A professor of negotiation with a long career in the world of commerce, Emilio Rodríguez Mañalich used to say to his students, “Opportunity is a white dove that flies by in front of our eyes one time, as a rule. And, if we don’t take advantage, it is unlikely we will see her again.” Such opportunities have, in fact, been the most immediate result of Cuba’s Foreign Investment Law no.118.
With the new law’s second anniversary just around the corner, a reflective look at its progress is in order. Also of interest are aspects which may need to be adjusted, and above all, the development of a proactive approach, given the dynamic, constantly changing environment.
Déborah Rivas, foreign investment director general at the Ministry of Foreign Trade and Investment (Mincex), spoke with Granma, addressing the law’s impact thus far.
“In such a short period of time, we should not attempt to measure the impact of decisions made with the approval of the policy and the issuing of a new regulatory framework for foreign investment. We consider the time which has transpired to date to be an initial stage, which has served to generate confidence among foreign investors, in hopes that they will come and invest in the country. We should not expect an immediate impact in this area, since a set of important conditions must be established, so that investors are attracted by Cuba’s advantages as an investment site. The U.S. blockade of the island continues to be the fundamental obstacle to this attraction, and it has not been substantively modified since this new body of law went into effect in June of 2014.”
Among the tangible results to date noted by Rivas were the signing of more than 20 new hotel administration and commercialization contracts; the creation of several joint enterprises; and new international risk-sharing partnerships in oil exploration. Although expectations are far from being met, she said, these achievements will have a positive effect on the national economy, and confirm the validity of investment opportunities being offered in the country’s portfolio which includes 326 projects identified by Cuban enterprises.
Also impressive has been the avalanche of visits to the country, related to both the new regulatory framework and the re-establishment of diplomatic relations with the United States, along with the elimination of Cuba from that country’s list of state sponsors of terrorism, Rivas said.
She also emphasized as positive the requests made by several foreign enterprises currently operating within the country, to extend their presence. These requests have been conceded to four entities, including Brascuba S.A., which is expanding in the Mariel Special Development Zone (ZEDM).
Rivas explained why two years is not enough to accurately evaluate the new law, noting that three basic steps must be taken before an interested party actually makes an investment. First, confidence must be created among potential investors. Then negotiations between foreign businesspeople and their Cuban counterparts must take place; and the resulting plan evaluated and approved. Only after plans begin to take shape is the country truly recognized as an attractive investment market.
All of this first requires an appropriate environment and the opportunity to share the advantages of doing business with Cuban enterprises, Rivas reiterated.
This past December 12, agreements reached with the Paris Club improved Cuba’s credentials with creditor countries. What is the significance of this event?
The renegotiation of medium and long term debt with the Paris Club ad hoc group is an important step for Cuba, which provides evidence of increased confidence in our economy, and is the result of our policy of strictly honoring the financial commitments made.
In practical terms, it allows us to access new financial resources in these creditor countries. It conveys a positive sign about our nation to companies in these and other countries, which can be translated, as is being seen, in increased interest in doing business with Cuba. This is also evidenced by the rating agency Moody’s modification of Cuba’s risk category, which improved from ‘stable’ to ‘positive.’
How is foreign investment related to the updating of Cuba’s economic model, and to providing employment?
This is a political policy which is among those the country is implementing, taking as their foundation the agreements approved at the 6th Party Congress. That is to say, it is not an isolated policy, but rather seeks to fulfill the Guidelines related to several areas, and in particular, those regarding foreign investment, and is expressed in this new norm, which is the Law, and its complimentary framework.
In the process of updating our economic model, foreign investment is a key element, and is directed toward attracting external funding to increase investment to levels which will allow for greater growth rates, in accordance with our development plans.
One of the objectives of this legislation, and it has been said explicitly, is to additionally generate new sources of employment. As investors are established, they will hire a workforce in our country, which is one of the distinctive elements of the Cuban market as compared to foreign investment in the region, since we have a highly qualified working population, capable of assimilating the technologies which will be introduced within a very short period of time.
Your perspective on the process underway seeking to normalize relations between Cuba and the United States, following the reestablishment of diplomatic relations…
Given that the blockade still remains in effect, I do not believe that this is one of the issues which is going to be resolved more quickly. At this time, President Obama, in regards to investment, has only authorized joint enterprises in the telecommunications sector, but our opening to foreign capital makes no distinctions as to the origin of capital. We could, therefore, make investments with U.S. companies in the sectors we have prioritized: oil, renewable energy or tourism. This is one of the questions President Obama could authorize, making use of his executive powers.
Cuba has other sectors prioritized for foreign investment, are these being postponed?
There is no limitation on investing in any sector, since the law only precludes foreign investment in health care, educational services and the armed forces. But even the enterprise systems affiliated with these three sectors can receive foreign investment. What the policy has defined are priorities in terms of the country’s needs. In no way are we denying the possibility of business in any other sector, as long as it is duly evaluated by the interested Cuban parties.
In the case of agriculture, has a strategy been developed to generate business opportunities in areas needing investment, to help reverse a situation which has led to limited food supplies, high prices, and dependence on imports?
In the country’s 2014 and 2015 portfolios of investment opportunities, the first priority was substitution of food imports, and a number of important agricultural projects were included. Some focus on the production of meat, rice, beans, and others are very clearly defined by the ministries of Agriculture and Food Industry, and relevant enterprise groups.
Much has been said about the broad scope of the new foreign investment policy? What exactly is entailed?
We talk about generating employment, developing industries, attracting technology and capital. We have another important objective, which the projects designed thus far have not fully addressed, in relation to creating productive chains within the country (spill-over). We cannot expect development of the Cuban economy without this being integrated, creating added value, linkages of value which not only satisfy the domestic market’s demand, but which are also linked to international markets. All of this gives foreign investment a diverse character.
The objective is not to sell the country; it’s not about undertaking whatever project might interest a foreign investor. It’s about attracting foreign investors whose projects are in tune with our public policy. We are not undertaking an accelerated process of privatization of the Cuban economy. Thus the issuing of norms and publication of the policy, to make the investment approval process transparent, above all so that authorities evaluate all projects case by case, to ensure that they conform to the objectives, and will be beneficial to the country.
Across the board, we have more than 200 businesses with foreign capital established here, more than 35 of them established after the new law. The main ones are from Europe, which is our principal source of investors, as well as Canada. As in all of Cuba’s international economic relations, we are interested in diversifying the market. In this case, that of investment sources. We must, by all possible means, avoid dependence on a single market.
Regarding the wave of visits by political leaders accompanied by important businesspeople, which have increased over the last year, and the opportunities they generate… How is this growing interest linked to the establishment of concrete projects?
We are experiencing a moment when everyone is watching Cuba, which obliges us to react with the same speed with which businesspeople are looking us over, and making the decision to invest here. We must take advantage of this. We must continually develop our capacity to negotiate with agility, responding in a timely and professional manner to proposals. We need to train our negotiating teams for this, with the intention of becoming more proactive in generating business. We haven’t resolved the issue by approving a law, or by having a public policy indicating that we are interested in attracting direct foreign investment to the country. We resolve it as we meet the conditions needed to concretize these objectives.
One of these conditions is aptitude. In this case, that of Cuban enterprises to incorporate foreign investment into their development plans. The government today has the intention of attracting investment, but we have not reached the point yet when it is the company itself which sees an opportunity, with this capital. Another element is not waiting for the investor to arrive; we must also get out and look for them, based on our interests. We must identify opportunities and make proposals.
Law no. 118 recognizes cooperatives as possible domestic investors, yet to date, no project including their participation has been concretized. Why not?
The law defines domestic investors as Cuban incorporated entities, and the approved policy establishes that incorporated non-state economic organizations, and participating mercantile associations of Cuban capital, may partner with foreign capital in concrete projects. This is legally possible, and we hope to begin developing it over the coming months, fundamentally with regards to agricultural cooperatives, since they are linked to policy on substitution of food imports.
In your opinion, what other challenges remain?
Being proactive in every action, every step. If we are able to attract between 2 and 2.5 billion dollars of foreign capital annually, in prioritized sectors, we will contribute to making our socialism prosperous and sustainable.
GENERAL PRINCIPLES OF CUBA’S FOREIGN INVESTMENT POLICY
- Foreign investment is fundamental to growth in specific economic sectors and activities.
- This capital is to be directed toward generating exports and the substitution of imports, as well as toward the elimination of obstacles within national productive chains, promoting modernization, the creation of infrastructure, and changing the country’s technological profile.
- Foreign investment is promoted via a broad portfolio of specific projects.
- The development of comprehensive projects which generate productive chains is encouraged.
- Investment projects to modify the country’s energy profile are to be developed.
- To be ensured is majority Cuban participation in businesses involving the extraction of natural resources; public services; the development of biotechnology; wholesale commerce; and tourism. Exclusive rights to the Cuban market will not be conceded. International partners may function as suppliers or clients, on the basis of equality with all others.
