Posted in International, Investment
American
investors have made their way into #Cuba. Just this week, the U.S. Treasury
Department has approved the first significant U.S. business investment in Cuba
since 1959: the
Oggun tractor factory. This plant represents a $5 million to $10
million investment by an American company in Cuba.
Both
countries seem serious about moving their recently-resurrected commercial
relationship forward. The U.S. and Cuba have entered into an agreement to resume
commercial flights between
the two countries the same week Cuba’s Minister of Foreign Trade and
Investments, along with other officials from the Ministry of Foreign Affairs,
Cuba’s Central Bank, and the Cuban Chamber of Commerce, have come to meet with
the U.S. Secretary of Commerce to discuss how the two countries could further
bilateral commercial relations.
While the focus of
politicians’ rhetoric and scholars’ analysis has been on either what Americans
are allowed to do, or on what Americans should want to do in Cuba, attention
should be paid to what Cuba wants from its investors.
Cuba Wants
Investors
First, there can be no doubt
that Cuba wants investors.
In
September 2013, Cuba created a Special
Development Zone at Mariel (Zona Especial de Desarrollo Mariel). This
$900 million port was formed in November 2013, 30 miles west of Havana, with
the express purpose of attracting foreign investment. Many Americans are
already familiar with Mariel, but remember it for the 1980 mass boatlift that
carried thousands of Cuban refugees to America’s shores. Instead of being
a point of departure, Mariel is now a destination for foreign capital.
A few
months after the creation of the Special Development Zone, Cuba’s National
Assembly unanimously passed the Foreign
Investment Act (Law 118) on March 29, 2014. Law 118 promises
foreign investors tax breaks and legal protections for their investments.
These far-reaching overtures
to potential foreign investors were not made, however, without certain conditions.
Cuba Wants
Investments in Particular Sectors
The Foreign Investment Act
delineates, among other things, which investment vehicles are permissible, how
investment shares may be transferred, who may be hired to work on the
investment projects, and how disputes may be resolved.
Cuba
has also specified in what it wants foreigners to invest. Last year, Cuba
published a Portfolio
of Opportunities for Foreign Investment detailing
326 projects in twelve sectors ripe for foreign investment:
1. Tourism – 94 Projects
2. Oil – 86 Projects
3. Agriculture and Food – 40 Projects
4. Renewable Energy – 22 Projects
5. Industrial – 21 Projects
6. Mining – 15 Projects
7. Transportation – 15 Projects
8. Construction – 14 Projects
9. Biotechnology and Medicine – 9 Projects
10. Business – 4 Projects
11. Health – 3 Projects
12. Audiovisual – 3 Projects
The highest number of projects
was, not surprisingly, in the tourism sector. Cuba’s official policy on
tourism investment is to direct foreign capital towards building or
reconstructing new hotels and corresponding infrastructures. The President
of Cuba’s Chamber of Commerce has noted the need to increase hotel capacities
and standards in Havana and other heritage cities. So far, 74 hotel
marketing and administration contracts have been signed, and these include
almost 20 contracts with foreign firms.
Interestingly, Cuba has
expressed a desire to attract foreign chains to its coasts, and is reportedly
working on establishing agreements with renowned international chains across 58
facilities. Cuba is also promoting real estate development, including golf
courses, marinas, and theme parks. Cuba has predicted that it will be one
of the Caribbean’s top golfing destinations, and has already created two joint
ventures, with British and Chinese investors, responsible for hotel
construction. These projects are said to be worth over $400 million.
Furthering its efforts to
attract investment in its tourism sector, Cuba is hosting its 36th
International Tourism Fair (FITCUBA 2016) this year, which will be dedicated to
Cuba’s culture and will feature Canada as the guest of honor. Canada
represents one of the highest sources of visitors to Cuba each year.
Notably,
the Beacon Council, Miami-Dade County’s official economic development
partnership, has identified seven
target industries Miami’s
business leaders should focus on:
·
Aviation
·
Banking and Finance
·
Creative Design
·
Hospitality and Tourism
·
Information Technology
·
Life Sciences and Healthcare
·
Trade and Logistics
The overlap between Cuba’s and
Miami’s lists of target industries, along with Miami’s geographical proximity
to Cuba and supply of Spanish-speaking professionals make the city an obvious
key player in the development of Cuba’s business sector.
There are certain sectors,
however, in which Cuba will not allow private ownership.
Cuba Does Not Want
Investments in Particular Sectors
Notably, last December, Cuba’s
official newspaper, the Granma, published an article titled, “Open Also Your
Mind to Foreign Investment,” encouraging the Cuban people to embrace foreign
investment. Cuban officials have reiterated that these changes in economic
policy will not threaten the country’s socialist regime. Cuba’s policies
expressly prohibit investment in sectors that may threaten Cuba’s political
landscape.
For example, the Foreign
Investment Act makes it illegal for a foreigner to invest in education services
for Cubans and in the armed forces. Cuba’s Constitution also states that
Cuba’s press, radio, television, film industry, and other mass media can never
be privately owned.
These carve-outs are
consistent with the Cuban government’s assurances to its people: Cuba is
importing only capitalists’ capital, not their ideologies.
While it has been said that
profit is apolitical, investors should not ignore the political contours of
Cuba’s budding foreign investment regulations, as these may impact their
investment opportunities.
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