| HAVANA, March 31
HAVANA, March 31 Cuba has declared itself open
for business with a new foreign investment law but faces deep
skepticism given a history that includes jailing foreign
executives and attempting to seize greater control of businesses
once they prove successful.
The National Assembly unanimously passed a law on Saturday
that embraces foreign capital as crucial to Cuba's development,
while disappointing those who had hoped for even more changes,
such as allowing foreign ventures to hire Cuban labor freely
instead of through the government.
Cut off from U.S. investment by Washington's comprehensive
trade embargo, Cuba says it needs $2 billion to $2.5 billion a
year in foreign direct investment (FDI) to help reach its target
of 7 percent growth a year. Economists estimate current FDI at a
few hundred million, and the economy is expected to grow just
2.2 percent this year.
The new law, which will take effect within 90 days, is most
notable for cutting the tax on profits in half and eliminating a
labor tax while granting new investors an 8-year exemption on
the profits tax.
In an economy suffering from chronic underinvestment,
foreigners are being enticed. Among the areas in need are
agriculture, infrastructure, sugar, nickel mining, building
renovation and real estate development.
The law is part of a series of reforms enacted by Cuban
President Raul Castro that would have been unthinkable before
his brother, Fidel, formally handed over power in 2008.
It appears to be a genuine attempt to join the global
economy, although Cuba's past dealings with foreign investors
"Given what we know so far, this is something of an
improvement in the investment climate but some important
obstacles remain. We won't really know until we see how it is
applied in practice," said Richard Feinberg, a former national
security advisor to U.S. President Bill Clinton who now teaches
at the University of California, San Diego.
The communist government sometimes lets investment proposals
die on the shelf without explanation. It has, for example,
entered talks with several groups about building golf resorts
only to let proposals wither after once appearing to favor them.
"The problem with the new law is that except for taxes,
little has changed, which means their attitude hasn't changed,"
said one European diplomat who declined to be identified. "In
the end, the entire law remains discretionary."
Experts say Cuba's approach to foreign business has been
arbitrary. If a venture is successful, the government often
wants a bigger stake. It welcomes foreign financing, but once a
project is operational it wants to take charge, they say.
"Use the foreigners where it suits you. Spit them out as
soon as their usefulness is over," said another European
diplomat who requested anonymity.
Cuba has closed more joint ventures than it has opened since
the ruling Communist Party adopted wide-ranging economic reforms
in 2011, and last year the Anglo-Dutch consumer goods group
Unilever ended a 15-year joint venture after
failing to resolve a dispute with the government over who would
have the controlling interest.
More chillingly, Cuba jailed executives in British
investment and trading firm Coral Capital Group Ltd on
unspecified fraud changes. They were found guilty of minor
charges last June and released for time served, more than a year
The government was previously more likely to deport such
suspects. Now it has made clear it is willing to find executives
French entrepreneur Michel Villand stopped doing business in
Cuba after establishing a chain of bakeries called Pain de
Paris, now in the hands of the government. He wrote a book
entitled "My Associate Fidel" in which he said his government
partners defrauded him by keeping two sets of books, then
offered a ridiculously low sum for his stake.
"Starting a joint venture in Cuba for a small or
medium-sized foreign business is the same as putting a noose
around your neck," Villand told the Spanish news agency EFE.
A number of foreign companies have prospered in Cuba,
notably Swiss food giant Nestle, Britain's Imperial
Tobacco Group, Spain's Melia Hotels International
, and Canada's Sherritt International, which has
a joint venture with the Cuban state to mine nickel.
"It's still a place to do business. Ask the Brazilians. They
just put $800 million in there," said Kirby Jones, president of
Alamar Associates, a consultancy for companies with an interest
Brazilian development bank BNDES financed a new special
trading zone at Cuba's port of Mariel, with an expansion built
by the Brazilian construction company Odebrecht SA.
Despite the past failings, some investors and analysts
believe the new law shows that Cuban authorities at the highest
levels agree they need to attract more foreign investment and
that it marks a true change in course by a secretive government
that has been in power since a 1959 revolution.
"This is still only speculation, but I believe it is a real
change," said Thomas Herzfeld, whose Herzfeld Caribbean Basin
Fund groups stocks and other assets that he believes
will benefit from an eventual end to the U.S. economic embargo.
"The new bill will probably encourage foreign investors to take
another look at Cuba."
(Reporting by Daniel Trotta and Marc Frank; Editing by Sandra