Foreign investment in Cuba is an active and fundamental element of the country’s development and economic growth. However, achieving stability in this sector takes time. It is a gradual process, and even though discrete achievements are made each year, it continues to represent a challenge in 2018.
With the approval of the Foreign Investment Law in 2014, a process of changes began which, together with the Economic and Social Policy Guidelines, create an economic scenario more in line with the needs of the country and the regional outlook. At that time, macroeconomic estimates pointed to around 2 billion USD a year of foreign capital as necessary to complement the country’s efforts, achieve the goals set and ensure medium and long-term development.
Up until November 2016, Cuba had managed to attract foreign capital commitments of around 1.3 billion dollars. However, as Déborah Rivas Saavedra, director general of Foreign Investment at the Ministry of Foreign Trade and Investment (Mincex), explained to the press, in this first stage, no discernible progress was made in terms of the required Gross Domestic Product (GDP) growth of between 5 and 7%.
In 2017, Minister of Foreign Trade and Investment Rodrigo Malmierca Díaz announced, in the context of the Havana International Trade Fair (FIHAV 2017), that the country had managed to secure capital commitments for an approximate amount of 2.3 billion USD. This figure translates today into the presence of established businesses in the country, feasibility studies, as well as investment schedules to disburse these funds.
According to Saavedra, this is an important step, since Cuba is beginning to position itself in this field as planned.
This first amount of committed capital, the official added, is being received in the tourism, energy (mainly renewable), construction, logistics, and mining sectors, as well as some agroforestry businesses. In this sense, one of the goals fulfilled concerns the multiplicity of investors, a matter that, in turn, complements the policy of not establishing dependence on a single country or market, but diversifying the origin of foreign capital.
The clearest examples of advances to date can be seen in the Mariel Special Development Zone (ZEDM) and in two sectors of the economy: tourism and energy.
MARIEL SPECIAL DEVELOPMENT ZONE
There are already 15 countries, in addition to Cuba, represented in the Mariel Special Development Zone. The zone is today, the country’s most ambitious foreign investment project, and after four years of efforts, it currently has 34 approved business projects, while it is simultaneously developing its necessary infrastructure.
ZEDM General Director Ana Teresa Igarza Martinez told reporters that for 2018, the imperatives of the zone are to increase the amount of users operating in the area (currently ten), to ensure that these ongoing investments conclude their construction processes, start production and begin to see returns, as has happened with other companies present; and that these in turn can reinvest.
One of the most dynamic sectors of the Cuban economy today is tourism. Its presence in the ZEDM, with the first joint venture for real estate development, has served to rethink new investments within the zone, which in turn can contribute to the development of this sector.
“Complementing the Development Plans through 2030 are the premises of the tourism sector, not only with its own investment but also with foreign investment. A process is underway to boost investment throughout the country. We are talking about heritage cities and many other sectors and resorts that can be developed, and in which investment is being called for,” explained José Reinaldo Daniel Alonso, general director of Development at the Ministry of Tourism (Mintur), speaking on national television.
Hotel management contracts, joint ventures, especially for real estate development, and the expansion of non-hotel options, are the three categories in which the sector has managed to attract the most foreign capital.
The greatest growth, the Mintur official noted, is seen in the hotel management contracts. There are 20 companies from 10 countries currently operating in the country, including luxury brands such as Kempinski and Banyan Tree of Southeast Asia.
By the end of January this year, 90 contracts had been signed and 118 hotels had been approved to be run under foreign administration, representing 65% of the hotel rooms in the country. Among the investments this year, are the construction of two new hotels in Trinidad and the restoration of many others in the country to improve the comfort of these facilities. One of the demands of the sector is non-hotel development, with the planned creation of marinas, theme parks and other attractions that complement hotel offers.
RENEWABLE ENERGY AND OIL
With the aim of transforming the structure of renewable energy sources, reducing dependence on fossil fuels and increasing environmental sustainability, in 2014 the Policy for the Prospective Development of Renewable Energy in Cuba was approved.
In this area, the investment process has been turned toward sugarcane biomass, to install bioelectric plants in 25 sugar mills across the country. Currently, as Javier Rubén Cid Carbonell, deputy minister of Energy and Mines (Minem) explained to the press, work is underway on the execution of this project with one joint venture and another company of one hundred percent foreign capital.
Likewise, the deputy minister added, efforts are underway in the oil sector, in which it is becoming increasingly difficult to find investors given current low market prices for this fuel. However, in 2017 progress was made on two projects related to increasing production, one in Varadero and another in the Mariel Special Development Zone.
Other advances in 2017 include negotiations with joint ventures, one for the commercialization of liquefied gas in the center of the country, and another for fuel storage in Matanzas.
Also, the Minem official noted, a project is underway for the purchase, processing and interpretation of 25,000 line-kilometers of high resolution seismic data, which is being carried out for the first time in the history of the Cuban oil industry, and will serve as a basis for possible exploration projects on the island.
Together with these, other projects related to energy and the manufacture of solar panels and heaters, the use of wind energy, the manufacture of pylons and other fundamental elements for a sustainable economy are being promoted.
Specifically in this sector, projects related to the use of lead and zinc are in progress. Currently, 9,000 tons of concentrate of these products are exported, already representing a real contribution to the economy of the country.
WHAT DOES INCREASING FOREIGN INVESTMENT DEPEND ON?
As the governing body of this policy, the Ministry of Foreign Trade and Investment today has the highest share of responsibility for ensuring that all projects are quickly and efficiently negotiated, agreed and approved.
On this issue, Déborah Rivas Saavedra explained that until now there are shortcomings in the process. Among these, she mentioned unnecessary delays that continue to be present in different negotiating processes; the holdup of feasibility studies; the lack of training in terms, for example, of commercial law, private international law, the evaluation of cost sheets, technology and others.
Likewise, she highlighted the existence of a group of procedures and permits that are not achieved in a comprehensive and organic manner, and that are essential to place productive chains at the center of the process, and achieve the harmonious development required by the country in the medium and long term.
“Even though awareness of the importance of seeking foreign capital has been raised and brought to the attention of businesspeople, in order to achieve the set objectives for growth and development, what the country is receiving in terms of attracting capital is still insufficient,” Saavedra stressed.
The country demands significant amounts of committed foreign capital annually in order to raise GDP and achieve development. Although today foreign investment reaches Cuba, this first step still falls below what is required. Executing investments and achieving stability in this sector is a gradual process, however, this does not mean that it is not also an imperative.