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Posted August 15, 2004 by publisher in Cuba-World Trade

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By Doreen Hemlock | Business Writer | Sun Sentinel

Foreign investment in Cuba dropped last year for the first time since the communist-led island began opening to business more than a decade ago.

Havana authorized fewer new ventures with foreign companies, and a record number of existing ones dissolved. That resulted in a 15 percent decline in the number of foreign economic associations, to 343 at the end of 2003, according to a study presented at a just-concluded conference in Miami.

The drop comes as Cuba gets more selective about the foreign ventures it will allow, souring even more overseas companies on doing business with the island. That’s a reversal of Havana’s more open attitude toward business in the early 1990s just after the collapse of the Soviet Union and demise of Soviet largesse.

“In the past year, there’s been a clear trend toward re-centralization of the economy,” said Paolo Spadoni, a doctoral student at the University of Florida who has been researching foreign investment in Cuba for years. “It is unlikely that the flow of foreign direct investment will pick up in the near future, unless Cuba promotes a gradual decentralization.”

Spadoni spoke at the 14th annual meeting of the Association for the Study of the Cuban Economy, a mostly academic group that focuses on ways to ease Cuba’s transition to a more market-oriented and democratic society.

The group’s three-day meeting that ended Saturday paid special attention to Havana’s backtracking on the market-oriented reforms launched in the 1990s to help offset the loss of up to $5 billion a year in Soviet aid.

Participants pointed to numerous examples of Cuba’s shift from “neutral to reverse” in pursuing the reforms—steps that effectively boost state control over the now rebounding economy.

For example, the government led by Fidel Castro is limiting new licenses for 40 categories of “self-employed” contractors, effective Oct. 1. Separately, it ordered a switch last year from U.S. dollars to the “convertible peso,” a local unit with no value outside Cuba, for all transactions with state-owned enterprises.

In the field of foreign investment, Havana also has stepped up inspections of the records of foreign companies on the island. And it has halted approvals for new companies to set up in “free-trade zones,” areas begun in 1997 to lure import-export companies with incentives, Spadoni said.

The back-tracking comes as Cuba’s cash-strapped economy has stabilized at modest growth rates, rebounding from a more than 40 percent nosedive from 1989 and 1993 in the immediate aftermath of the Soviet collapse.

While total output still lags below 1990 levels, Cuba’s economy now muddles along, based mainly on tourism, cash sent from Cubans abroad and exports of nickel and several other items—all sectors with ample foreign participation.

The London-based market research group Economist Intelligence Unit has forecast Cuba’s economy will grow by about 3 percent this year, up from 2.3 percent last year and less than 2 percent growth in 2002.

Purchasing power among Cuba’s nearly 12 million residents averaged roughly $2,800 per person—about the same as Honduras but less than 10 percent of U.S. levels, according to the World Fact Book.

Analysts say Fidel Castro’s regime opened the economy just to ensure its own survival, but never embraced global business the way China has.

“Clearly, the Cuban government doesn’t like foreign investment,” said Pedro Freyre, an attorney and member of the Free Cuba Committee at the Greater Miami Chamber of Commerce. “They tolerate it, but they don’t like it.”

Doreen Hemlock can be reached at .(JavaScript must be enabled to view this email address) or 305-810-5009.

  1. Follow up post #1 added on August 16, 2004 by Dana Garrett with 252 total posts

    It should not be forgotten that many foreign firms might not want to invest in Cuba because of the action that the USA government took against the Super Clubs of Jamaica.  The USA refused to allow their executives to travel to the USA to transact business because of their investments in Cuba.  Other companies with subsidiaries in the USA have been sued because of their investments in properties expropriated after the revolution, and one Canadian citizen was convicted of felony-level offenses in the USA for selling water-purification equipment to Cuba while he resided in the USA for work purposes.  There are other examples as well.

    It would be quite rare for foreign firms that invest in Cuba not to also have considerable business with the USA.  The potential for USA reprisals against these firms must be quite discouraging. 

  2. Follow up post #2 added on August 16, 2004 by MJD

    It’ not just the US Government that discourages Investment in Cuba , It’ Fidel Castro himself. He cannot stand the idea that foreigners will ” profit” at his expense.

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