Publié dans Tendances du marché
Dans ce billet, Erik Richer La Flèche fait part de certains de ses expériences personnelles en tant que conseiller sur les investissements à Cuba. Une traduction de ce billet sera disponible sous peu.
With US-Cuban relations moving steadily toward normalization, Stikeman Elliott partner Erik Richer La Flèche shares some of his personal experiences as an advisor on investment into Cuba. While opportunities exist for those willing to navigate the country's complex bureaucracy, it is important to be cautious and realistic about the extent of the changes that may be coming.
Every decade or so the economic promise of Cuba appears on the radar screen of international investors.
With the disintegration of the Soviet Union in December of 1991, Cuba lost its main benefactor. Confronted with severe economic hardship - the years following the fall of the USSR were euphemistically called the "Special Period" - Cuba began opening to foreign investment and in 1995 adopted Law 77 (Foreign Investment Act).
At first the initiative generated considerable enthusiasm, but concrete results ultimately fell far short of expectations. Foreign investors, primarily European, Canadian, Mexican and Australian, fully expected Cuba to follow Eastern Europe and transition to a mixed economy. To say that this did not happen is an understatement.
In 2008 Raul Castro took over from his brother and in early speeches acknowledged that improvement was required and instituted modest economic reforms. Again, interested investors, at first intrigued by the proposed changes, rapidly looked elsewhere for opportunities. The limited reforms ended up being geared towards domestic smaller enterprises and not the larger concerns likely to interest foreign investors.
A year after the death of Hugo Chavez - Cuba's new benefactor - Cuba published its new Foreign Investment Law (April 16, 2014). The law addresses some, but by no means all, of the shortcomings of Law 77.
In December 2014, the United States and Cuba, with assistance from the Vatican and to a much lesser extent Canada, stunned the world by agreeing partially to normalize relations. The announcement was the culmination of an 18-month process. This development has generated much curiosity, if not serious interest, in the United States.
From my dealings with Cuba since 1994, I have learned five lessons:
Necessity: Cuba's leaders give every appearance of liking their system (perhaps not unlike many other leaders) and are looking only to improve it, rather than to change it fundamentally. Economic liberalization is effected out of strict necessity and the default is always to revert to the status quo. This attitude permeates the bureaucracy and state enterprises.
Short Term: Cuba does not do something unless it expects to benefit from it. While this is sensible enough, the problem is that Cuba has a shorter term horizon than most serious investors tend to have. Cuba has considerable financial needs and wants early returns from foreign investments, whereas investors are interested in longer-term potential. This disconnect has caused much friction and increased up-front costs, sometimes to the point of rendering viable business ventures uneconomical.
Control: The Cuban government does not want to relinquish control and will not hesitate to roll back previously implemented measures if it believes that its influence is threatened.
Broad Principles: Cuban negotiators are intelligent, educated and sharp. In short, they are very good and tenacious negotiators. They do not like detailed documents. They prefer broad statements and shorter documents. In theory, this allows for adjustment required by changed circumstances. In practice, this breeds uncertainty and leads to nearly continuous ongoing negotiations and much horse-trading, even after the agreement is signed. In Cuba, patience at the beginning of the process is very much a virtue and a hastily agreed agreement is a recipe for much financial and other uncertainty.
Complexity: Doing business in Cuba is complex. Among other things, your Cuban employees are not your employees. They are the employees of a Cuban enterprise that hires them, disciplines them and pays them only a small fraction of what the Cuban enterprise charges for their services. This way of proceeding is most unfortunate on many levels. From a business standpoint it raises issues as to loyalty, authority, productivity, overstaffing and nepotism.
It is clear that the economic future of Cuba is closely tied to the United States and that eventually Cuba will see considerable US investment. The rest of the world has done what it could in Cuba and it is now the turn of the United States. However, based on my experience, those eager for first mover advantage should proceed with caution.
Opinions expressed in this article reflect the personal experiences of the author and are not intended to be attributed to Stikeman Elliott or other organizations of which the author is a member.
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