Foreign Investment in Cuba: Are the Obstacles Too Great?

By Raudiel F. Pena Barrios  (Progreso Semanal)

Ferrocarril en la Zona Especial de Desarrollo de Mariel.

HAVANA TIMES — It’s almost impossible to count just how many different perspectives and voices I’ve heard about the difficulties foreign investment faces here in Cuba, as well as its importance for our future. It seems like a contradiction, but it’s what is going on right now.

Both with the previous law (1995) as well as the current one, approved in 2014, foreign investment projects continue to be faced with many opponents, which stunt their development. I’m definitely not the first person to say this; the last person to publicly recognize this problem was the President Raul Castro during the most recent session of the National Assembly of the People’s Power.

When the current law in force about this subject was being introduced, its importance was heavily weighed. I absolutely agree with this, as amending a law to try and adjust it to the new national reality and the relevance sought while looking towards the future, is always a good thing. However, just as I said at the time to some of my colleagues, I continue to think that the problem didn’t lie and doesn’t lay in the law, but in more complex factors and therefore they are harder to get rid of.

Unfortunately, the political and ideological vision many people have today might still understand capital coming from abroad to be “enemy” money which needs to be regulated so that the country isn’t stolen. A necessary evil which we have to resort to in certain concrete circumstances, and which we have to limit the most we can. However, if we don’t let others take advantage of some of our resources and services, and receive benefits in exchange which we can then inject into our own economy, even we won’t be able to do it. The mentality that fails to recognize that there will be no future without technology and hard currency still persists.

Our ambitious Economic Development Strategic Plan needs billions of USD every year from now up until 2030 to become a reality, with very little leeway in the face of possible mistakes. This is precisely why it shouldn’t appear to be an unreachable line such as the horizon, but should resemble a plan, and at the same time, fresh money from abroad shouldn’t be stopped from entering the national economy.

Cuban government authorities have recognized themselves the fact that they need 2 billion USD per year in direct foreign investment, but ever since the new law came into effect in 2014 up until the end of 2016, they have only manage to attract a total of $1.3 billion.

Investors in our country come up against all kinds of bureaucratic obstacles, from extremely long negotiation processes which are riddled with excessive paperwork, to poor preparation of of their national counterparts. One cannot ignore the fact that, in many cases, the CEOs of Cuban companies who take on leading these negotiations and their supervisors aren’t business people by training, but members of the Cuban Communist Party’s cadre who are very well trained in the political order of things, but maybe not so much in trade and business matters. This factor, which maybe some find very subjective, is present today in the national economic landscape and this sometimes means that opportunities are lost, as well as the over and undervaluation of key aspects.

All of the above stands in stark contrast with Cuba’s clear pressing economic needs. While we take our time negotiating and placing obstacles in the way: food production continues to be a national security issue; restructuring the energy matrix is vital so we can generate 24% of our electricity from renewable energy sources; and we can’t aspire for our GDP to grow by 7% per year without having better productive infrastructure. From these three examples, it follows that paralyzing foreign investment has a negative impact on many of our economic fields, even where it doesn’t exist, and of course this will also affect the population’s well-being.

There will hardly be greater agricultural productivity if we continue to plow our fields with oxen, we can’t continue to depend on oil imports – no matter how beneficial agreements with political and trade allies are – and our economy won’t grow if we don’t produce more. I am conscious of the fact that not everything can be fixed with foreign investment and that we have many possibilities that still haven’t been fully exploited here on the island. However, an economy with capitalization problems like our own needs the oxygenation that fresh capital can provide.

There’s another factor we have to take into account. As a result of negotiating our debts with creditors from the Paris Club, we not only have to make provisions to grow and develop but we also have to honor these commitments. Here, foreign capital also plays an important hand, because among the variables that were taken into account to fix the terms of the agreement we reached, the potential role investment would have as a vital source of financing our development was analyzed.

It is also necessary to rethink foreign investment in its relationship with the Cuban private sector and local development. Our local governments need to be able to make deals with investors whose capital contribution isn’t that significant for the matters of national interest, but are of interest to the municipality in question.

On the other hand, when our small and medium sized businesses are legally recognized as such, they should be able to negotiate their own projects within a legal framework which facilitates their growth and development in certain economic areas. As the Mariel Special Development Zone (ZED) takes off, we can do a lot with those who can’t settle there but are willing to invest in other geographic and economic spaces.

It would be beneficial for Cuba to have a development area like the Mariel project, but which hasn’t escaped from being affected by our delays: from the beginning of 2015 to November 2016, 11 new users were approved, for a total of 22 ever since the ZED emerged, and as of January 2017, only eight were operating. Nevertheless, these figures are nowhere near the number of companies who are interested in investing here, which in December 2015, were over 400.

If the rate of approving projects for the ZED is a yearly average of 11, and supposing that those who are interested remain to be so, it would take us no more, or less, than about 36 years to approve them all!

I believe that we can all agree on the fact that there is still a lot for us to do, especially because, like so many other times in the past, the law isn’t the only or definitive solution; the updated, coherent and adaptable law is just a part of it. At these “now-or-never” times for Cuba, it’s crucial that organized and efficient foreign investment is given priority, as it would be no exaggeration to say that the future of Cuba, just as we have dreamed it, depends on this.

 



One thought on “Foreign Investment in Cuba: Are the Obstacles Too Great?

  • This article raises questions which are critical to the economic future of Cuba. The Government of Cuba seeks foreign investment from capitalist countries, but expects those companies to comply with rules and regulations which run counter to good business principles.
    Companies expect to be able to control their own internal operations including for example selection of staff and salaries and wages for those employees. But with communist thinking, such actions imply differences in incomes, encouragement of individuality and expectations of improved living standards wheas the Castro regime being communist is primariy concerned with retention of power and control from the cradle to the grave. The encouragement of individuality and opportunity to develop talents necessary to develop a successful commercial business is in conflict with everything that the two successive Cuban dictators believed in and have pursued.
    Successful commercial businesses cannot afford to adhere to the regimes rules and regulations. If Cuba seeks investment, Cuba must change! Locking up company directors for the “corruption” of paying a penny more than the regime permits, is simply economic folly and a major disincentive.

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