Domingo, 24 de Septiembre de 2017
13:56 CEST.
Economics

Why doesn't foreign investment work in Cuba?

In 2007, after 48 years of revolutionary power, productive inefficiency had reduced state-controlled lands into areas overrun with marabou, while food prices were rising on the international market. In view of this, General Raúl Castro proposed to "change everything that must be changed." Five years later, in May 2013, the vice-president of the State Council, Marino Murillo Jorge, acknowledged that "the measures which for decades have been implemented to manage the land have not led to the necessary increase in production."

This inefficiency is reflected in the Gross Domestic Product (GDP), which declined steadily for years, down to around 1% during the first half of 2016, falling another 0.9% at year's end. That is, Cuba enters 2017 in recession, or with negative growth. The result places on the table the need for foreign investment, from which no nation can escape, and much less an underdeveloped country in a state of crisis.

In 1982 Decree Law No. 50 was issued for foreign investment, at a time when Soviet subsidies made it possible to maintain a hostile attitude towards investors from other parts of the world. The blow dealt by the disappearance of the Soviet Union was necessary for the Government to enact Law 77 in 1995, but this legislation was burdened with restrictions, devoid of guarantees, and entailed the mistreatment of investors. For these reasons, of the 400 ventures that were operating in 2002, half left the country. Despite the negative results, it was not until the manifestation of investors' disinterest in the Special Development Area of Mariel that it was repealed.

Law 118, enacted in March 2014, though more flexible than its predecessor, has also proved insufficient. According to Cuban authorities, the country needs sustained GDP growth of 5 to 7%. To achieve rates of accumulation and investment of no less than 25% are required, which requires an annual investment flow of 2 to 2.5 billion dollars. The only possibility of achieving this goal under current conditions involves implementing, among other things, the following measures:

1- Allowing Cubans, both those who live on the Island and those who reside abroad, to participate as investors.

2- To recognize the social function of ownershiplk and private property. And eradicate the concept of not allowing its concentration in legal persons or individuals, whose sole purpose is to prevent Cubans from acting as the subjects of economic processes.

3- Allow Cubans to engage in any and all productive private activities or services, and furnish them with legal personality.

4- Provide legal investors with legal guarantees to settle any differences with the Cuban side before a body of justice that is not subordinated to the Party and the State, which make the Government both judge and party.

5- Allow the free hiring of the workforce.

6- Eliminate the dual currency and disparate exchange rates, in turn a precondition for the existence of an internal market stimulating investment.

7- Recognize the people's freedom of association to join and form unions – a principle enshrined in Convention 87 International Labour Organization (ILO), of which Cuba is a signatory; the Universal Declaration of Human Rights, which Cuba promoted in 1948; and  international agreements governing civil, political, economic, social and cultural rights, also signed by Cuba, but not ratified.

In these obstacles, in Cuba's antagonistic history with investors, and its debts to creditors, lies the main reasons for the limited foreign investment on the Island, and not the embargo, rendered more flexible by the measures enacted by President Barack Obama.

At a meeting of the Cuban Parliament on 27 December Cuba's Minister of the Economy and Planning, Ricardo Cabrisas, stated that: "Foreign investment remains very low. It still does not play a key role in economic development." Meanwhile, the president of the Council of State, Raúl Castro, explained: "It is very important to bolster foreign investment in Cuba ... It is necessary to overcome, once and for all, the obsolete mindset of prejudice against foreign investment. We must rid ourselves of false fears of foreign capital. "

If overcoming the country's economic stagnation is impossible without a strong injection of capital, and the concept of "changing everything must be changed" is more than just rhetoric, it is imperative to enact a new law or profoundly change the current one, with the term "foreign" disappearing, and it simply becoming the Investment Law.

Cuba is the only country in the region where people lack a right as basic as participating in economic activities as subjects, despite having plenty of initiatives and vocational training. If this state of affairs is not corrected it will be a denial of our economic history, social struggles and Martí's concept of the Republic: "a estate of legal equality amongst everyone born in Cuba; of many small property owners."

That prohibition, in addition to being pernicious to the nation, is in violation of the current Constitution, whose Article 14 states that: "the economy is based on socialist ownership, by all the people, of the basic means of production." That is, the people, the purported owners, are excluded from the right to participate in the investment process – something alien to law, the Western culture of which we are part, and our economic history, and contrary to human dignity.

A new investment law could be an important, necessary and expected sign of change, proof that the Government really is willing, albeit late, to change everything that needs to be changed.

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