Thursday, March 27, 2014

Quotable (Updated)

Granma’s recently redesigned website is including comments on articles.  Here are comments from various readers today on two stories: on the foreign investment law, and on a series of discussions of it by members of the National Assembly.  (Each paragraph is a separate reader commment.) Update 3/31: Granma collected reader questions and criticisms, noted them in this article, and says it has arranged for officials to respond to them today from 9:00 a.m. until noon.
I would only like to know if there will be some possibility for we Cubans who live in Miami to open a business on the island and help generate employment for family and friends.

Legislators, please eliminate the employment agencies.

It would be very useful for the new legislation to eliminate the excessive bureaucracy around starting an investment in Cuba.  Many foreign businessmen change their minds when they run up against so many cumbersome requirements.

The efficiency of the private sector depends basically on a sense of property and ownership.  The management of human resources should be in the hands of the management that the investor puts in place.

It is very important that there not be discrimination against investors based on any factors that are not purely economic.

My God, what a way of saying nothing, the reporter went out in the weeds and gives us zero information and analysis, it seems he doesn’t want to put forth his opinions and he has left us readers as uninformed as we were before reading his article.

This law is very necessary, but from what has been disclosed and comparing it with what exists internationally, I believe that the taxes are too benign and on the other hand they keep anachronisms such as prohibiting investment on the part of individual Cubans residing in Cuba and the employment agency that only serves to create bureaucracy and corruption.

It would have been nice to have had access to this draft bill, maybe we could have added something, I understand that not all of us understand [this subject matter] – but since the enactment of the law will affect us all, it would have been good to have been able to give immediate feedback.

I have read lots of news about the draft bill – that they are meeting, discussing, analyzing, and many more things – but the main thing, the changes being proposed and the provisions that are being left unchanged, in the end I’m not able to read one single thing about what they are talking about.

I believe that the special sesssion of the Assembly should be broadcast COMPLETELY on television and radio.

Will Cubans, in Cuba and outside, be able to invest in businesses in Cuba, or will only foreigners be permitted to do so?

Foreign investments in the private sector too? (Updated)

The text of Cuba’s foreign investment law is not yet approved or published, but reporting by Progreso Semanal indicates that part of Cuba’s private sector will be able for the first time to benefit from investments from abroad.

Reporter Manuel Alberto Ramy says that Cuban television said so in a recent newscast.

Progreso’s report on the draft law quotes from a detailed summary that is circulating in Havana; it says that Cuban parties that may participate in foreign investment include any “legal entity (persona jurídica) of Cuban nationality, domiciled in Cuban territory, that participates as a shareholder in a joint venture or is party to a contract of international economic partnership.”

That would include private cooperatives, both in the farm sector and the 452 new ones in construction, personal and business services, and other lines of work.  It would exclude individual entrepreneurs (trabajadores por cuenta propia), even those such as restaurants that have 20 employees, because under Cuban law they are personas naturales rather than personas jurídicas.

Update:  An important detail was added in the presentation by trade and investment minister Rodrigo Malmierca before the National Assembly last Saturday.  Cooperatives will participate in foreign investment projects on an “exceptional” basis, he said, and with the participation of Cuban state enterprises.  It will remain to be seen what that means in practice, and what the state company’s role would be.  But there will not be cases where a foreign entity invests in a Cuban cooperative and only those two parties are involved.

Friday, March 21, 2014

Economics and politics of foreign investment (Updated)

Cuba’s legislature will meet March 29 to approve a long-awaited foreign investment law (Reuters).

For all the changes wrought to date, Cuba’s economy is not showing strong growth; agriculture reforms have not made a substantial dent in the import bill; and private sector (or “non-state,” as they call it) employment must grow more to enable the government job cuts that are needed.  Cuba also has what I call a “productivity gap” where many work in areas that do not match their skills and training and where pay incentives are weak.

More foreign capital – which President Raul Castro called an “urgent need” in a recent speech – would help to address Cuba’s long, chronic investment deficits and thereby help solve all the problems listed above.  (Former economy minister Jose Luis Rodriguez points out that in agriculture, where productivity is below the level of 25 years ago, investment in recent years has not even kept pace with depreciation.)  That is surely why the reform blueprint calls for policies that will foster greater foreign investment, in more sectors of the economy, and from countries that have no companies investing in Cuba today. They also call for taking a broader view of the role of foreign capital: instead of seeking it just for the sake of new markets and technology, it will now also be sought for job generation too; and instead of viewing it as a complement to lines of production already under way in Cuba, it will be sought to start entirely new activities.

In economic terms, it’s not a hard call.  But the politics have apparently been tricky. 

Outsiders tend to dismiss the tenets of Cuban socialism hatched 50 years ago, but many are alive and well and they have believers, including people in high places in Cuba. 

The revolution got rid of Batista and the U.S. mafia with which he did business, and in short order foreign ownership and capital were gone too.  You may call it a mistake, and you may say that the Soviet-era dependency was hardly an improvement.  But there, they called it economic sovereignty, one fruit of a political victory that claimed to make Cuba truly independent for the first time in its national life.

The debate over increased foreign investment has not been open to us, but the opposition to it (see Cuban media articles cited below) seems to have to do with sovereignty and control – the idea that Cuba might cede control over part of its economy, or start sharing profits that would otherwise be solely its own.

Neither idea holds water.  Within the incentive structures that will in fact attract foreign capital, Cuba can control the terms under which foreign companies work.  And there’s not much benefit in guarding 100 percent of the profits of enterprises that will never come into being for lack of domestic capital to start them.

I’ll read the fine print of the new foreign investment law, but I think that what matters most – for Cuba’s own benefit – is whether Cuba develops a new foreign investment attitude.  Plenty of investments have occurred under the law currently on the books; what prevented more was reticence on Cuba’s part.

As for the fine print, these are some of the key questions.

Will there be preferential tax and tariff treatment across the board, or will preferences be decided in the negotiation of each deal?

How will worker compensation be treated?

Will the central government approve all projects involving foreign capital, or will provincial governments or other entities be permitted to negotiate and approve them?

Will the law provide a means for parties outside Cuba to invest in private businesses in Cuba – individual entrepreneurs’ businesses, the new cooperatives that include some small-scale industrial operations, and farm cooperatives?

What set of potential investment projects will Cuba present to potential investors?  Will it include sectors such as agriculture and sugar, where foreign investment has not been viewed as desirable for the past 20 years?

From the Cuban media:

An article posted at Radio Reloj calls foreign investment a “saving transfusion for the Cuban economy” that is “threatened by lack of capital” and “calls out for an injection that can only come from the other side of our borders.”   It cites the example of tourism investment in the 1990’s, an “intelligent” decision that was viewed as “risky by many.”

In Granma, Minister of Trade and Investment Rodrigo Malmierca noted that foreign investment policy is central to the economic reform process and also has a “deep political connotation.” 

In an article posted at Radio Cubana, legislator Jose Luis Toledo explained that the government places a priority on incentives for foreign investment, “but with absolute respect for national sovereignty,” and he noted that “protection of national patrimony” is among the main concerns voiced by other legislators.

Granma reported on a meeting of legislators from several provinces on the draft law; the article began by noting that the new law “will in no way mean that the country is for sale or that there will be a return to the past.”

Update: Progreso Weekly’s summary of the draft foreign investment law, and Reuters’  comparison of the current law and the new one.