Cuba’s foreign investment invitation

According to the Brookings Institution, earlier this month the Cuban government appealed to international companies to invest over US$ 8 billion in 246 specified development projects. The Portfolio of Opportunities for Foreign Investment offers fascinating insights into the current distressed state of the Cuban economy – and into 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 international capital, yet there are also many 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.

However, Brookings highlight a refreshing admission in the text: ‘The growth rates of Cuba’s GDP have been moderate and low, lower than the average for the region. In order to turn this trend around, accumulation rate higher than 20% are required to permit a GDP growth rhythm increase of 5 – 7%’. In that current national investment rates hover around 10%, to fill the gap annual foreign investment inflows must exceed by a large margin the US$ 2.0 – 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. It signals clear development priorities: Energy (conventional and renewables), agriculture and tourism, On this, a consensus was probably easy to reach, Brookings observes: investment in domestic energy production is critical to lessen a dangerous dependence on a faltering Venezuela. Cuba is spending way too much of its foreign exchange resources on food imports, which is a genuine food scarcity crisis. And tourism offers the only ready medium term option for rapid growth in badly needed hard currency earnings.

Energy and industry offerings

According to Brookings, Cuba is wide open to joint ventures in extracting petroleum from onshore and offshore blocks. But the goal is to raise the percentage of electricity produced from renewable sources from the current 4 – 24% by 2030. Foreign participation is welcome in hydro, biomass and solar, and, exceptionally, Cuba will allow 100% foreign ownership in wind farms, with an aim to invest US$ 285 million to generate 174 MW in Guantanamo province and US$ 200 million to generate 102 MW in Holguin province. But these energy ventures, whether partially or fully foreign owned, will have to sell their output at prefixed prices to state distribution systems.

Contradictory impulses

Brookings suggests that 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 ‘favour the diversification of different countries’.
• Privatisation 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 – with its contradictory combinations of frank analysis and attractive offerings and its demanding requirements and multiple barriers – opens an unusually transparent window into the ongoing struggles within the Cuban elites: Among those that wish to power ahead and integrate their economy into global capital and trading markets, those that adhere to the revolution’s founding statist nationalism and those that seek a middle road of carefully controlled change.

Adapted from a report by Emma McAleavey.

Read the article online at: https://www.hydrocarbonengineering.com/refining/25112014/cuba-invites-foreign-investment-1682/