Stakes Are High for Cuba Foreign Investment Law

Stakes Are High for Cuba Foreign Investment Law

HAVANA March 28, 2014 (AP)

By PETER ORSI Associated Press



Cuban authorities are on the verge of enacting a new foreign investment

law considered one of the most vital building blocks of President Raul

Castro's effort to reform the country's struggling economy.



The law is seen as so important that an extraordinary session of

parliament has been scheduled for Saturday so the matter doesn't wait

several months until the regular summer session.



Few concrete details have been made public, but this week official media

gave some hints of what the draft law looks like.



The newspaper Juventud Rebelde said it will allow foreign participation

in all sectors except health and education, and not only through joint

partnerships with the socialist government. Also allowed would be an

"international economic association contract, or business of completely

foreign capital."



Juventud Rebelde said most companies would be taxed at 15 percent of

profits, half what they pay under current rules, and they will be exempt

from paying for the first eight years of operation. Investors apparently

will not see their personal income taxed.



Duties may be higher for operations that exploit natural resources, such

as nickel and fossil fuels.



Foreign investment in the Communist-run country has lagged behind

expectations in recent years, and the shortfall is seen as a major

reason for disappointing economic growth. Analysts say that officials

must show they are truly committed to easing the way for foreign firms

if this latest attempt to lure overseas capital is to succeed.



"It's really about (creating) a business climate in which business feels

government at senior levels has an unambiguously favorable attitude

toward foreign investors," said Richard Feinberg, a professor of

international political economy at the University of California, San

Diego. "That's the best guarantee."



"If this law gives the right signals," Feinberg said, "it would be a

major step forward in the economic reforms."



Cuba isn't the easiest place for a foreign businessperson to make a buck.



Labor taxes are high, there is no open bidding for projects, the

approval process is opaque and cumbersome and the government has been

reluctant to let outsiders have majority ownership.



Companies often find themselves negotiating multimillion-dollar deals

with government officials who earn tiny salaries, and some say payoffs

are an unfortunate part of doing business in Cuba. At the same time, a

crackdown on graft, including the jailing of Canadian, Chilean, Czech,

English and French citizens, has sent a chill through the foreign

business community.



Then there's the 52-year-old U.S. embargo, which bars most American

trade with the island and effectively obliges many foreign companies to

choose between doing business with Cuba or the United States.



There's no sign the embargo will be lifted anytime soon, but observers

say Cuba can make itself more attractive to investors by doing things

like making approvals more transparent, easing payroll taxes, enabling

direct hiring of local employees and relaxing rules that require foreign

companies to purchase a certain amount of local inputs.



The rules described in Juventud Rebelde would be almost as favorable as

those already in place for a special economic development zone at

Mariel, a massive port project west of Havana that was formally

inaugurated in January.



Officials are also talking of guarantees that the property of foreign

companies and individuals will not be nationalized as happened after the

1959 Cuban Revolution, except in cases of national interest and only

with due compensation.



In a recent report for the online publication Cuba Standard, which

closely follows Cuban business news, former Cuban Central Bank economist

Pavel Vidal noted that foreign investment has remained flat since

Castro's economic reforms began, about 20 percent below forecast on

average. GDP grew just 2.7 percent last year, low for a developing

nation and again short of expectations.



Meanwhile, Cuba is heavily dependent on the billions of dollars in oil

it gets from ally Venezuela. The socialist-run South American nation is

experiencing its own economic woes these days, rocked for weeks by

violent protests amid calls by some in the opposition for President

Nicolas Maduro to resign.



Vidal said the new law could help stimulate investment by limiting

government officials' discretion in decision-making on approvals, ending

a longstanding tendency to green-light only large-scale investment and

allowing investment in Cuba's emerging privately owned businesses and

independent cooperatives.



"The new foreign investment law is the last opportunity for the reform

to come close to the growth goals planned through 2016," wrote Vidal,

who is currently a professor at Javeriana University in Cali, Colombia.

"At the same time, it will help diversify the island's international

relations, as well as reduce vulnerability due to its links with Venezuela."



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Peter Orsi on Twitter: www.twitter.com/Peter—Orsi



Source: Stakes Are High for Cuba Foreign Investment Law - ABC News -

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