Investment in Cuba: the US Investor’s Forbidden Fruit

 

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David Urra

When Adam shared the apple with Eve, he must have thought it a good investment, though both were expelled from paradise as a result. In the end, it’s clear that they came out the better for it, since afterwards they had access to earthly pleasures as well as difficulties. As a matter of fact, paradise was not perfect – it had plenty of restrictions.

Right now, for U.S. companies wanting to do business in Cuba, something similar is happening. Cuba exists, just not for them. Thanks to a supreme power, they are unable to invest in Cuba because this might “damage” the Made-in-USA franchise.

Finally, after more than 50 years of heavenly stubbornness, and in line with the theory about ripe fruit first expressed by U.S. President John Quincy Adams in 1823, the fruit has begun to fall:

“There are laws of political as well as physical gravitation; and if an apple severed by its native tree cannot choose but fall to the ground, Cuba, forcibly disjoined from its own unnatural connection with Spain, and incapable of self-support, can gravitate only towards the North American union.”

Only, now it’s falling reverse to the way Adams imagined. The ripe fruit is that of the Union and in virtue of the expressed law, it can only gravitate towards Cuba, but under Cuba’s rules.

U.S. business executives must understand that the measures adopted up until now by both governments do not allow their companies to invest in Cuba, and anyone who says otherwise is setting them up for – wait for it – some kind of swindle.

But it’s no less certain that progress is being made in that direction and therefore, preparing oneself for that point in time is an indispensable requirement for anyone looking to take a share of the pie.

Just one question remains. How does the investment process work in Cuba?

Unfortunately, some of the new “experts” in the Cuban economy base their theory solely on a system of interpersonal relations that they claim is necessary to establish on the island in order to invest. For these kinds of business guides, being friendly with one of the Castros or some other high-level official, or associating with one of their family members is sufficient to guarantee success.

Perhaps if they understood how the system actually works, they might think differently.

Cuba has a series of institutions governing foreign investment that foreign companies currently doing business in the country generally describe as complex, where nothing is left to chance – a byproduct of the island’s experience with shady executives whose approach to the island has been one of sucking the Cuban economy dry rather than serious investment, engendering complicated vetting measures.

For starters, anyone looking to invest will need detailed information about the market where they are looking to introduce themselves. A market study that details the particular characteristics of their specific market is indispensable. Among other elements, the study should include current information about the country, its infrastructure, its banking and financial system, its guarantees, and the structure of the business system.

Obviously it should also include the current financial framework and business environment affecting the particular contemplated investment, and equally important, the legal framework governing the negotiation process, the investment process, and the initiation of business activity resulting from that decision. Currently in Cuba, it is Law No. 118 regarding Foreign Investment that governs the principal processes related to the subject.

Simply leafing through Law 118 one can see that its execution demands the completion of a series of requirements that make it very difficult to use foreign investment in Cuba as a simplistic way to cause harm.

It’s important to understand that the overseer for foreign investment in Cuba is the Ministry of Foreign Trade and Investment, which has a Business Evaluation Committee whose sole function is to evaluate and approve (or deny) all projects it is presented.

The members of this committee are the top representatives from Cuba’s principal ministries and from other institutions, depending on the sector relative to the project being evaluated.

In addition to the market study, one entry point is the Cuban Chamber of Commerce, whose International Relations department functions as a catalyst for the interests of foreign investors. Even if the investor’s project is one contained within the Cuban government’s portfolio of desired opportunities, contact must be made with the Chamber to evaluate it and understand whether there are already other interests involved.

In all cases, preparation to deal with this process is key to any eventual success.

For this reason, the first thing that any investor should do to prepare for any kind of investment in Cuba is to study the market and define what kind of project might be of interest to Cuba. At this early stage, it is important to define the following:

  1. Cuban government interest in the project.
  2. Possible Cuban partners.
  3. Possible costs, supply sources for raw material, services, communications, transportation, local qualified workforce, taxes and labor rules.
  4. Specialized advice to assist throughout the complex negotiation process.
  5. The type of economic association to be employed.

Although the levels of approval for investment in Cuba are determined at the Council of State and the Council of Ministers, with a very few exceptions, the process implies involvement by affected Cuban agencies, as well as the Cuban Chamber of Commerce. This alone shows that any theory about influence-peddling in Cuba as a method of getting projects approved, is hardly sustainable.

The procedures may seen strange, complicated and time-consuming to executives from other countries, but these are the rules that exist and anyone who wants to engage in investment in Cuba should be prepared to deal with the rules as they are, not as they wish they were or any other variant.

 

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