Spinning with the Failure of Foreign Investment in Cuba

Mariel Special Development Zone – ZEDM

14ymedio bigger14ymedio, Elías Amor Bravo, Economist, 4 September 2022 — Cuban communists have failed dramatically with foreign investment. They were wrong to believe that an interventionist law and not guaranteeing property rights were going to serve to promote investment. They were wrong about the Mariel Special Development Zone, which has not been special, nor anything close. They were wrong about the devices for hiring labor, the design of joint ventures or the absence of funding. They were wrong in everything; hence, the failure.

And now, the State newspaper Granma published an article entitled “Lend a hand” to national industry and economy with foreign investment. Wouldn’t this be like going for the jugular? Nor would putting the national infrastructure that is still state-owned at the service of foreign investment make it possible to patch over a pothole that has its explanation in the desire to apply the communist model to foreign capital, an erroneous pretense that doesn’t have a leg to stand on.

The foreign investor wants freedom to decide what to do with his money. The hands of the state, the farther away, the better. This is something that the Cuban communist regime cannot understand, and that’s how it goes.

Contrary to what is stated in Granma, analysts emphasize that the framework of foreign investment in Cuba continues without undergoing the necessary changes to achieve its increase, and the recent decisions of the regime have passed without pain or glory, because they don’t go to the heart of the problem. But with these decisions, the communist state intends to solve critical problems that throw the Cuban economy into a situation of extreme weakness, such as with food or electricity, and in these matters, foreign capital seems to have little interest.

The regime intends for foreign capital to enter to operate in wholesale distribution, but this stumbles over the legal framework in Cuba. On one hand, there is no guarantee because this activity is subject to control by the regime, and on the other, why dedicate itself to distribution when the problem is that there are not sufficient products or goods?

The two vectors point to a scenario in which no matter how hard the authorities try, they won’t find a foreign distributor to provide the technology and experience that will achieve radical changes in the gray commercial landscape of the communist economy. You don’t build a house from the roof down; you need a solid foundation. As much as Minister Gil tries at the National Hotel to convince representatives of embassies, national and foreign businessmen and officials from agencies of the State, he knows that this initiative won’t go very far; and in any case, if it happens, the government will have a partner subject to communist decisions who, sooner or later, will abandon the business.

Likewise, Gil claimed the new scenario according to which, currently, both the private and state sectors have a demand for resources to produce, backed up by imports, which means a space for the participation of foreign capital in wholesale trade. But in this, he also didn’t tell the truth, since while the state sector agrees to dollar-to-peso exchanges at the rate of 1×24, others, the non-state, must get used to the semi-official rate of 1×130, or resort to the informal market rate of 1×150, and rising.

Gil said that the country has an infrastructure that is above production levels, and this is false, according to the results of 2021, but by disagreeing with it, he refused to accept the technological obsolescence of numerous sectors and companies in sugar, electricity, manufacturing, transport, etc. The minister is wrong to say these things, and the foreign investor is attentive to all this when making decisions.

It’s not surprising that other Caribbean countries, such as the Dominican Republic, benefit from this black hole of the Castro regime, which aims to trap unsuspecting investors so that they place their capital in warehouses or factories whose cost of reactivation is much higher than putting it into operation from the beginning. If you think not, look at the estimate of 255 million dollars to update the electricity sector.

Haste has never been a good adviser in economic policy decisions. In reality, attracting foreign capital to Cuba simply requires another model, another economic structure, another legal framework, and that doesn’t happen overnight. Going around in a vicious circle doesn’t lead anywhere.

Therefore, when the minister declares that he is willing “to make national infrastructure available to foreign investment,” he should clarify how he intends to do it, in terms of what model, with what instruments and within what deadlines, because that being said, in open terms, he will not be able to attract anyone; on the contrary, he will scare off foreign capital. The lost foreign exchange income in the country, which is more than 3 billion in a very short period, will never come within the current framework of foreign investments.

The minister abandons the idea of international investors deploying their structures to produce and generate employment in Cuba, seeing that this is impossible, and therefore, he now wants to make it easier for foreigners to bring products into the country, taking advantage of their experience, their financial facilities, their technology and for this, to take advantage of the communist state infrastructures. They aren’t going to be successful, not in the wholesale trade and much less in the retail trade. There are many countries to attend to first, with promising markets. Cuba lags behind in this international competition, and for Cubans things are getting worse and worse.

As always happens in these business forums, such as the one held at the National Hotel, ministers participate in the road show to present business opportunities to foreigners who then, when studied in detail, end in nothing. The five proposals offered by the director of foreign trade of Havana, Luis Carlos Góngora, surprised the attendees. First, the possibility of wholesale and retail production and marketing of consumer and intermediate goods in the capital, which are in high demand, associated with the activity of breadmaking and pastry, artisanal and industrial productions of candies and other jams, and the processing and preservation of food.

He stressed that there is a market for this, due to the growing number of micro, small and medium-sized companies that are engaged in these activities, in addition to the fact that these products and raw materials are for widespread domestic use, in family food, which also justifies a retail market. And among the products to be marketed, he mentioned sugar, salt and flour, in addition to specific mixtures, gluten-free flour, packaging, fats, oils, yeasts and dyes, among other raw materials.

The business director of the Ministry of Industries, Tomás Oviedo, proposed several areas for foreign investment; for example, the marketing of tires and rubber articles, as well as inputs and equipment related to these productions. The proposal would be in the form of a wholesale marketing company, and the opportunity lies in the high unmet demand, with potential customers such as the ministry itself, MITRANS [the Minstry of Transport], the construction sector or any other branch of the economy that owns automotive transport.

From the chemical industry, there was talk of the creation of a wholesale entity that markets flat glass and items of this material, supplies and equipment for the respective factories, which would  meet the demands of that market, acquire new technologies for the development of this industry and recover and make the most of the capacities already installed.

In the field of agriculture, it was proposed to develop a chain of wholesale and retail stores, no less than five, to offer a variety of products and commodities with national reach, supported by wholesale warehouses. This proposal would be supported by a high demand in the sector for raw materials, tools and accessories, among other things, and as another potential it added the existence of underutilized logistics capabilities, with a network of establishments that are out of stock.

The question that appears in all this list of opportunities is the same: Why haven’t the Cubans done this themselves, and why do you have to resort to foreign capital? Or more importantly, why doesn’t the state do it with its state companies?

On the other hand, it abounded in several conditions and guarantees of operation, such as the “Single Window,” created to accompany investors and facilitate the entire process.

Castroite leaders have thrown in the towel, aware that the communist model can’t go on, except to highlight interventionist nonsense such as the portfolio of opportunities or the one-stop-shop. They speak of a more favorable environment for foreign investment, but they don’t realize that the current times, due to a serious global economic crisis caused by Cuba’s partner, Putin, will bring with it a collapse of markets and financing. It’s unfortunate that Cuban leaders are going to look for investments just when it can become more complicated. Always swimming against the current.

Not even letting businesses operate in foreign currency, which means taking them away from the reality of a weak and increasingly fragmented domestic market, will manage to interest any foreign investor. No one trusts these types of decisions that, at any time when the conditions of the economy change, can be reversed, and then it’s over. This lack of guarantees is what worries many investors.

The eternal bureaucracy is also frightening investors, so, when the flexibility in the requirements for proposals was announced, the reduction in the content of the documentation that is required today for approval, some rejoiced, but sadness returned when it was seen that the required paperwork remained the same and that the multiplicity of partners again casts shadows of doubt.

Finally, no one told Minister Gil and his colleagues that in order to attract foreign capital for business opportunities in the sectors of the economy, something must be done first, and that it’s very important.

And that is to pay off the debts. No attendee said anything about this issue. It’s an annoying matter for those who haven’t paid the Paris Club and other creditors for two years. And so, with that data about non-payment, they want to attract investments? Good luck with that.

Translated by Regina Anavy


COLLABORATE WITH OUR WORKThe 14ymedio team is committed to practicing serious journalism that reflects Cuba’s reality in all its depth. Thank you for joining us on this long journey. We invite you to continue supporting us by becoming a member of 14ymedio now. Together we can continue transforming journalism in Cuba.