Government of Cuba Allowing Foreign Investment

For the first time on the communist island, the Cuban government is considering allowing foreign investment in small and medium-sized private companies, as the country is going through a deep recession and popular discontent grows. After criticism and a cold response from Cubans abroad and potential investors to the current law, the Cuban National Assembly will discuss a proposal to modify a private sector law approved in August to allow foreign direct investment in small and medium-sized companies recently. approved. Under the current version of the law, foreign entrepreneurs and companies can only associate with the state in joint ventures or invest in projects in areas of interest that the government publishes annually. The new proposal was approved during a meeting of the Council of Ministers last week, according to the official newspaper Granma. Officials acknowledged that the country’s effort to attract investors has stalled.

At the meeting, the Minister of Foreign Trade and Investments, Rodrigo Malmierca, said that the level of foreign investment is “well below the country’s needs.” The minister has said that the country needs to attract at least $ 2.5 billion a year. The island’s prime minister, Manuel Marrero, said the government must be more “proactive” in attracting investment, according to the Granma report.

The Council of Ministers also approved a proposal to allow agricultural cooperatives to partner with foreign companies. Agricultural production has plummeted in recent years and food shortages have become chronic. For decades, calls to improve food production have become a routine statement at official meetings. Still, the government has resisted liberalizing agriculture and allowing peasants to sell their products without price limits or imposed quotas. Farmers also lack the means to buy technology, tools and supplies. If the new measure is finally approved by the National Assembly, allowing foreign investment in the agricultural sector could boost production at a critical time for the Cuban economy. The National Assembly generally approves the decisions made in the Council of Ministers and the Political Bureau of the Communist Party.

Cuban Economy Minister Alejandro Gil has been trying to convey an optimistic message, saying the economy is expected to start growing slowly next year, following a severe contraction in the past two years triggered by the coronavirus pandemic. . But the measures approved by the Cabinet of Ministers suggest that economic sector officials have succeeded in persuading hardliners that the country needs an immediate cash injection and that food production needs an urgent solution.

The proposed changes come after the population has shown unprecedented levels of discontent that erupted during street demonstrations in July. On November 15, the authorities were forced to deploy large numbers of police and military to patrol the streets and thwart plans for an opposition march.

A HOSTILE CLIMATE FOR INVESTMENT

But even if the measures signify a step towards liberalizing the economy, many still doubt that they will promote meaningful investment. The proposed changes do not alter the current foreign investment law, which many experts and diplomats believe does not offer sufficient guarantees for investors. For example, it does not establish independent arbitration and there are few protections against confiscation of private property by the government.

Over the years, several high-profile cases of foreign investors sent to jail on questionable charges and government seizures of private companies owned by foreigners and Cubans have sent a chilling message about the lack of protection for companies.

Foreign diplomats and potential investors have urged the Cuban government to modernize the legal framework approved in 2014, but Marrero’s statements at the meeting suggest that it is not being considered. “Cuba has a good foreign investment law, what is not going well is the way we implement it,” he said. In November, Moody’s Investors Service downgraded Cuba‘s ability to pay off debt to the “near default” category. Moody’s said it expects Cuba’s credit profile to remain “very weak” due to its low hard currency liquidity, US sanctions, heavy debt burden, lack of transparency and “social risks.” “An aging population will weigh on growth potential and increase public spending,” the report said. “The government’s repression of basic social freedoms and the deterioration of economic conditions, as well as the aging of the ruling class, could unleash social and political unrest, especially as power is moving very slowly away from the historical leaders.” Cuban observers have noted that global headlines about the government’s crackdown on protesters this summer and the harsh sentences many face are unlikely to help Cuban authorities sell investment opportunities.

Other practical challenges make Cuba a difficult place to do business. Due to the United States sanctions, the country is disconnected from financial entities linked to the American banking system. And Cuba’s chronic shortage of foreign exchange also makes repatriation of capital gains an odyssey. For Cuban Americans, navigating the embargo regulations adds a layer of complexity. There are also restrictions in the private sector law regulating small and medium-sized businesses that can deter many potential foreign partners. For example, there is a limit of 100 employees for a private company and expansion is prohibited as a person or company can only own a single business. Entire industries are prohibited and under exclusive state control. Foreign investors are also unable to hire workers directly, and it is not yet clear whether they would be allowed to do so if they partner with a private company.

Officials said again that there are no barriers in the country’s laws that prevent Cubans in the diaspora from investing on the island. The law of the private sector, however, establishes that only Cubans residing in the country can create a private company. In the past, the government has denied authorization to most Cuban Americans seeking to do business. It is unclear if this policy will be reversed as part of the proposed changes. “The day Cuba creates a truly attractive commercial market for foreign investors, they will appear, starting with those from its diaspora,” Herrero said. “It’s that easy. But it hasn’t happened yet.

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For the first time on the communist island, the Cuban government is considering allowing foreign investment in small and medium-sized private companies, as the country is going through a deep recession and popular discontent grows.

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