At a time when the Cuban government is defending the need for foreign investment to develop its idea of economic progress, its Foreign Trade and Investment, Rodrigo Malmierca Díaz, issued statements that could scare off and ultimately dissuade potential investors.
"We are not going to sell the country," he said in a recent interview, in which he also referred to "a series of rules that allow for control" of foreign capital so that "sovereignty is preserved." At the same time, he welcomed the modification of "some complementary rules" that expedite investor evaluation processes.
According to experts like Elías Amor and Jorge A. Sanguinetty, consulted by DIARIO DE CUBA, the general conception that the authorities have about investment, where the participation of Cubans through private activities is prohibited by law, constitutes a burden on the economy.
How do Malmierca's words fit into the current panorama?
Sanguinetty: Those are words to placate his audience. After six decades of propaganda, during which the government has always claimed that all investment is a form of exploitation and, in particular, foreign investment is a form of “imperialism”, of trying to seize the wealth of countries, officials like Malmierca now have no other choice but to contradict what had been asserted with such revolutionary and socialist fervor. I do not doubt that Malmierca himself believed the propaganda of the regime. In fact, this rhetoric can still intimidate many investors.
Amor: These kinds of statements are really confusing. The Constitution, currently being revised, says that “property belongs to the people”, being managed by the State. Thus far they are not selling the country, as the Cuban State retains 51% of all operations with foreign investors, except in totally international projects, of which there are very few (...)
However, this model is obsolete, and they are concerned about the low levels of foreign investment in the country. In the end they will have no choice but to sell, and this is where there are great risks. For example, selling assets that are not actually the State’s property, such as those obtained from the confiscations and expropriations in the 1960s. This would allow the legitimate owners to initiate criminal and administrative actions in the courts of their countries of residence. In the US, they are already considering this measure.
Another concern is that they may be sold off or negotiated under opaque conditions, or corruption may spread, which is common in these processes if they are not supervised by international organizations. The third problem is that they might be swapped for accumulated or uncollectible debts, as some creditors are beginning to demand. This solution would be very negative because it would decapitalize the country.
How does the government control mentioned by Malmierca impact the investment processes, and what effect does it have on the completion of the projects, and on the economy in general?
Sanguinetty: Cuban officials have very primitive and misguided ideas about how companies and investing processes work. They believe that controlling everything protects national interests, about which they harbor simplistic notions. It is really regrettable that Cuba's official discourse is so poor, which continues to reveal the government's inability to manage the economy.
They have never understood how companies contribute to the economy. Cuban sovereignty is not in danger unless investors ask for and obtain special privileges or concessions, outside the productive scope of their projects. Investments alone do not affect sovereignty, but government paranoia may end up establishing controls and forms of supervision that end up hampering new investments.
Amor: Foreign investment does not obey political criteria. Rather, it is oriented towards aspects such as productivity, specialization, and competitiveness; in short, the level of profitability. Even more so in Cuba, where the risk is very high. All these proclamations of sovereignty and control rules are cheap propaganda by Malmierca (...). Foreign investors in tourism do not care about the issue of sovereignty. Actually, they seek an element of Cuban differentiation as a cultural attraction. Malmierca is wrong, as is everyone around him.
Malmierca announced at FIHAV that complementary rules have been modified that streamline investor evaluation, and that work is being done to create a One-Stop Shop, that will be operating next year. Will they be able to generate the total amount of foreign capital that the Government has proposed and that, it even admitted, "is below that necessary?"
Sanguinetty: The One-Stop Shop should promote foreign investment, but the Cuban officials and politicians’ ignorance of economics and how companies need to operate to be efficient leads me to think that it will take some time before they manage to make the mechanism work efficiently.
I very much doubt that the Cuban government can attract foreign investment in amounts equivalent to what the country's economy needs to grow and overcome the chronic crisis, going on 60 years now. Believe it or not, under socialist Castroism, Cuba has never had a solvent economy, one that could be sustained without Soviet subsidies, followed by Venezuelan ones.
Amor: Administrative rules are not determinants of foreign investment in a country. They are wrong once again. (…) The problem is not the duration of the process, but rather governmental quality, and in this regard Cuba’s Communist leadership is hardly qualified to understand the process.
State companies like the Army and State Security are run by people unfamiliar with business administration, and they also depend on groups at the ministries where the bureaucracy is absolutely incompetent.
To attract investment, it is necessary to liberalize current policy and allow foreign capital to reach Cuba’s independent businesses, land leaseholders, and even some cooperatives not permeated by the Communist Party. That is where foreign investment can obtain profitability, and ignore the regime’s bureaucratic nonsense.
Malmierca once again blamed the embargo for impeding the foreign investment necessary to generate the 2.5 billion dollars in growth required to develop the State’s economic model. What other measures would be necessary to achieve this objective?
Sanguinetty: There is no doubt that the embargo is an obstacle to foreign investment, but the main one is what I have called the “internal blockade,” consisting of the Cuban government’s massive prohibitions on private companies in the country. This is convincingly demonstrated by the foreign investment law’s prohibition against Cubans making their own investments and developing their own companies in Cuba.
Knowledgeable foreign investors know that Cuba is governed by individuals who are ideologically biased against capitalism, which is all too evident every day in Cuba. In order for Cuba to enjoy the volume of investments it needs, the government (and the Party) will have to make major concessions and permit the development of the Cuban economy, which foreigners would see as a positive sign, inspiring confidence.
It would also help a lot if Cuba had among its economic authorities some figures known for their competence in this regard. Unfortunately, there are none, or nobody knows who they are.
Amor: The embargo has nothing to do with foreign investments. Just ask Canada’s Sherrit, or Spain’s Iberostar. In the field of foreign investment, if the objectives are not reached, it is because Law 118 and subsequent measures do not go directly to the heart of the matter.
More economic freedom is necessary, and letting investors decide what to put their money in, and how much. The portfolio of opportunities does not guarantee that investments will arrive, even though they have already expanded it two or three times, unsuccessfully.
It must be made legal to freely hire the qualified personnel necessary, and not the communist operatives that companies are obliged to hire through personnel selection companies. And domestic savings must be bolstered so that foreign investors find that their Cuban counterparts have financial resources for investments, and not just old and unproductive assets. In short, a 180-degree turn.