CUBA: Teasing Dance with the Foreign Investor

By Dalia Acosta Reprint | | Print |

Dalia Acosta

HAVANA, Nov 16 1995 (IPS) - True to the tradition of the bolero, Cuba’s economic opening seems to have taken the path of difficult love: relations between the Caribbean nation and foreign investors are characterised by hope and conflict.

Both parties seek each other out, but they move cautiously, calculating the risks. Nevertheless, for both the host and the guest, the spell appears to be irresistible.

Foreign investor interest has grown rapidly in recent years, and is gathering pace. A surprise visit to Havana by a team of top- level U.S. executives was preceded by an announcement by the Canadian company Sherrit Inc., in late October, that it would invest 500 million in the island, a good part of it in the sugar industry.

Only a few days later, Cuba signed agreements with firms from Germany, Mexico and Canada to supply the inputs needed for the next sugar harvest, including 116 million dollars in external financing.

In early November, the Havana International Fair (FIHAV 95) drew 1,701 firms from 52 countries, 400 more than last year, and a large number of entrepreneurs expressed interest in exploring the Cuban market.

Having earlier told entrepreneurs that all productive sectors would be opened to foreign capital, Cuba took this occasion to unveil its new Foreign Investment Law. Official sources say the number of foreign investments rose from seven in 1990 to 210 last September, with 2.1 billion dollars invested in 34 projects.

Business persons interviewed by IPS said the new law showed flexibility. It placed no limits on private investor participation and allowed full foreign ownership.

But all is not as it seems. The international consulting firm Tory Tory Deslauriers and Binnington believes that “few Cuban businesses are likely to be left totally in the hands of foreigners.”

The firm noted that “the Cuban government still believes that it is to the country’s benefit to maintain significant Cuban participation with foreign investors.”

The new law ratifies guarantees for investment capital and establishes a 60 day review period for the government to respond to an investment proposal.

Although they acknowledge a new flexibility in the law, some entrepreneurs said they had counted on mixed private-public firms being permitted to hire their workers directly rather than through the state employment agency.

Although the law gives the green light to investing in all productive sectors, including real estate and free-trade zone businesses, getting access to the internal market is quite complicated in practice.

“It’s hard to slice this cake,” said an expert on the Cuban economy, who explained that “the authorities will try to keep control over the retail market because of its high rate of return.”

But representatives of some foreign firms remain patient. They believe that sooner or later an opening will occur for entry into the Cuban market.

They note that even though the island’s authorities still carefully studies the impact of every measure before taking a new step, the economic opening is gradually quickening.

“Although some want us to go rapidly, we’re dressing ourselves slowly as the proverb says, in order to walk more quickly,” President Fidel Castro said recently.

The Cuban authorities reject the abrupt transition models of their former Eastern European partners and have decided to re- enter the international market gradually.

Experts say that the country needs time to modernize its national industry. Otherwise, it runs the risk of perishing under a crush of foreign competition it could not withstand.

At a conference organized by the British magazine The Economist last October, Cuban Vice President Carlos Lage acknowledged that foreign investment had contributed to the economic recovery now underway.

Economy Minister Jose Luis Rodriguez added that the gross domestic product returned to growth during the first months of this year and that 1995 could end with 2.5 percent growth compared to 0.7 percent last year.

Official sources show growth in most areas of production, except for sugar, along with a 16 percent increase in exports and a reduction of the budget deficit from 33 percent of GDP in 1993 to 7.4 percent last year.

Received optimistically but without undue enthusiasm by the authorities, the nw GDP growth sounds like a rallying cry for foreign businesses interested in the Cuban market.

Entrepreneurs interviewed by IPS said that economic recovery remains a bigger investment incentive than other advantages claimed for the Cuban economy, such as social stability, a well- trained workforce and an untapped market.

Several of these business sources declared that they were trying to build a market position before the lifting of the U.S. economic blockade unleashed competition from U.S. firms, which they believed would happen before long.

Mati Moran, executive director of the Irish Trade Development Institute said: “Cuba is an important market for firms that want to expand into the Caribbean and South America.”

While businesses patiently seek the key to the Cuban market, the government is whetting appetites by announcing the upcoming promulgation of new laws for real estate and free-trade zone investment.

The current banking reform underway should help smooth investors’ financial transactions, and an international financial investment fund is about to be launched with 50 million dollars in start-up capital.

Local observers insist that the Cubans are doing the impossible in erasing memories of property nationalization and should resist opening up the economy indiscriminately.

At the other extreme, foreign entrepreneurs seeking improve their investment position edge urge the government to remove obstacles inherited from centralized socialist economy.

And so, while friendly pats on the back go hand-in-hand with mistrust, both official sources and independent analysis agree that despite the contradictions the economic opening is here to stay.