The Mariel Special Development Zone (ZEDM), created in 2013, was the first and only of its kind in the country. Projected to become the locomotive of foreign investment and the national economy, nine years after its emergence, it is far from what one would have expected and, even worse, from what is necessary.

While it is true that since its creation, Cuba has attracted more foreign investment that in the past, figures released after the country’s top leadership toured the region in July 2022 are not enough for complacency.

The annual flow of foreign investment estimated to be needed to revive the island’s GDP (gross domestic product) growth is between $2 billion and $2.5 billion.

As a result, Cuba needed ZEDM to be able to attract nearly $20 billion in investment over its nine-year existence. What has been achieved, however, is only the execution of $1 billion on a committed investment of just over $3 billion.

And not just in terms of revenue, it failed to live up to expectations. The number of companies operating in the area has shown very modest progress since all this time: of the 62 approved, only 36 are active. In nine years, the materialization of 36 companies in total is equivalent to the restricted average of only four per year.

Cuba approved 62 companies in Mariel Special Development Zone

The Zone has been around for almost a year. In economic terms, the above constitutes a sufficient period to assess the achievement of specific objectives and progress. However, beyond the raw numbers, the real impact of this enclave on the island’s economy is unknown. Although the perception shared by Cubans is that, in practice, the results are not seen.

On the other hand, the figure of the mega investment that materialized on the spot until July 2022 is noticeable, which amounts to approximately 4.173 billion pesos, according to statements by Osvaldo Bravo Borrego, General Manager of the Engineering Services Company of the Mariel Integral Projects Department.

Although it was reported that basic and complementary infrastructure (roads, railways, water, electricity and communication networks) was built with this money, and “349 homes were built for people who had to move due to the need for the process of investment and workers in the Zone itself” — in the words of the official — this is a considerable figure.

Of course, the magnitude of the number can be understood against the expected benefits, since the Zone is expected to attract investment in the production of goods and services, stimulate industrial concentration in favor of import substitution, promote exports and create new sources of employment.

In terms of revenue, achieving these goals was to guarantee the return of the millions that were invested in them, plus the profits. After almost a decade, what has been projected and what has been invested is still pending.

The fate of the ZEDM is debated between “for” and “against”

ZEDM is a megaproject with real benefits. It is an area of ​​465.4 km² just north of the province of Artemisa and only 45 km west of the capital, which also has a privileged geographical position in the region, being located at the crossroads of the main roads maritime. freight traffic in the Western Hemisphere.

As a special economic zone, it has its advantages. One of the most relevant is its one-stop shop designed for the authorization, with greater agility, of investments.

In addition, it benefits from a favorable tax regime compared to the general regime, which involves a slightly lower quota, and export privileges with exemption from payment of customs duties.

The Council of Ministers itself can authorize the investment of companies with 100% foreign capital (although this is not an exclusive element of the Zone, since there can also be investments in the rest of the country). And the goods and services generated there can be marketed to all legal entities established in Cuba, inside or outside Mariel.

Thanks to these prerogatives, until July of this year, projects from 11 multinationals and 21 countries have been approved there and more than 15,000 jobs have been generated. This allows us to speculate that if it grew at a faster rate, this enclave could multiply its numbers exponentially.

But this was not realized. Largely because the factors limiting the area’s advance still outweigh the potential. And these factors are multiple.

Like Osvaldo Bravo Borrego recognized At the end of 2021, the preparation of investments remains “the main dissatisfaction”. But not the only one.

The latest economic and commercial report from the Economic and Commercial Office of Spain in Havana declared that foreign investors still encounter obstacles in legal and administrative regulations that delay the process.

And for those planning to do business in the Zone, the need for “express authorization for any type of investment” and “transfer of currency” is also a deterrent; and the maintenance of the concept of “term of investment”, which is nothing more than a term of expiration of the same that generates uncertainty in its renewal.

Restrictions on the free regulation of prices and markets are also unfavorable; the “very limited” consumption capacity of the internal market and the mandatory mediation of “an employer state entity for the hiring of workers”.

The combination of all of the above, basically, results in a slow pace in completing new projects. And as if that were not enough, the development of those already approved is more than reasonably delayed, largely due to national bureaucracy.

In the background, the activation of Title III of the Helms-Burton law in 2019 and the intensification of the trade embargo heighten the uncertainty for direct investments on the island.

And all this in the midst of a highly competitive environment, since the Zone is inserted into a map “with more than 500 similar enclaves in Latin America and the Caribbean”, as Explain by Ana Teresa Igarza Martínez, its general manager; where only efficient operation could guarantee its chances of success in the region.

ZEDM and foreign investment: “if we are the same thing”

Foreign investment is one of the best alternatives on the island for foreign currency earnings. However, after decades on this path — in which progress has been made — achievements are still awaited in this area to catapult, as has been recognized as necessary, the national economy.

In Cuba, foreign investment began in the late 1980s. It was then an essential way out of the economic situation, which worsened in the 1990s with Law 77/1995.

The 1995 regulations were advanced in their drafting but limited in their implementation. Although the theory protects investments in all sectors except health, education and defence, the implementation excludes other large sectors such as retail. And similarly, although the foreign partner’s participation in a joint venture was not restricted, with few exceptions, more than 49% foreign participation was not permitted.

With its limits, the regulation remained in force — and without significant changes — until 2013 and 2014. It was then that two new texts, undoubtedly relevant, were approved: one aimed at protecting the creation of the ZAC Mariel and the other, Law 118 on foreign investments, applicable to the whole country.

Foreign direct investment: standards and circumstances

Both legal bodies have recognized tax advantages and defined priority activities and specific policies in various sectors (some of which were previously excluded in practice).

However, for the most part, Law 77/1995, as well as that of the ZEDM and the new law on foreign investment maintained common principles. Among others, those that reduce investment incentives both in the Zone and in the rest of the country (need for authorization for investments and currency transfers, the “investment term” and the mediation of a employing entity).

The reality is that for decades attracting foreign investment throughout the island has not been effective. As the Mariel enclave failed to be either, until today.

At this point, if the prerogatives applied are not enough, if there is a divorce between law and practice, if entrenched bureaucracy makes less and less sense and the accumulation of decades of ineffective management weighs more, it it’s time to find a way to reverse it.

The Special Development Zone of Mariel and the Economic Line of Foreign Investments in Cuba have outstanding debt with the development of the country. And time does not stop. It is better not to forget it.

Lucia Rojas