Every year Cuba’s Ministry of Foreign Trade and Investment prepares a tome of investment opportunities available to foreign investors. The recently published 2015 Portfolio of Opportunities for Foreign Investment offers insights into the priorities and limitations for foreign investment from Cuba’s point of view.
Some historical context may be helpful in understanding the purpose of such a document. Soviet communists believed economic development was a linear process of planning. Industrial bureaucrats ordered the economy like a series of equations in need of a solution. Bureaucrats ignored concepts of demand, preferences and financial returns. As soon as the fantastical gains from exploiting natural resources petered out (among other blunders), the Soviet economy floundered, and, eventually, the whole system collapsed. Cuba faces a similar situation in the failure of its two benefactors – first the Soviet Union and now Venezuela.
As centrally planned documents go, this one is an improvement over last years’ and can be a helpful guide to investing in Cuba even for projects not listed in the document. One thing is for certain: Cuba will remain a state-driven economy with large government holding companies dominating the scene. Foreign ventures will require majority Cuban ownership – although this appears to be a flexible condition based on a recent deal with Unilever Plc, the European consumer goods product company.
There are two important developments that show how Cubans are being more flexible by making deals that make sense for both Cuba and the investor. The first is the Unilever deal. The joint venture will build a $35 million soap and toothpaste factory at Cuba’s Mariel Port Special Development Zone. The Dutch-British company left Cuba in 2012 in a dispute over controlling interest in their joint venture. Unilever will have a 60 percent stake compared to 40 percent for the Cuban state company, Intersuchel S.A. Controlling interest in the hands of a foreigner is a new precedent.
The second recent development involves what could be the first American manufacturer to open shop in Cuba since the 1959 revolution. The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) approved co-owners Horace Clemmons and Cuban-born Saul Berenthal to build a factory at the port of Mariel (a tree trade zone west of Havana).
The factory is intended to manufacture small tractors for sale to private farmers and builders in Cuba. US approval is only the first step; there has yet to be any announcement about the Cuban side of the deal, but it appears to fit the priorities of Cuba’s Mariel Port Special Development Zone. The project will exploit a loophole in the US Cuban embargo that allows for agricultural exports and farm equipment, as long as the end users of those products are private farmers and non-government cooperatives.
2015 Portfolio of Opportunities for Foreign Investment answers some basic questions about foreign investment in Cuba. The documents combines tourism and real estate into one sector. It was the most active sector with 52% share – and it is unclear whether this is actual dollars invested or commitments. Joint enterprises were the most prevalent form of investment at 50% of total investment forms.
In total there are 326 opportunities in the 109-page document. Some of the sectors include biotechnology, rum production, construction and mining.
One example of a project is beef production. This joint venture enterprise calls for $10m to, “increase beef production on the basis of exploiting 100% of installed capacities for fattening up steer.” There is no information on beef prices or distribution channels.
The document also highlights Cuba’s various foreign investment laws and tax policies including the more favorable rules available to investors at the Mariel Port Special Development Zone.