Havana, Cuba
With the economy shaken by a chronic crisis, the island’s regime announced a package of incentives that includes less bureaucracy and greater flexibility in hiring, in an attempt to attract foreign investors.
Cuba is opening its economy to foreign capital. The confirmation came directly from the Minister of Foreign Trade and Foreign Investment, Oscar Pérez-Oliva, during the Havana International Fair, at the end of November.
Before businesspeople and investors from around the world, the minister announced a package of measures to facilitate foreign investment. It is a paradigmatic change in several aspects.
Cuba faces a deep economic crisis for several years, motivated by the collapse of tourism following the Covid-19 pandemic and the prolonged US trade, economic and financial embargo, which worsened structural problems in the Cuban economy.
Public infrastructure and basic services are deteriorating. “” that last for hours are frequent. The country needs to import much of its food, as well as fuel and replacement parts for its obsolete thermoelectric plants.
To generate the currency it so desperately needs, Cuba has been “dollarizer“Its economy has gradually expanded in recent years, a process that encompasses retail trade, state-owned import companies, gas stations and the tourism sector. This process will continue, Pérez-Oliva stressed.
The minister announced that certain goods and services will require payment in foreign currency, without providing further details. The package of measures, he said, aims to make foreign investment more dynamic and reliable and give it greater financial autonomy. The changes he announced represent the most significant step in years towards opening up the Cuban economy. The Cuban government has not clarified, however, when the measures will come into force.
Investment attraction
Cuba opened up to foreign capital more than a decade ago in an effort to boost its economy and attract new technologies. In Mariel, on the outskirts of Havana, a special development zone was created at the end of 2013 with particularly favorable customs and tax regulations. The following year, a new law on foreign investment came into force.
But the results fell short of expectations: lengthy approval processes, bureaucratic obstacles and the tightening of US sanctions prevented companies from making large-scale investments in Cuba.
Now, the regime seeks to improve conditions for foreign investors. According to Pérez-Oliva, processes will be simpler, more flexible and transparent. The idea of the Cuban regime is that foreign investors can take over underutilized industries and production facilities, invest in them, use them during the agreed period, make profits, and then return them to the State for use and development. The underlying objective is to help increase national production, expand exports and replace imports.
Cuba’s two main imports are fuel and food. “Much of the food we import could be produced in Cuba,” acknowledged the minister.
In a pilot project, for example, a Vietnamese company is growing rice on agricultural land provided by the Cuban state in the province of Pinar del Río. If the results are positive, the model will be extended to other areas of the country. The project that involves leasing hotels to international hotel chains — granting them greater operational freedom — could also serve as a model, explained Pérez-Oliva.
Cuba is also opening the banking and financial sector to foreign capital and wants to “actively” promote its participation. Without providing further details, the minister announced a new financing instrument.
“A step in the right direction”
Economist Omar Everleny Pérez Villanueva, from the University of Havana, considers that the announced measures are a step in the right direction and highlights the faster approval processes.
“This shows that there is a certain political will”says Villanueva.
Villanueva says that the only way for Cuba to access external sources of financing is through foreign investment, since international loans are not, in fact, an option, taking into account the country’s high level of public debt.
However, given the current state of the Cuban economy, the measures are insufficient, considers the economist, remembering that a foreign investor who chooses to invest in Cuba has to face the enormous counter pressure from the US government.
More could have been done, says Villanueva, pointing out as an example the abolition of the state employment agency. A long-standing complaint from foreign companies in Cuba is that they can only hire workers through this state agency. This practice will be made more flexible: the agency will continue to exist, but companies will also be able to hire workers directly and pay bonuses in US dollars.
“Here there is an important element of flexibility. After the selection process is carried out by the employer, the investor decides whether the hiring will be done directly or whether the ‘current’ form will be maintained, through the state agency”, stated Pérez-Oliva.
“This makes things a lot easier,” says German businessman Frank Peter Apel, from Pamas, a supplier of hydraulic services and the only German company with a branch in the Mariel Special Development Zone. For him, the changes announced by the Cuban government are clearly a response to the country’s deep crisis and demonstrate flexibility and a desire to reform.
