Although Cuba recently created incentives for foreign investment, many investors are still uncomfortable about the potential risks of doing business in Cuba entails. The Cuban government’s control of markets through its state-generated monopoly on Cuban goods over imports and exports and its dual currency that allows for manipulation of wages both create disincentives for efficient plant production. Its control of hiring of workers and of manufacturing plants’ operations capacities limits the country’s attractiveness for foreign investors.
Jones Lang LaSalle (JLL), a firm specializing in commercial real estate and investment management and ranked by Forbes as one of the 500 highest-earning U.S. companies, addressed these concerns in a report, noting that “there are a lot of impediments in the way” and that “it is like a double-edged sword: there are opportunities but with a very high risk.”
The privately held shipping company Crowley Maritime Corporation, of Jacksonville Florida, which has done business in Cuba for 14 years, is also unsure about the future business climate there. Jay Brickman, a Crowley vice-president, posed these questions for potential investors seeking to do business in Cuba: “How guaranteed is your investment? Are you sure that you can make profits? Are you sure that there will be no confiscation of your industry?”
From its recent creation of the Mariel Zone, which serves as a favorable location for businesses in the export market, to the promulgation of a new investment law increasing economic incentives for companies seeking to do business in Cuba, much vital change has already taken place in the Cuban economy. Observers continue to ask how much leeway Havana will give to foreign investors as it continues to embrace many of its socialist policies.
Another key question is how Cuba will maintain solidarity with other Latin American nations while moving forward as a developing economy in the world. For the past ten years Cuba has been a member of the ALBA-TCP (Bolivarian Alliance for the Peoples of our Americas), originally created to help members confront the power of developed countries such as the United States by providing an alternative to the conventional capitalist trade models of privatization and globalization.
Cuba’s ALBA-TCP membership is another indication of its reluctance to be dependent on global capital markets that do not further its revolutionary goals.
President Raúl Castro emphasized at the Summit of the Americas in April that Cuba is “advancing towards a process of Latin American and Caribbean integration through CELAC, UNASUR, CARICOM, MERCOSUR, ALBA-TCP, SICA and the Association of Caribbean States.” Cuba’s solidarity with member states of these organizations, he maintains, “highlights a growing awareness of the need to unite to ensure our development.”
Cuba, however, must look beyond its relationship with ALBA-TCP nations if it is to continue to develop. Most of its external financing is derived from ALBA-TCP countries – particularly Venezuela, which is enduring a significant economic and political crisis and whose continued favorable terms on oil exports to Cuba could diminish.
Cuba could use help from international financial institutions (IFIs) including the International Monetary Fund, the World Bank, and the Inter-American Development Bank to transition to a more stable economic model capable of attracting foreign investment. IFIs hold enormous potential for Cuba and would enable it to more easily enter global markets and provide it with the assistance and the adoption of international best practices such as modernizing agriculture, improving communications networks, and enhancing its tourism sector.
In the past, Cuba has rejected these institutions and interventionist agreements, mostly on the basis that their practices are incompatible with its socialist ideology. Over the next few months Cuba will show whether it maintains its solidarity with other nations in the ALBA-TCP while keeping itself open to opportunities present in IFIs and other foreign investment -- and if so, how.
As the United States continues to soften or eliminate sections of the embargo and, as President Obama’s tenure comes to end, Cuba must make decisions while there is momentum. Washington and Wall Street would like to see Cuba gradually open itself to global capital markets and show interest in IFIs, which could benefit Cuba in the long run and add needed momentum to end the embargo.
Importance of foreign investment as Cuban trade continues to develop.
Among the challenges Cuba faces as it continues to develop its economy, it needs to develop its agricultural sector for the country to become less reliant on imports from other countries. This would help Cuba use its workforce more efficiently and provide its people with more and better jobs, according to the Association for the Study of the Cuban Economy (ASCE).
To lessen a dangerous dependence on a faltering Venezuelan economy, Cuba must continue to open up joint ventures in extracting petroleum from on-shore and off-shore blocks. It must also develop its own technology and infrastructure to ease communication among its citizens and between them and foreigners and enable interaction through social media. Although these challenges can be overcome through foreign investment, that will be difficult to overcome as long as the Cuban government is overly resistant to U.S. interference.
As Cuba defends its socialist revolution while decentralizing some aspects of its economy, it will have to show how it can use its people and natural resources to maximum advantage to obtain the capital necessary to develop itself as a nation. This goal is achievable by Cuba’s becoming less dependent on trade with ALBA-TCP countries.
In gradually opening itself to global capital markets with the help of IFIs and improving diplomatic relations by negotiating favorable trade terms with countries outside of ALBA-TCP, Cuba can obtain the necessary foreign investment to develop and sustain economic prosperity.
• Thomas Costello is a research associate at the Council on Hemispheric Affairs. Part one of this column can be read at http://www.thenassauguardian.com/opinion/op-ed
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