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    Why Foreign Investments Don’t Work in Today’s Cuba

    Why Foreign Investments Don’t Work in Today’s Cuba / Dimas Castellano

    Dimas Castellanos, 17 January 2017 — By 2007, after forty-eight years of
    revolutionary rule, inefficiency and a lack of productivity had turned
    state-run farmland into fields infested with marabú weed. Meanwhile,
    food prices were increasing on the world market. In light of this
    situation, General Raúl Castro proposed “changing everything that needs
    to be changed.”

    Fast forward five years to May 2013 when the vice-president of the
    Council of State, Marino Murillo Jorge, publicly acknowledged that the
    methods used for decades to manage agricultural lands had not led to the
    necessary increase in production.

    The inefficiency was reflected in the gross domestic product (GDP),
    which fell regularly for years until reaching 1% during the first
    quarter of 2016 before falling to 0.9% at year’s end. In other words,
    Cuba entered into recession, a period of negative growth, in 2017. The
    result made the need for foreign investment a priority, a need from
    which no nation can escape, much less an underdeveloped country in a
    state of crisis.

    In 1982 Cuba passed Decree-Law No. 50, which legalized foreign
    investment. At the time, the prevailing attitude towards investors in
    those parts of the world which received Soviet subsidies was hostile.
    But the dissolution of the Soviet Union made it imperative in 1995 for
    the government to enact Law No. 77, a statute with many restrictions and
    an absence of legal protections for investors, who suffered the negative
    consequences.

    Of the roughly 400 joint venture firms that began operation in 2002,
    half ended up leaving the country. In spite of the negative result, the
    government did not repeal the statute until it became clear that
    investors were showing little interest in the Mariel Special Development
    Zone.

    Law No. 118 was passed in March 2014 but, though more flexible than its
    predecessor, it too proved to be inadequate. According to Cuban
    authorities themselves, the country needed sustained GDP growth of 5% to
    7%. Achieving this would have required income and investment rates of at
    least 25%, which would have meant annual investment figures of between
    2.0 and 2.5 billion dollars.

    Last year, foreign investment did not exceed 6.5% of these figures.
    Under current conditions the only way of even getting close to this
    target would be to implement a series of measures, including the following:

    1. Allow Cubans — both those living on the island as well as those
    living overseas — to directly invest in the economy.

    2. Acknowledge the social purpose of property and private propeerty.
    Abolish prohibitions against its concentration in the hands of
    individuals or legal entities, the only purpose of which is to exclude
    Cubans from economic enterprise.

    3. Allow Cubans to engage in all manner of private sector manufacturing
    and customer service, and grant them legal status.

    4. Provide investors with legal guarantees that allow them to settle
    disputes with their Cuban business partners before a judicial body that
    is not subordinate to the party or the state, which otherwise would make
    the government both judge and plaintiff.

    5. Allow employers to freely hire their own employees.

    6. Eliminate the dual currency system and its different exchange rates,
    which would provide for the emergence of a domestic consumer market and
    which would, in turn, encourage investment.

    7. Recognize the right of workers to organize and form labor unions, a
    principle enshrined in Convention 87 of the International Labor
    Organization, to which Cuba is a signatory; in the Universal Declaration
    of Human Rights, of which Cuba was one of the promoters in 1948; and in
    the UN’s Covenant on Civil and Political Rights and the Covenant of
    Economic, Social and Cultural Rights, which Cuba has also signed but has
    not ratified.

    These obstacles arise out of a history of antagonism towards investors
    and a failure to pay creditors. Therein lies the main cause of the
    country’s poor foreign investment climate, not the US embargo, which was
    relaxed under President Barack Obama. The level of Cuba’s state
    imvolvement in investment is uncommon for companies which operate in a
    market economy. Until that changes, the results will remain the same.

    In a meeting of the Cuban parliament on December 27, the head of the
    Economic and Planning Ministry, Ricardo Cabrisas, observed, “Foreign
    investment continues to be quite low. It is not yet playing a
    significant role in economic development.”

    Meanwhile, the president of the Council of State, Raúl Castro, stated,
    “Reinvigorating foreign investment in Cuba is of great importance… It is
    necessary to overcome, once and for all, the outdated and pervasive
    prejudice against foreign investment. We must divest ourselves of
    unfounded fears of capital from overseas.”

    Therefore, if reviving a stagnant economy is impossible without a strong
    injection of capital and if “changing everything that needs to be
    changed” is more than mere rhetoric, then either a new investment law is
    needed or the current one needs to be substantially overhauled. In
    either case the word “foreign” should be dropped, making it simply the
    Investment Law.

    Cuba is the only country in the region whose residents lack a right as
    basic as being able to participate fully in economic activity in spite
    of ample business opportunities and the professional training to do so.
    If this problem is not resolved, it will not only be a denial of our
    economic history but also of our social struggles and José Martí’s
    republican principles, which envision equality before the law for all
    those born in Cuba and for its many small property owners.

    Besides being harmful to the nation, this prohibition violates the
    current constitution, which in Article 14 states, “The economy is based
    on socialist ownership by all the people of the fundamental means of
    production.” In other words the people, the supposed owner, has no right
    to participate in the investment process, a status contrary to law,
    western culture, of which we are a part, our economic history and human
    dignity.

    A new investment law, one without qualifiers, would be an important,
    necessary and long-awaited sign of change. Proof that, despite long
    delay, the government is really willing to change everything that needs
    to be changed.

    Source: Why Foreign Investments Don’t Work in Today’s Cuba / Dimas
    Castellano – Translating Cuba –
    translatingcuba.com/why-foreign-investments-dont-work-in-todays-cuba-dimas-castellano/