Mariel: the “Engine of the Cuban Economy” that Stalled
Beyond the scarce figures offered by the island’s government, the real impact of the enclave on the Cuban economy is unknown.
HAVANA TIMES – Gaesa, the Cuban military conglomerate, began supervising a megaproject of a port and development zone in 2011, now headed by former military judge Ana Teresa Igarza Martínez.
Three years later, then-president Raul Castro inaugurated the container terminal of the Mariel Special Development Zone (ZEDM) in Artemisa province with a tempting promise, to be the main gateway for Cuban foreign trade.
“I must emphasize that this terminal (…) and its geographical location on the route of the main maritime transportation flows in our hemisphere will consolidate its common position as a first-rate logistics platform (…),” Castro stated on January 27, 2014. “This container terminal and the powerful infrastructure that accompanies it are a concrete demonstration of the optimism and confidence with which Cubans look to the socialist and prosperous future of the homeland.”
Promises are one of the best smoke screens that the Communist Party regime has ever put forward. Ten years later, the ZEDM is much less than what was announced. It doesn’t take off. It doesn’t even walk at a somewhat stable pace, and future prospects are uncertain.
But could anything more be expected in a country governed by a political-military elite reluctant to make deep economic changes due to political considerations? Was ZEDM a flawed project from the start?
Initial Investment
According to an investigation by Connectas, the support of Brazil under Lula da Silva (2003-2010, his first two terms) made the construction of ZDEM possible. Part of the resources came from a loan from the public Brazilian Development Bank (Bndes).
Through the Brazilian construction company Odebrecht, the Bndes granted Cuba US $641 million to build the Port of Mariel. The loan was granted through five agreements signed between 2009 and 2013, which included a 25-year term for the Cuban government to repay the debt.
“This project has had significant financing from the Brazilian government on advantageous terms,” acknowledged Raul Castro during the opening of the ZEDM, created by Decree Law 313/2013.
The construction was carried out by Odebrecht, which was later implicated in a gigantic corruption scheme involving several Latin American countries. Cuba is not officially linked to the accusations.
After being elected president in 2018, Jair Bolsonaro ordered an investigation into the Brazilian bank’s loan to Cuba. Bolsonaro stated in January 2022 that loans granted to other countries by his predecessors in the government were “legal,” but he assured that there was “misuse” of public resources, according to an EFE report.
Cuba owes Brazil about $520 million, as reported by Infobae.
The Megaproject that “Didn’t Take Off”
ZDEM was presented from its inception ten years ago as a key project to promote foreign investment, economic diversification, and export promotion. However, it has fallen short of expectations and has attracted only a fraction of the investment needed to boost the island’s economy, generating controversy over its management and effectiveness.
Unlike free trade zones, special development zones have a broader concept and offer benefits not only for manufacturing companies but also for technological innovation, real estate development, trade, tourism, agriculture, among many other sectors; always based on specific rules related mainly to investment conditions, administrative regulations, and customs and tax matters.
Mauricio de Miranda Parrondo, a PhD in International Economics and Development, told elTOQUE that “the project never had the ‘impact’ that the Chinese special economic zones could have had in the early stages of its opening and reform.”
According to the Cuban expert, a professor at the Pontifical Javeriana University of Cali (Colombia), “it is evident that the initial investment has not been justified, but the idea itself is not bad and has been very effective in other contexts, such as Taiwan first and then China.”
In its beginnings, without the evidence of a decade of little development, ZEDM caused less discouragement. Gerardo Martinez-Solana, an economist and former United Nations official, stated in April 2013: “It is very good for any economy of a country to have a free port, especially if it is a country with an emerging or third-world economy.”
However, Martinez-Solana warned: “The problem is how that will be projected to the population (…). Will Cubans receive adequate wages? Will they have entrepreneurial capacity? Will they be able to invest and create their own companies? Will the Cuban people be given that opportunity or will companies managed by the State and the military be the ones to benefit?”.
The Cuban government approved a new legal framework for foreign investment in 2014, which offers advantageous tax and labor conditions, financing, and alleged agility in procedures through a single window system in the ZEDM.
Ana Teresa Igarza Martínez —general director of the ZEDM, deputy to the National Assembly, and formerly legal director of the military conglomerate Gaesa— stated in November 2023: “With 64 established businesses, modern roads, railway, communications, electricity, water supply, and waste treatment infrastructures that interconnect our industries can be appreciated. Special mention is made to foreign investors who, despite the pressures from Cuba’s enemies, remain with us building the future.”
Despite the positive outlook of the Cuban official, since its opening in 2013, ZDEM has only attracted about $3.34 billion over a decade. A figure well below the $2 to $2.5 billion annual foreign investment estimated by official calculation to boost gross domestic product growth.
Of the 64 “established” businesses mentioned by the official to the press, only 44 are operational, as confirmed by Ana Teresa Igarza in an exchange with the state newspaper Granma in September 2023.
“All that has been executed has been with state resources, in an environment of around $300 million annually during the first six or seven years. Today sector A is 90% completed, in terms of infrastructure, and we have an occupancy rate of 40%, while there are areas available to establish investments. It was worth doing it,” affirmed Igarza in a September 2023 video published by the Russian media Sputnik. According to official publications, 16,000 jobs have been created.
Economist Elías Amor noted that the results of Mariel presented between September and November 2023 in state media “are an absolute failure.” He also added: “It has been shown that they are not justified because that average of six projects per year over a decade does not justify the enormous volume of investment by the Brazilians in coexistence with the communist Cuban regime.”
Is Cuba an Attractive Investment Destination?
According to Ana Teresa Igarza, ZEDM “does not show other results in foreign investment due to the intensified and renewed US blockade against Cuba.”
Is that the only cause or the main one?
Economist Mauricio de Miranda summarized for El Toque several reasons why “Cuba is not an attractive investment destination”:
1) There is not enough confidence in the government’s economic policy.
2) There is not enough trust in the government’s willingness and ability to fulfill its financial obligations.
3) It is a high-risk country for investors.
4) It is not an attractive market to access.
5) It is not seen as a credible export platform.
6) Other Latin American countries have more favorable institutional systems and economic conditions for investment.
7) The Helms-Burton Act hangs like a sword of Damocles over the heads of potential investors, and the risk-benefit balance is not good.
Economist Pavel Vidal also explained to El Toque that “the recurrent defaults on external debt, the growing imbalance in the state budget accounts, multiple exchange rates, and persistent inflation are factors of uncertainty that discourage investment in the Cuban market.”
Economist Omar Everleny Perez also agreed that it is not enough to have a well-designed infrastructure of the ZDEM to attract foreign entrepreneurs.
“It also influences that to remain in Cuba, companies have to be sure that they will not be sanctioned by the United States Government. That doesn’t mean it’s the only cause,” explained Omar Everleny. “Others, for example, are excessive delays in the approval of a project. Many of the companies that have been there or are there have had problems with the payments of their products, which scares investors a lot.”
Ten Years Ago: The Same Problems
According to a report by Diario de Cuba, of about 400 companies that were interested in investing in the Mariel Special Development Zone in 2016 —and without data on how many more may have expressed similar intentions in subsequent years— the Cuban government only approved 64, of which only 44 are operational.
Economist Rafaela Cruz pointed out: “The real problem is that, of the investment that arrives, the government blocks more than 90%, rejecting hundreds, if not thousands of companies willing to bring development and well-being to the Cuban people.”
Currently, delays continue in the start up of operations of Cuban, foreign, and mixed-capital companies. The objectives of ZDEM have been poorly met; namely, to diversify and boost the Cuban economy with the contribution of foreign capital, substitute imports, and increase exports.
Beyond the scarce figures offered by the island’s government, the real impact of the enclave on the Cuban economy is unknown. The perception of many Cubans is that the results are not visible and have not minimized scarcity or the economic and social crisis.
“I don’t think there will be a positive impact in the short term, it requires a greater commitment from the Government to structural, lasting, and credible economic reforms,” concluded Mauricio de Miranda.
Elías Amor stated: “It is clear that Cuba’s problem lies in its economic model, in the authorities’ refusal to implement the changes that should transform the country into a free market economy as occurs in other economies around the world. Until that happens, the system will continue in a serious crisis.”