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Posted June 02, 2005 by Cubana in Business In Cuba

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By Marc Frank | Reuters

Western companies welcomed in Cuba as heroes a decade ago for bucking the U.S. embargo are packing up and leaving as the Communist government rolls back market reforms and squeezes out intermediaries.

Embittered by the change in attitude, small and medium-sized foreign businesses complained this week that they no longer feel welcome and worried they would not recover money owed to them by Cuban partners.

President Fidel Castro’s government, bolstered by growing economic ties to Venezuela and China, is cutting back the autonomy granted to state-run companies to do business in the 1990s and restoring central control over trade and finance.

The Spanish dairy firm Penasanta SA announced this month that its $8.5 million milk venture had failed due to the economic climate in Cuba, a view expressed by many other businessmen.

“Fidel thinks he does not need small joint ventures anymore, so they are only keeping the big ones in strategic sectors such as telecommunications, cigar and rum exports, energy, nickel and hotels,” said an investor who was forced to abandon a 12-year-old business in the machine-building sector.

During a recent speeches, Castro has reminisced about the 1980s, when the economy was 100 percent Cuban-owned. He said Cuba reluctantly opened up to foreign investment during the deep crisis that followed the collapse of the Soviet Union.

“I don’t think they ever wanted us here,” said the manager of a major European company that is pulling out after 10 years.

“They always tried to get the most money, machinery and knowledge they could out of us while giving little in return. They owe us millions, but we are leaving mainly because of their attitude, the way they treated us,” he said.

Cuba’s Foreign Investment and Economic Cooperation Ministry (MINVEC) recently said it was still interested in investment by major foreign investors in priority sectors such as energy, mining, biotechnology and tourism but made clear that small and medium-sized businesses need not apply.

NO COMPENSATION

Western embassies report increasing complaints from their nationals whose businesses were liquidated without any guarantee they would be compensated.

“Cuban partners say they will pay back investments and money owed for operating costs from future profits, but it is doubtful the companies will even exist in the future,” said the commercial attache at a European embassy.
Cuban officials did not answer requests for interviews on the trend.

Companies have the option of going to arbitration, but many feel they would be wasting time and money because the government would ignore the rulings anyway. “Castro does not blink at bucking the United States and Europe, so what chance do I have?” said one investor, in town to negotiate a liquidation.

Cuba reported that the number of joint ventures had dwindled to 313 at the end of 2004, down from 412 in 2002. Another 67 will be closed this year, according to a MINVEC source.

Of the 313 cooperative production ventures operating in 2003, only 133 remained at the beginning of this year, and most of them would be closed, the source said.

The Cuban state usually retains more than 50 percent control over joint ventures. Cooperative production agreements generally involve a foreign investor supplying machinery, credits and supplies in exchange for a percentage of profit or product.

Castro has repeatedly blasted foreign traders of late for overcharging on imports and usurious financing, while inside the ruling Communist Party they are often blamed for corrupt practices such as paying commissions and kickbacks.

Cuba has scrapped its free-trade zones that boasted more than 400 companies a few years ago. Some traders outside the zones report their licenses have not been renewed as the state has sought to do business directly with foreign suppliers.

Cuban officials insist that joint-venture exports and sales increased last year, despite the drop in their numbers, evidence that the “house cleaning” is working, they tell diplomats.

Joint ventures accounted for more than half of Cuba’s exports last year and a third of all hard-currency earnings, or $1.3 billion and $2.3 billion respectively.

  1. Follow up post #1 added on June 02, 2005 by publisher with 3905 total posts

    Business from US side is cut back by President Bush and business from Cuba side is cut back by Fidel and tomorrow is another day of waiting for Cubans.

    Waiting for what?



    Cuba consulting services

  2. Follow up post #2 added on June 02, 2005 by jesusp with 246 total posts

    U.S. embargo aside, Fidel has to bring Cuba into the 21st century, China has done it, Vietnam has done it. The time is now for reforms that do not compromise the social gains that have been made, it is possible and the people of Cuba deserve it.


  3. Follow up post #3 added on June 02, 2005 by GregoryHavana with 196 total posts

    We need to be clear on two separate issues.
    First, the issue of repaying money owed to foreign investors. This is an obligation that the Cuban State should fulfil, because paying back money owed (as established in signed contracts)is based on basic principles of ethics and fairness.
    The second issue of whether small and medium foreign business are or should be welcome in Cuba is another matter. Cuba is a sovereign nation and, as long as contracts are respected, has the right to scale down the foreign presence in this sector any way it deems necessary. If Cuba has learned enough over the past 15 years to undertake production and services that were previously provided by foreigners, good for Cuba. (Whether Cuba has the capacity or not is a subjective question). But let’ not fool ourselves, foreign businesses that came to Cuba in the 90s came to make MONEY, NOT to help Cuba. Thus if Cuba can do these things itself, we should applaude.


  4. Follow up post #4 added on June 04, 2005 by I-taoist with 213 total posts

    And so we see the fruits of our bitter seeds.
    Like begats Like.
    We drive Cuba into the arms of China and Chavez,
    Then we use this as justification to continue our policy of isolation and agression. Interesting paradox, no?


  5. Follow up post #5 added on June 04, 2005 by GregoryHavana with 196 total posts

    I-taoist…
    It is not clear what you mean by “driving (Cuba) into the arms of Chavez”. Moreover, what is wrong with the “arms of Chavez” (which I assume you mean a close political relationship) anyways? After winning the Referendum hands-down, Chavez has more democratic legitimacy that any other Latin American leader.


  6. Follow up post #6 added on June 05, 2005 by jamsjoyce with 9 total posts

    In 2002 I started a small sea kayaking operation in Cuba. We were apparently welcome to develop the business, bringing a new un-exploited market into the country and helping to promote and expand eco-tourism, relatively new to the island. The workers and lower level managers were enthusiastic and understood the value of the venture. We were not there to “make money, not help Cuba”, in fact I tried to establish a training school for Cubans as sea kayak guides and proposed the construction of an ecological centre that would be used as a research centre for Cubans and be maintained by income generated by tourism. Our equipment was to be made available to Cuban school children to discover and learn about their country’ unique and rich natural environment. I realize now (as my Cuban wife always told me) that we were never intended to be allowed to succed.
    The people on the ground were great and I have great memories and friendships with people who are incredibly capable - given the chance and the training - but the political machine is caught in a doctrine that does not serve the people.
    My other Canadian partner in the venture went to Cuba in ‘63 and worked with the vanguardia cutting cane and returned to Cuba in the 80’ and has lived there since. His parents both went to Cuba in the 60’ as professors and remained permanently.
    We were not a capitalist model but no outside influence is to be tolerated by the party, such is its xenophobia.
    The end of the US embargo (remember that Cuba does business with the entire remainder of the world except Israel and the Marshall Islands) will not bring the change I believe Cubans want. They wish to maintain the social structures that they have forged and see the sucess of their socialist revolution. This will not occur unless the state initiates changes within the system. The people will not wait forever and the forces outside the country are waiting for a collapse or weakening within Cuba to supplant the socialist system.
    The state cannot manage the economy, I have witnessed this first hand. Time to get creative and trust the people Fidel.


  7. Follow up post #7 added on June 05, 2005 by jesusp with 246 total posts

    Excellent commentary by jamsjoyce, good work and don’t give up hope.


  8. Follow up post #8 added on June 05, 2005 by GregoryHavana with 196 total posts

    Jamsjoyce,
    I agree with you that often the rigidities of the Cuban system can make life very difficult for a small businessman, and the space for entrepreneurialism and commercial creativity is minimal. Moreover, from a socialist perspective, I believe that the Cuban system needs to foster and promote small-scale entrepreneurialism, innovation, and modest material incentives beyond altruistic Guevarian ethics. I am someone who believes that market socialism holds great promise for the future of humanity.
    I disagree with you on two points. First, you say that “you were never intended to succeed”. I think this is a partialized generalization, because I know several small Canadian businesses that have succeed, even though it has not been easy. The implication that there was a Machiavellian plan by the Cuban government to ensure that you did not succeed is not credible.
    The second point of disagreement is your statement that “the political machine is caught in a doctrine that does not serve the people”. I depends on how you define “serving the people”. If you compare Cuban social standards to the rest of Latin America, and in the measurement of meeting basic human needs as established by the UN, that same doctrine and political machine which you disparage has served the Cuban people much better than neo-liberal capitalism ever could. You might be able to have a more successful sea kayak business in Brazil, but there are also thousands of children living on the streets in that system. You might be right that the State cannot manage the economy, but it can ensure basic living standards and social justice better than a market economy in Latin America.


  9. Follow up post #9 added on June 06, 2005 by jaymerr with 6 total posts

    “This is an obligation that the Cuban State should fulfil, because paying back money owed (as established in signed contracts)is based on basic principles of ethics and fairness”

    You are aboslutely right, but I am afraid principles of ethics and fairness do not come into play (as far as the Cuban government is concerned) when it comes to compensating
    foreign partners in joint ventures.

    I think we all know that most of the companies leaving Cuba now will never see a penny of the money owed to them.

    And all those companies remaining on the island will get shafted sooner or later - even those that believe they are in safe industries like tourism, nickel, and tobacco.

    Hell get round to them sooner or later.
    This is the Castro way of doing “business”


  10. Follow up post #10 added on June 06, 2005 by GregoryHavana with 196 total posts

    Jaymerr…Living in Cuba and having many foreign friends who have businesses here, I know of many cases where the Cuban State was very late in its payments, but few cases where they simply refused to pay money owed. In fact, the more frequent complaint by investors is that the Cuban government DOES pay, but they pay much laterer than the contractural deadline. I hope you see that this is DIFFERENT from never paying. Moreover, the reason the Cuban government is often overdue in its payments is not because they are simply lying cheats (a facile but erroneous conclusion you put forward), but because they are cash strapped and if they have to choose between paying back a foreign investor and buying the next shipment of powerdered milk for its children or needed medicines, they have no problem telling the foreigner to wait a little longer.
    If the situation is as bad as you portray, why aren’t commercial attachÈs in foreign embassies telling their countrymen to completely avoid Cuba? This is not happening.


  11. Follow up post #11 added on June 06, 2005 by jaymerr with 6 total posts

    GregoryHavana
    Of course your friends IN Havana will complain about the long delays. They are still there waiting (often in vain) to be paid.

    You need to talk to those who have left and never been paid, because once you leave you have no chance.

    I realise they have higher priorities, and nobody would want to get paid at the expense of innocent children but you cant use arguments like that to let the Cubans off the hook.

    And as far as the “commercial attachÈs” are concerned, I think you have to remember they see it as their job to be positive and encourage their fellow-countrymen to do business in Cuba.

    It would not go down too well with the Cubans if word got back to them that a certain embassys commercial attachÈ was advising against anyone investing or doing business in Cuba!

    Youve also got to remember they are career diplomats - here today and gone tomorrow - who will be in Hong Kong or Minsk by the time your “business” has turned into another irrecoverable debt.


  12. Follow up post #12 added on June 06, 2005 by GregoryHavana with 196 total posts

    Jaymerr…
    I know of businessmen who have left Cuba but nonetheless have been paid by the Cuban State. Moreover, most businessmen are not physically in Cuba (ie. members of the Camara de Comercio or some other comercial licence), but simply have contracts with the government, so I am not clear on what you mean by “leaving Cuba”. You criticize my argument because you say that I am talking to the ones that are still doing business, and thus I am receiving partial information. You have contacts (I assume you are not relying on hearsay) with those that have folded their businesses. Is that any less partial? The question to be asked is what percentage of the joint ventures and other mixed enterprises have folded and how many remain operating.


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