Cuba drags feet on foreign investment

Cuba drags feet on foreign investment
Marc Frank Reuters
12:44 p.m. CDT, May 15, 2012

HAVANA (Reuters) - Cuba's reform plans to attract more overseas
investment are off to a slow start as the government focuses more on
regulating existing foreign joint ventures than encouraging new ones,
businessmen and diplomats say.

In fact, Cuba has closed more joint ventures than it has opened since
the ruling Communist Party adopted wide-ranging economic reforms a year
ago, and remains far off highs reached in the 1990s, according to
official reports.

The list of endangered or terminated joint ventures includes one big
name, Unilever PLC, the Anglo-Dutch consumer giant, and a number of
others that have operated in the country for 15 years or more.

Cuba's investment reform plan announced last year spoke positively of
foreign investment, promised a review of the cumbersome approval process
and stated that special economic zones, joint venture golf courses,
marinas and new manufacturing projects were planned.

Most experts believe large flows of direct investment will be needed for
development and to create jobs if the government follows through with
plans to lay off up to a million workers in an attempt to lift the
country out of its economic malaise.

It will be particularly critical given the health of cancer-stricken
ally Venezuelan President Hugo Chavez, who has championed close
cooperation between Cuba and oil-rich Venezuela.

While the reform plan built up hopes of an opening to foreign capital,
it also made clear that existing and future investments would be subject
to "rigorous controls" on "regulations and procedures, as well as the
commitments assumed by foreign partners."

This part of the program has been vigorously carried out, according to
both business and Cuban sources, with a review of the country's
approximately 240 foreign investment projects recently concluded.

That number is a decline from the 258 projects Foreign Trade and
Investment Minister Rodrigo Malmierca reported at the close of 2009 and
way down from the 700 Cuba had a decade ago.

The issue in part appears to be the result of old ideological habits
dying hard, said Geoff Thale, program director at the Washington Office
on Latin America.

Other reforms, such as encouraging more self employment and private
farming, have been easier to implement.

"From the point of view of the state, an opening to foreign investment
seems like a much bigger step to take in changing the economic model
than does the liberalizing of domestic agriculture or current opening to
small business," Thale said.

VENTURES CLOSE

Unilever PLC, the Anglo-Dutch consumer giant, is the latest and best
known of the foreign firms to pack its bags.

The company's 15-year, 50-50 economic association has expired and a
dispute over the controlling interest in a new venture could not be
resolved.

"We wanted 51 percent of the new venture and so did the Cubans. At this
point we are leaving, even though some discussion is still going on," a
company manager said, requesting anonymity.

Israeli investors, operating out of the Panama-based BM Group, recently
pulled out of their longstanding juice processing business after new
contract negotiations broke down, according to the business sources.

Investors in Havana's container terminal are leaving as Cuba prepares to
open a new terminal at Mariel, diplomats said.

Several ventures controlled by two Canadian trading firms and British
investment fund Coral Capital under investigation for alleged corrupt
practices are in the process of liquidation. Their offices were closed
last year and their top executives arrested as part of the crackdown on
corruption.

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