The Foreign Investment Law: A Litany of Squandered Opportunities / Dimas Castellano

Dimas Castellanos, 11 March 2016 — Under the title of “Inversión extranjera, puntal para el desarrollo (Foreign investment, Key to Development” on Friday, March 4, 2016, the daily paper Granma  published a conversation between journalists Sheyla Delgado and Óscar Sanchez with Déborah Rivas, representing the Foreign Trade and Investment Ministry.

In the introductory paragraph the journalists cited how the Professor of Negotiation Emilio Rodríguez Mañalich used to say in class: “Opportunity is like a white blackbird that flies by just once … and if you fail to take advantage of it, you might never see it again.” They go on to say that: “It is precisely opportunities that have been the most immediate result of Law No. 118 on Foreign Investment in the country…”

Professor Rodríguez Mañalich was right. Time is an exacting judge, and opportunities rarely resurface. What neither the journalists nor the minister recognised is that the Cuban authorities are those who have squandered the most opportunities, and continue to.

No country, and much less underdeveloped ones, can ignore the important role played by foreign investment. Cuba continued to reject it, before and after the collapse of Socialism in Eastern Europe. Despite the poor results obtained from Decree-Law 50 of 1982, and Law 77 of 1995, the restrictions were kept in place, as was the absence of guarantees and the negative treatment, leading to a drop from some 400 joint ventures operating in 2002 to just 200. We had to wait 20 years, however, and witness the paltry results of the reform initiated in 2008, before we amended them.

It should be underscored that our current economic stagnation traces its roots to the process of nationalisation carried out between the agrarian reform laws of May 1959 and October of 1963, through which the economy, subordinated to ideology and politics and, was forever impaired.

The new legislation, Law 118, though more flexible than the preceding one, is not enough to overcome the crisis. According to the Cuban authorities themselves, the country needs sustained growth in its Gross Domestic Product (GDP) of between 5 and 7%. To achieve this it needs accumulation and investment rates of no less than 25%, which would require an annual investment flow of between 2 – 2.5 billion dollars.

The emerging scenario of resumed diplomatic relations with the US represents a great opportunity to make a leap forward, but it will be impossible without the corresponding political will. The nature of the current model, and its repeated failure, mean that it cannot be updated. Rather, it must be replaced.

When presenting the bill the Minister of Foreign Trade and Investment, Rodrigo Malmierca Díazstated that it “has major political implications, as it constitutes a profound updating of the transformative process undertaken at the beginning of the Revolution, placing the main means of production in the hands of the Revolutionary State.” That is, the declared intent behind it is to maintain the model of state ownership that generated economic inefficiency in the first place, such that its on-going failure is guaranteed.

Some of the current Law 118’s shortcomings are:

1- The Government is seeking sources of external funding even while it denies Cubans’ right to participate as investors.

2- It does not recognise the social function of property, and does not allow for private property. Instead, it declares that it will not allow for its concentration in the hands of natural or legal persons.

3- It limits self-employed Cubans to a list of activities almost entirely restricted to services, and denies them any legal personality as providers of the same.

4- While it provides investors certain “guarantees”, the subordination of the judiciary to the Party and the State make the Government a supreme judge and jury, placing investors at an acute disadvantage.

5- It does not allow for the free hiring of personnel, assigning this function to a State enterprise.

6- It does not recognise Union Rights (the freedom of workers to form unions without prior authorisation),  a principle enshrined in the Constitution of the International Labour Organization, set down in said organization’s Convention 87, and incorporated into the Universal Declaration of Human Rights, the International Covenant on Civil and Political Rights, the International Covenant on Economic, Social and Cultural Rights, the American Convention on Human Rights and the European Convention on Human Rights.

These, among other limitations, prevent it from seizing the opportunity offered by the current scenario, in which the US has begun to ease the embargo, while the Paris Club and other creditors are renegotiating Cuba’s debt and forgiving all or a part of it.

In the conversation with Granma, in reference to the impact of the Foreign Investment Law, the official explained that: “The US blockade against Cuba remains the greatest obstacle to attracting foreign capital.” That statement evades the truth. While it is true that the embargo has not been overturned, it has undergone significant changes. Before the commencement of the negotiations the US made modifications to the Treasury and Commerce Department rules, and implemented a package of measures that weakened the embargo and encouraged other nations to negotiate with Cuba.

If it wishes to take advantage of its opportunities, the Cuban Government should take measures to foster a situation conducive to the lifting of the embargo. Such measures would neutralise the forces that oppose it, strengthen the private sector, and facilitate the emergence of the middle class that our economy so direly needs.

It would behoove the Cuban government, thus, to seize the opportunity, not only for the normalisation of relations with the US, but also for the most important thing: to return to Cubans the rights and freedoms that were wrested from them, and without which there will be no positive results.

The present situation represents an unacceptable violation of the current Constitution, whose Article 14 states that: “the economy is based on all the people’s socialist ownership of all the basic means of production.” And a denial of the concept, upheld by José Martí, of the Republic as a state ensuring equal rights for all those born in Cuba, for the free expression of thought, and for many small property owners.

From Diario de Cuba