Dimas Castellanos, 17 January 2017 — By 2007, after forty-eight years of revolutionary rule, inefficiency and a lack of productivity had turned state-run farmland into fields infested with marabú weed. Meanwhile, food prices were increasing on the world market. In light of this situation, General Raúl Castro proposed “changing everything that needs to be changed.”
Fast forward five years to May 2013 when the vice-president of the Council of State, Marino Murillo Jorge, publicly acknowledged that the methods used for decades to manage agricultural lands had not led to the necessary increase in production.
The inefficiency was reflected in the gross domestic product (GDP), which fell regularly for years until reaching 1% during the first quarter of 2016 before falling to 0.9% at year’s end. In other words, Cuba entered into recession, a period of negative growth, in 2017. The result made the need for foreign investment a priority, a need from which no nation can escape, much less an underdeveloped country in a state of crisis.
In 1982 Cuba passed Decree-Law No. 50, which legalized foreign investment. At the time, the prevailing attitude towards investors in those parts of the world which received Soviet subsidies was hostile. But the dissolution of the Soviet Union made it imperative in 1995 for the government to enact Law No. 77, a statute with many restrictions and an absence of legal protections for investors, who suffered the negative consequences.
Of the roughly 400 joint venture firms that began operation in 2002, half ended up leaving the country. In spite of the negative result, the government did not repeal the statute until it became clear that investors were showing little interest in the Mariel Special Development Zone.
Law No. 118 was passed in March 2014 but, though more flexible than its predecessor, it too proved to be inadequate. According to Cuban authorities themselves, the country needed sustained GDP growth of 5% to 7%. Achieving this would have required income and investment rates of at least 25%, which would have meant annual investment figures of between 2.0 and 2.5 billion dollars.
Last year, foreign investment did not exceed 6.5% of these figures. Under current conditions the only way of even getting close to this target would be to implement a series of measures, including the following:
1. Allow Cubans — both those living on the island as well as those living overseas — to directly invest in the economy.
2. Acknowledge the social purpose of property and private propeerty. Abolish prohibitions against its concentration in the hands of individuals or legal entities, the only purpose of which is to exclude Cubans from economic enterprise.
3. Allow Cubans to engage in all manner of private sector manufacturing and customer service, and grant them legal status.
4. Provide investors with legal guarantees that allow them to settle disputes with their Cuban business partners before a judicial body that is not subordinate to the party or the state, which otherwise would make the government both judge and plaintiff.
5. Allow employers to freely hire their own employees.
6. Eliminate the dual currency system and its different exchange rates, which would provide for the emergence of a domestic consumer market and which would, in turn, encourage investment.
7. Recognize the right of workers to organize and form labor unions, a principle enshrined in Convention 87 of the International Labor Organization, to which Cuba is a signatory; in the Universal Declaration of Human Rights, of which Cuba was one of the promoters in 1948; and in the UN’s Covenant on Civil and Political Rights and the Covenant of Economic, Social and Cultural Rights, which Cuba has also signed but has not ratified.
These obstacles arise out of a history of antagonism towards investors and a failure to pay creditors. Therein lies the main cause of the country’s poor foreign investment climate, not the US embargo, which was relaxed under President Barack Obama. The level of Cuba’s state imvolvement in investment is uncommon for companies which operate in a market economy. Until that changes, the results will remain the same.
In a meeting of the Cuban parliament on December 27, the head of the Economic and Planning Ministry, Ricardo Cabrisas, observed, “Foreign investment continues to be quite low. It is not yet playing a significant role in economic development.”
Meanwhile, the president of the Council of State, Raúl Castro, stated, “Reinvigorating foreign investment in Cuba is of great importance… It is necessary to overcome, once and for all, the outdated and pervasive prejudice against foreign investment. We must divest ourselves of unfounded fears of capital from overseas.”
Therefore, if reviving a stagnant economy is impossible without a strong injection of capital and if “changing everything that needs to be changed” is more than mere rhetoric, then either a new investment law is needed or the current one needs to be substantially overhauled. In either case the word “foreign” should be dropped, making it simply the Investment Law.
Cuba is the only country in the region whose residents lack a right as basic as being able to participate fully in economic activity in spite of ample business opportunities and the professional training to do so. If this problem is not resolved, it will not only be a denial of our economic history but also of our social struggles and José Martí’s republican principles, which envision equality before the law for all those born in Cuba and for its many small property owners.
Besides being harmful to the nation, this prohibition violates the current constitution, which in Article 14 states, “The economy is based on socialist ownership by all the people of the fundamental means of production.” In other words the people, the supposed owner, has no right to participate in the investment process, a status contrary to law, western culture, of which we are a part, our economic history and human dignity.
A new investment law, one without qualifiers, would be an important, necessary and long-awaited sign of change. Proof that, despite long delay, the government is really willing to change everything that needs to be changed.