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Is Cuba ready to open up to foreign investment?

Is Cuba ready to open up to foreign investment?
By Sarah Rainsford
BBC News, Havana

“Socialism or death” is the stark choice that shouts down from the sign
above a Havana steel firm. The words surround a painted image of Fidel
Castro’s face, a reminder that Cuba remains a very peculiar place to do
business.

But it seems a new, pragmatic mood has taken hold.

This weekend, Raul Castro – now in charge and overseeing a broad, albeit
snail-paced reform programme – convened an extraordinary session of
parliament.

The goal was to bring more foreign investment to the island.

Sense of urgency

Deputies duly approved a new law that Cuba hopes can attract more than
$2bn a year in investments and help treble economic growth to 5-7%.

Trade Minister Rodrigo Malmierca told deputies that the foreign
investment law was intended to help Cuba access advanced technology, new
management methods and export markets, and create jobs.

[It] “will not only help attract foreign capital with clear rules and
incentives, it will also allow us to use that potential to develop the
country, whilst preserving our independence and sovereignty,” the
minister said.

Political unrest and economic problems in Venezuela have added urgency
to the move, as Havana has been forced to contemplate losing a vital
ally and financial prop.

It was the loss of a previous benefactor – the USSR – that first forced
Fidel to open Cuba’s economy to outside investment.

Money poured into tourism in the 1990s as well as the island’s nickel
mines and elsewhere.

But getting a venture approved has always been laboriously slow, with
some projects stalled for no apparent reason beyond lingering,
ideological concerns.

“The new law looks very promising as a strong incentive for foreign
investment,” says British businessman Andrew McDonald, suggesting such
doubts have finally been overcome.

His own firm, Havana Energy, is part of a joint-venture building a
biomass power plant at a Cuban sugar mill.

“I think this will give a significant signal to the international
community that Cuba is ready for business,” he adds, arguing that there
is strong interest in the market here – on the right terms.

In one indication that old attitudes die hard, the foreign press was not
given a copy of the new law or allowed into parliament for Saturday’s
debate.

But details released to state media showed an eight-year exemption from
profit tax, moving to 15% – or half the current rate. They mention other
tax advantages and stress legal guarantees to prevent businesses being
expropriated by the state.

That addresses a serious concern given the mass nationalisations in the
wake of the 1959 revolution.

The dearth of investment over many years suggests Cuba is an attractive
market: over 11 million people, with many and varied needs.

US trade embargo

But there are obstacles for investors.

Cuba is still designated a “State Sponsor of Terrorism” by the US, which
complicates financial transactions with the island, and raising capital.

On top of that, restrictions imposed by the US trade embargo bar
Americans and any firms with US interests from doing business here, and
eliminate a major export market.

Then there’s Cuba’s own past.

“What the Cubans have to overcome is a record of nearly 20 years of
vacillating treatment of investors,” believes former British ambassador
to Havana, Paul Hare.

Since 2002 he says the number of joint ventures on the island has
dropped by nearly a half.

He also highlights the arrest and opaque trial proceedings of several
well-established foreign businessmen, ostensibly linked to an
anti-corruption campaign, which spooked fellow investors.

“The regime may want a makeover, but the scars will be hard to erase,”
Mr Hare argues.

Phase one in that attempt was inaugurating the Mariel Special
Development Zone outside Havana, which offers even greater tax breaks
for foreign firms.

The investment law is phase two.

“Maybe some political prejudice against foreign investment was really
strong in the past but I think [policy] today is more rational,” state
economist Juan Triana recently told the BBC.

He also believes business confidence can be restored.

Opportunities

“The way the government handled the legal framework before was really
discriminatory. I think we are building a new environment. But it takes
time,” Mr Triana argues.

Cuba invited a delegation of Brazilian entrepreneurs to visit this week
as part of its new charm offensive.

“Of course there are a lot of obstacles. But this is a new opportunity,
too,” Julian Pedro Carpenedo said after the three-day mission by 31 firms.

His company – Globoaves – already exports chicken meat to Cuba; the
government wants it to invest in reviving the domestic poultry
production industry too.

“We have to come and see what’s going on in order to decide if it’s
actually the right place to invest but we’re still excited to check the
opportunities,” Mr Carpenedo says.

As for Cubans themselves, Raul Castro’s reforms allowing limited private
enterprise have made life a little easier for some but they can’t give
the economy the boost it needs.

So most say they welcome foreign investment.

“We’re all struggling,” a pensioner tells me as he whips up a milkshake
in a porch for a thirsty customer.

“We manage. But maybe with a bit of outside help, life for us Cubans
could be a little better.”

Source: BBC News – Is Cuba ready to open up to foreign investment? –
http://www.bbc.com/news/world-latin-america-26807489

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