It is more than demonstrated what the inflow of foreign capital meant for Cuba after the 1990s. First in tourism, but also in mining, petroleum, drinks and food.
However, the foreign investment process has not been linear in terms of policymakers. You could say that at first it was seen as a necessary evil (“we had no other options”), that later it was seen as a complement to national efforts and lately that it is vital. for the development of the country.
Foreign Direct Investment and organization
I won’t go into each of these steps in detail, but I would say that foreign capital has been more than vital for Cuba’s tourism development, whether because of its contribution to the construction of hotel facilities or to management contracts. Having dozens of hotel management contracts with renowned Spanish companies – notably with Meliá Hotels and Iberostar, among others – has made it possible to guarantee high occupancy rates of these facilities, not only in sunny hotels. and beach, but also in urban spaces.
I wouldn’t be wrong in saying that without the Mexican company CITEL at the start and the Italian company STET later, ETECSA would be even further behind: millions of dollars of initial investments with capital from these entities intended to buy factories from digital telephony and transport infrastructure, among others. All this in the middle of the Special Period and with a very high lack of liquidity.
The same goes for nickel: the Sherrit SA joint venture provided more than 50% of its production and export. Or with the export of 100% Premium tobacco via Habanos SA Or with the export of Havana Club rum by Pernod Ricard, among other important companies.
Although it may seem low, the investment of these foreign companies in gross fixed capital formation compared to the total formation of the country in 2020 reaches the figure of 5.4%; in other years, their contribution was greater. Also in 2020, among the country’s main exports of goods and services, the contribution of foreign investment was 20% compared to total exports of goods and services.
Cuba por Agilizar trámites para la inversión extranjera
If it is related only to the export of Cuban goods, we would see that in 2017 they represented 62% of total exports. But in 2020, they became the total merchandise exports, with 98.7%. These data corroborate that not only foreign investments are necessary, but also that merchandise exports were only possible thanks to the presence of this same capital.
It is at the same time an indicator: it is necessary to break the inertia and the obstacles which still persist in the approval of foreign investments. And change the view that businesses are more feasible the larger the businesses are. With the creation of Cuban MSME, there is a new possibility of establishing joint ventures between a foreign company and a Cuban non-state legal entity of the recently created ones.
Designed to serve as a pointer to the rest of the licensed businesses in the country, in my opinion the Mariel Special Development Zone (ZDEM) is stagnating. The expected productive results have not been achieved, due to multiple factors that I will not go into now. But, without a doubt, one of them was the slowness of the construction process of licensed enterprises, as well as the lack of building materials and qualified personnel.
According to the official ZDEM website, in 2021 there are 18 companies under construction. One has been in preparation for six years; more than three companies, five. And the majority group takes, on average, about four years.
If you compare it to 2018, the big delay can be seen. That year, 26 companies were investing. This means that on average, less than three businesses have been completed per year.
With 24 companies in operation at the end of 2021, some providing services or logistics, the minority is in the production of goods: only 6. Given the country’s economic situation, this is what is most needed.
According to the highest Cuban authorities, everything suggests that there will be more attention to this area of foreign capital. In The extranjera inversion in Cuba, the National Statistics and Information Office (ONEI) has just reported that there are 318 foreign-invested companies, figures well above the minimum reached by these companies in 2008: only 211 companies, but still far from the year 2002, when 403 companies with foreign capital were operating.
Graph 1: Associations with foreign capital in Cuba
In short, although the figures show a positive increase in the number of companies, the authorities must accelerate the pace of approvals, because today the existing investment figures are insufficient. Positive results have been observed for this type of business exports.
There are provisions and structures that make the process more complex, including the employment agency, a bridge between worker and investor, added to other negative factors.
The Cuban Ministry of Foreign Trade and Investment (MINCEX) affirmed that in 2020 it obtained foreign investments for more than 2 billion dollars; that is, committed capital not invested in 30 new authorized companies. But in 2019, committed capital did not exceed $ 1.5 billion.
Loud and Strong: We are facing an economy that has to invest no less than $ 2.5 billion a year from overseas and another large group of domestic resources. Cuba aspires to have between 25 and 30% of foreign investment in relation to the Gross Domestic Product (GDP), which would allow it to grow at rates of more than 5%.
Cuba lejos de sus necesidades de inversión extranjera
It is necessary to overcome the years of decline of the national economy, and foreign capital plays a vital role. It has already been said and repeated that the island does not have the internal financial resources necessary to avoid the decapitalization of Cuban companies.
In October 2021, Prime Minister Manuel Marrero said: “We need to be more proactive and daring” because the amount of capital required to reactivate the economy has not been attracted. It is necessary to reflect on the causes that prevent the successful completion of investment projects in the country. “Are we going to wait for the blockade to be lifted?” He asked, then emphasizing, “We have to move forward and develop on our own.” And that includes, he said, foreign investment. These processes should not be delayed. We must stimulate and add rather than hinder.
Finally, he said: “A total transformation is necessary in the ways of doing things; we must listen to all the proposals as long as they do not violate the sovereignty and the principles of the country, and we must go in search of new businesses, be more proactive. This change in the ways of analyzing and doing is urgent today.
The highest levels of leadership are aware of the need to attract foreign investment. But in practice the influence of a bureaucracy still persists, slowing it down: the number of new approvals testifies to this. There is a lack of alignment between all entities involved in the approval process, including institutions that decide at levels above MINCEX.
Everything indicates that despite the Single Window,1 created by the Ministry of Foreign Trade to deal with investment proposals that are received, the speed of approval must change. What is curious, I repeat, is that the highest authorities are urging the removal of obstacles. The question then arises: who locks what needs to be unlocked?
The answer lies in defining those who lock in order to remove those who lock.
1 The One Stop Shop is a content management system that documents and publishes online the various procedures for carrying out procedures related to foreign trade. Its objective is to facilitate the procedures of Cuban and foreign businessmen who carry out sales operations.