Cuba: Why a Foreign Investment Law and not an Investment Law?

April 7, 2014 | Print Print |

By Jorge Gomez Barata  (Progreso Weekly)

The private La Pachanga cafeteria was present at last year's May Day Workers Parade.

The private La Pachanga cafeteria was present at last year’s May Day Workers Parade.

HAVANA TIMES — Because of the style of parliamentary debate in Cuba, it is impossible to know if any of the more than 600 deputies present at the National Assembly asked: “Why a Foreign Investment Law and not an Investment Law?”

It is difficult to understand why, in the midst of a process of change that has vindicated entrepreneurial economic activity, coined the formula “non-state economic activities” and eliminated prohibitions that excluded Cubans, a law is passed that deprives the natives of the right to invest in their own country on an individual basis, establishing contractual ties with a foreign partner or relative living abroad.

The exclusion is all the more inexplicable when, in the midst of a climate of bold openness and expectations of democratization, we return to eras past and sanctify a solution that presents the natives’ lack of solvency as a property of the system, turning disgrace into virtue.

Moreover, it is necessary to point out the paradox that the same State that depenalized the holding of foreign currency, facilitated the inflow of remittances, created conditions for the operation of open farmers’ markets, allowed Cubans to hold bank accounts in other currencies, and recently allowed the sale of second-hand cars for 50,000 dollars and more, now assumes that the natives lack the investment capacity to establish small and medium businesses (PYMES) in association with foreign capital.

Private seller of leather and other artisan goods.  Photo: Juan Suárez

Private seller of leather and other artisan goods. Photo: Juan Suárez

The argument that the presence of foreign capital is pertinent only in large investments overlooks the fact that, according to the scale of the Cuban economy, the scant production of manufactured goods, the deterioration of the services network, the low levels of income and other factors, the small and medium businesses are best suited to produce results in the short term, among other reasons because they require lesser capital and are technologically more viable.

It is true that there is hardly a Cuban on the island who holds million-dollar resources, but it is not impossible for one to have enough to set up a small or medium business and do it like the foreigners do: choosing his partners, with his money, at his own risk, and in accordance with the law.

It could also happen (and I hear it does) that Cubans on the island — with financial, logistic and managerial support from relatives abroad — can establish small businesses. Why didn’t the Law not deal with these situations and, instead of limiting, favor the flourishing of micro and midsize businesses, especially stimulating those engaged in the production of consumer goods and services that are indispensable and in great demand?

Household items for sale at a small business.  Photo: Juan Suárez

Household items for sale at a small business. Photo: Juan Suárez

The Law’s drafters and the legislators could have decided that those Cubans with resources who qualify as investors in small and medium businesses in association with foreign capital should receive government support, soft credit, tax incentives and the consideration due to those who contribute to the growth of our economy.

It is true that, as explained, exceptionally there might be a national investor, but he would have to invest exclusively through a cooperative and, if that occurred, the State should be present to prevent “the concentration of property.”

I understand that the emergence of national elites more or less wealthy (which already exist) could be a problematic element, but so is the presence of transnational companies and foreign magnates, who are assumed to be not a necessary evil but a positive element in the nation’s economic growth and development, and the people’s welfare.

With the greatest respect, I believe that never again in Cuba should a law be passed or a practice allowed that excludes Cubans or places them in a position of inferiority to foreigners. There is still time.


What's your opinion?

  • RogerMarero

    Perhaps the Mr. Barata is too young to remember that during the “Ofensiva Revolucionaria”in 1965 the regime completely destroy the medium and small industries with the solely idea of eliminate the incipient cuban middle class. In normals economies the middle class is the central bone of societies. They do not depend of the welfare system and in the majority of the cases it’s the principal engine for social changes.

    • Griffin

      The leaders of the Cuban revolution were mostly all from the middle class: Fidel & Raul, Che, & the students of the Directorate. They were all from what Marxists call the bourgeoisie. That is why the Cuban communist party had dismissed them as bourgeois adventurers, and not proletarian revolutionaries. Of course, the same can be said of Lenin & Trotsky.

  • jpalli13

    The short answer to the question that you pose in the title to your very good article, Mr. Gomez, is that no country should need an “investment” law to open up its economy to its own nationals. “Foreign investment laws” regulate how foreign capital can access certain sectors of the economy of the country in question.

    Cuba qualifies as the poster boy (or girl) among “countries in question”, because at this stage of the process whereby it is “adjusting its model”, questions of all kind abound and overwhelm. It will be up to other types of laws (not foreign investment laws) to answer the many other intelligent questions you pose, and those laws will, hopefully, set aside a number of dogmas that are axiomatic of the model being adjusted (as Mr. Marero points out). As you yourself aptly put it, “there is still time”.

  • John Goodrich

    Cuba can bring in badly needed income by inviting in foreign investors.
    Were the Cuban population allowed to go full tilt into these sort of capitalist ventures it would certainly lead to the same disparities in income and living standards and living conditions that exist in cowboy capitalist societies.
    Cuba has decided NOT to be capitalist but will use capitalism to make the money it needs and by using already corrupted capitalist sources and reaping the benefits without the corruption of its own people.
    It makes sense if you wish to retain a socialist perspective nationally and avoid the perils of capitalism that created the revolution in the first place.

    • dani

      Maybe I’m being to idealistic but I think there has been a lack of imagination in the investment policy. Rather than concentrating on getting the cowboy capitalists on board, they could have looked for other sources of finance. Why not offer deals to western trade unions, charities, pensions funds and left wing parties. They could also set up local and national enterprise boards for Cubans locally and abroad to invest small sums. Another idea is that health or education establishments are given direct ownership of some enterprises, making them responsible for their success.

      • Moses Patterson

        You clearly misunderstand what Cuba needs. Unlike in the US or Europe where entrepreneurs seek raw capital to expand small businesses, Cuba needs the money AND the expertise. Cuba supplies the raw labor but the know-how to run the business and market the product will come from the investor. In these cases, your trade unions, pension funds and other passive investors don’t fit the bill. The Castros ineptitude in running the Cuban economy for 55 years has painted themselves in a corner. They find themselves begging for help from the same “cowboy capitalists” they made fun of a generation ago.

        • dani

          Good point and in some cases yes. In other cases such as tourism/sugar/tobacco Cuba probably has most of the expertise.You can also hire the expertise or train people up if you have the funds. On the smaller kind of enterprise in the internal economy, knowledge of the local market and local conditions is likely to be more important than outside expertise.

          • Griffin

            Cuba’s tourism industry is operated by European firms. They run the resorts and charter flights. Cuba provides only the cheap labour and the sunshine.

            Cuban sugar production is in free fall. They produced 1.8 million tons last year and will be lucky if they make 1.6 million. Currently, Cuba has a deal with Brazil to invest in Cuban sugar mills. Much has been promised, but not much to show for it yet.

            Cuban tobacco is still excellent and sales rose by 8% this past year, but that was coming back from a significant drop the previous several years. Tobacco will be a specialty luxury export if they can maintain the high quality, a small cash cow, but not a growth market.

            The internal market is far too small to provide any serious growth. The people are struggling just to survive, they are not striving to get ahead. Still, if the regime will take their boot off the necks of the Cuban people the growing self-employed sector will do much to improve the lives of ordinary Cubans. Sadly, the regime sees the success of the self-employed as a threat which must be controlled, regulated, taxed and kept on a very short leash.

            The bottom line is that the economic reforms are designed to help the regime maintain their grip on power. The needs of the people are not a high priority.

          • dani

            I don’t think you are correct with regard to tourism. The majority of hotels, casa particulars and paladares are owned and run by Cubans. Around 25 hotels are joint ventures and a further amount are run under management contracts. But this and the rest of your post has very little to do with the discussion on whether Cuba has the expertise to run the tourism/sugar/tobacco industries.

          • Griffin

            You are quite correct about the paladares and casas particular. I had forgotten those. They are owned & run exclusively by Cubans and are, in my opinion, the best way to visit the island. Thank you for reminding me.

            The tourist resort hotels are owned in joint partnerships between the Cuban government (51%) and a foreign hotel operator (49%). In practice, the foreign corporations do the hotel side, while the Cuban government manages the labour. The city hotels, such as the Cuba Libre are owned 100% by the state.

            I am not denigrating the intelligence or abilities of the Cuban people who work in management positions in these sectors of the economy. My criticism is directed at the leaden hand of the State which still strangles individual initiative and free enterprise in Cuba. If given the chance, the Cuban people will make their island into a prosperous and democratic society, the jewel of the Antilles.

    • Moses Patterson

      Not possible. You can’t be a part-time capitalist. China is the best example of this. As far as avoiding the perils of capitalism, again not possible. Capitalism requires that there are winners and losers. Eliminating the risk of losing your investment is not an option. As people take risks, they will expect to be rewarded. It is no longer “IF” Cuba becomes a capitalist state, it is only when.

  • Griffin

    The new investment laws should put to rest any notion that the Cuban government is liberalizing the economy. They want capital and expertise, but they want it going only where they direct it: through partnerships with State monopolies connected to the regime elite, such as GAESA.

    The influx of remittances has helped some ordinary Cubans open small businesses. This independent economic activity is seen by the regime as a threat to their monopoly on power. Hence, they persecute the self-employed with a new raft of regulations and restrictions. The State maintains control of all transportation, banking, import-export and wholesale operations as a means to surround all self-employed Cubans with a web of State enterprises who take the lion’s share of what little profit the self-employed do make. The self-employed are not allowed to contract with foreign partners. The foreign investment will not be flowing to the average Cuban.