Cuba’s Foreign Investment Invitation
Earlier this month the Cuban government appealed to international companies to invest over $8 billion in 246 specified development projects. The 168-page Portfolio of Opportunities for Foreign Investment offers fascinating insights into the current distressed state of the Cuban economy – and into the competing development visions of its economic planners. Within the lengthy document, there are many assessments and proposals that suggest that Cuban authorities are prepared to dramatically open their economy to the private sector, yet there are also provisos that suggest a much more cautious strategy.
This is not the first time the Cuban authorities have issued a wish-list of projects open to foreign firms, but this edition is much more ambitious and reveals dramatic progress – and tensions – in officials’ thinking about their nation’s economic future. Careful reading of the publication, prepared by the Ministry of Foreign Trade and Investment, will leave potential foreign investors with few illusions: Cuba will remain a state-driven economy dominated by large government holding companies and the authorities will dictate the direction and pace of change. Most foreign ventures will come with majority Cuban ownership.
But it is refreshing to find this admission: “The growth rates of Cuba’s GDP [gross domestic product] have been moderate and low, lower than the average for the region. In order to turn this trend around, accumulation rates higher than 20 percent are required to permit a GDP growth rhythm increase of 5 to 7 percent.” (Oddly, the details in this second sentence are omitted in the original Spanish version.) In that current national investment rates hover around 10 percent, to fill the gap annual foreign investment inflows must exceed by a large margin the $2.0 to 2.5 billion publically proposed by Minister of Foreign Trade and Investment Rodrigo Malmierca.
The government publication provides remarkably frank, data-rich surveys, sector by sector, of current production capabilities and shortfalls – must reading for specialists in the Cuban economy. It signals clear development priorities: energy (conventional and renewables), agriculture and tourism. On this, a consensus was probably easy to reach: investment in domestic energy production is critical to lessen a dangerous dependence on a faltering Venezuela. Cuba is spending way too much of its scarce foreign exchange resources on food imports, which is a genuine food security crisis. And tourism offers the only ready medium-term option for rapid growth in badly needed hard-currency earnings.
Overall, Cuba’s Portfolio of Opportunities, with its many conditions and caveats, will raise eyebrows in the international investor community:
Firms must “guarantee” foreign markets, and their business plans must provide projections on the impact on the balance of payments.
In the selection of foreign partners, the Cuban government will “favor the diversification of different countries.”
Privatization of state-held enterprises is ruled out (although the transformation of smaller state businesses into cooperatives in the service and construction sectors is proceeding apace).
Foreign investment may partner with cooperatives but not with the emerging small-scale private enterprise. Readers searching the document for references to the much heralded self-employed "cuentapropistas" will be frustrated.
In sum, the 2014 Portfolio of Opportunities for Foreign Investment – with its contradictory combinations of frank analysis and attractive offerings and its demanding requirements and multiple barriers – opens an unusually transparent window into the on-going struggles within the Cuban elites: among those that wish to power ahead and integrate their economy into global capital markets, those that adhere to the revolution’s founding statist nationalism and those that seek a middle road of carefully controlled change.