the agreements and seek
another naive investor for the project and there is no independent
judicial system to adjudicate any investor claims.

The Cuban judiciary is subordinate to the Council of State and to the
Communist Party which, under the Cuban constitution, is the “superior
leading force.” And as Karl Mark made clear in his Communist Manifesto,”
Communism may be summed up in a single phrase: Abolition of private
property.” Investors beware.

_________________________________________________

*José Azel is a Senior Research Associate at the Institute for Cuban and
Cuban-American Studies, University of Miami. He is the author of the
recently published book, Mañana in Cuba.

Source: Investors Beware – Misceláneas de Cuba –
http://www.miscelaneasdecuba.net/web/Article/Index/531eea443a682e14d07f9421#.Ux7zyvldUx4

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