Abstract
This chapter examines the lack of productive investment in the Cuban economy, and the quest for new investments. The new regime for foreign direct investment (FDI) is discussed. Effects of this regime—and particularly the establishment of a Special Development Zone—are compared with the unofficial investments de facto taking place in the private sector, thanks to the increasing family remittances from abroad. The three main sources of foreign currency—export of professional services, family remittances and tourism—are compared to the rapidly dwindling incomes of goods exports. Given Cuba’s obsolete economic structures, is a process of creative destruction put in place? The chapter also offers a balance of the outcome of Raúl Castro’s reform era, concluding that the state of the economy left to the post-Castro generation is worse than it has been since the 1990s.
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- 1.
Feinberg’s estimate of total FDI in 2012 was 3.5 billion USD; Perez’s estimate was 5 billion USD. Feinberg, in a presentation at the ASCE conference, Miami, 1–3 August 2013, considered the 2013 level of FDI in Cuba to represent approximately 15% of what would be normal for Cuba’s size. Three billion out of the 3.5 billion investments, he estimated, were concentrated in 20 companies, with a total of 35,000 workers.
- 2.
With the election of right-wing Bolsonaro as president of Brazil, it has been revealed that Cuba has a debt to BNDES of 680 million USD, with payment arrears amounting to more than 70 million USD by November 2018 (El Nuevo Herald, 14.11.18).
- 3.
See e.g. “Operación anticorrupción en Brasil pone punto final a obras de Odebrecht en Cuba”, Martinoticias.com , 11.12.16. For a more comprehensive report on Odebrecht’s questionable operations in Brazil, not least ex-President Lula’s involvement in them, see the following three articles by martinoticias.com , from March 2018: https://www.martinoticias.com/a/oscuros-negocios-odebrecht-cuba-parte-1/163876.html; https://www.martinoticias.com/a/oscuros-negocios-odebrecht-cuba-parte-2/163884.html;
https://www.martinoticias.com/a/oscuros-negocios-odebrech-cuba-parte-3/165115.html.
- 4.
Special Development Zone or Special Economic Zone (SEZ) is normally a geographical region that is designed to export goods and provide employment. SEZs are exempt from federal laws regarding taxes, quotas, FDI-bans, labour laws and other restrictive laws in order to produce the goods manufactured in the SEZ at a globally competitive price.
- 5.
See http://cubainsidetheworld.wordpress.com/2013/11/06/mariel-special-zone-the-jewel-of-the-cuban-economycuba/; or Nick Miroff: “At Mariel Port, Cuba follows Chinese blueprint”, in Global Post, 23.11.13.
- 6.
As part of the October 2016 Presidential Executive Order, the US amended the Cuban Asset Control Regulations to ease the 180 Day Rule prohibiting vessels from calling at US ports for 180 days after leaving a Cuban port. If a foreign vessel calls at Cuba with cargo from a third country which would not be subject to the US Export Administration Regulations or Commercial Control List for anti-terrorism reasons, that vessel would not be prohibited from thereafter calling at a US port. Vessels carrying Cuban goods or passengers might not enter a US port, unless expressly authorised to do so.
- 7.
As an illustration, it was interesting to note the great interest shown by the Ports Association of Louisiana, controlling 5 of the top 15 ports in the US, situated on the southern coast line right across from Mariel (message from Engage Cuba, 25 February 2016).
- 8.
The special payment rules in Mariel are as follows: the employees keep 80% of the salaries paid by the foreign investor (normally it is the other way round), but receives only 10 Cuban pesos per USD (vs. official value of 24:1). The net result is that a Mariel employee earns 12 times that of an average Cuban worker (Omar Everleny Perez interviewed by 14ymedio, 01.08.16).
- 9.
In 2016, the French contractor company Bouygues, one of the major foreign construction companies present in Cuba, was allowed to import several hundred construction workers from India in order to accelerate the construction of hotels in Havana, with a salary of 1500 Euros per month—as much as 50 times a Cuban salary. Bouygues officials, interviewed by the author, claimed that the import of this workforce was justified by their higher labour efficiency.
- 10.
“Cuba begins to pay debts to Western creditors, beats deadline”. Reuters Business News, Havana, 27.10.16, ref. also Reuters, Havana 25.10.18. These payments are structured in such a way that the interest increases for every year, from 1.6% in 2016 to 8.9% in 2033.
- 11.
Carlos Mesa-Lago 2019: “El enfriamiento de la economía cubana”, Gráfico 3, printed Asce News Clippings No. 826 (February 2019). The information about the Chinese debt cancellation was found here: https://www.oxfordchinaafricaconsultancy.com/publications.
- 12.
According to an anonymous source in the Directorate for Foreign Investment, Ministry of Foreign Trade and Foreign Investment, “the debt with investors now amounts to 1,300 million USD” (S/E), quoted by Ulises Fernández: “Cuba: la crisis irá a peor durante 2018”, 05.02.18 (article re-printed in ASCE News No. 790, 10.02.18). The President of the Confederación Española de Organizaciones Empresariales (CEOE), Antonio Garamendi, informed in November 2018 that accumulated unpaid debt to Spanish companies amounted to 300 million Euros (340 million USD) (DDC, Havana, 23.11.18). The London Club, coordinating commercial creditors with a total of 1.4 billion USD claims against Cuba, reported in 2018 that “significant debt relief would be offered during on-going negotiations”. Cuba has so far failed to accept these offers, and this conflict may end with international litigation.
- 13.
Mesa-Lago (2016), Table 5, calculated on the basis of ONEI Anuarios 2013–2017, Table 5.17.
- 14.
According to the World Bank website, only Andorra, Liechtenstein and Monaco, in addition to North Korea and Cuba, are not members of the World Bank Group (comprising 189 nations).
- 15.
Ref. Cuba’s rejection to re-join OAS (Organization of American States) when the country was welcomed back in 2009 (ref. Chap. 5). Membership of the OAS would have been a key condition for membership of the Inter-American Development Bank.
- 16.
According to a press release, CAF and IIB agreed “to establish a cooperation scheme for identifying and promoting programs and initiatives of mutual interest, including technical assistance for the development of micro, small, medium, and large enterprises in Cuba.” (“Cuba continues to edge towards multilateral credit”, CubaStandard, 27.09.16) A private mail message received from CAF’s desk officer for Cuba (19.10.16) clarified the state of the agreement: “Cuba is not yet a member of CAF, we are working in that direction, but for the moment it is not possible for CAF to finance projects in Cuba.”
- 17.
“Cuba ingresa como socio a Banco Centroamericano”, El Nuevo Herald, 28.08.17: http://www.elnuevoherald.com/ultimas-noticias/article169810512.html.
- 18.
Reuters, Havana, 1.11.18. At the 2018 Havana International Trade Fair, the Minister for Foreign Trade and Investment, Malmierca, claimed that the country had signed nearly 200 investment projects worth $5.5 billion since it established its new FDI regime in 2014 (of which 1.5 billion over the latest year). But these are contracts, not actual investments.
- 19.
Cubadebate, 06.02.18: http://www.cubadebate.cu/especiales/2018/02/06/empresarios-del-mundo-apuestan-por-la-zona-especial-de-desarrollo-mariel-fotos-video-e-infografia/#.W8BusFfNJpi; Lisset Izquierdo y Lisandra Romeo: “Apertura del Tercer Foro de Inversiones”, Cubadebate, 30.10.18.
- 20.
Travel Trade Caribbean, 17.01.18. Some of the foreign partners—like the US Marriott—have only management contracts without FDI. Spanish hotel chains represent more than 70% of the hotel capacity with foreign capital in the hotel, with Meliá as the clear front-runner followed by Iberostar and Barceló. Meliá alone has ownership in 29 hotels, and has announced plans for the building of another 11 hotels (DDC 18.01.18; 23.11.18).
- 21.
Juan Triana: “Inversión extranjera y desarrollo”, 24.10.17, reproduced in ASCE News Clippings No. 780.
- 22.
Reuters, Havana, 27.12.16, and Granma, 27.12.16.
- 23.
Carlos Saladrigas, interviewed by Orlando Márquez (2011): “No es fácil cambiar, pero lo hice,” Palabra Nueva, La Habana, May 2011. Even some leading figures of the most successful conservative Cuban-American families with leading economic roles in pre-Castro Cuba are now returning to Cuba to find out whether the ongoing reforms offer possibilities for investments in the country, perhaps afraid of “missing the train”: Paul L. Cejas (a former US Ambassador and close friend of the Clinton family), and Alfonso Fanjul (whose family was one of the major sugar industry entrepreneurs) both visited Cuba in April 2012, and at least Fanjul has been back on several occasions.
- 24.
For a rather complete list of this, see Jimenez (2008).
- 25.
Morales was an employee of the Cuban military-controlled conglomerate CIMEX (now part of GAESA), before he settled in Miami to establish the Havana Consulting Group. He has been doing systematic research of the remittances since around 2012.
- 26.
Martí Noticias, 06.03.18.
- 27.
Economic analyst Jorge Salazar Carrillo estimated that between 30 and 40% of remittances went to investments, at a July 2016 Conference organised in Havana by International Money Transfer Conferences (IMTC) (Martinoticias, 17.07.16). About half of the 25 cuentapropista cases studied by Feinberg in Havana and Cienfuegos had benefitted from family remittances to set up the business (Feinberg 2013: 15), whereas the surprisingly low share of 12% of the 25 TCPs (trabajadores por cuenta propia—self-employed workers) interviewed by Mesa-Lago (2016: 56) said the same (versus 24% of all non-state economic actors interviewed, pp. 171–172). The authors believe that many of the interviewees may have wished to hide this information, since it is not strictly legal to use remittances for business investment.
- 28.
A more moderate figure is estimated by Cuban economist Juan Triana: he also assumes that 30% of remittances are destined to investments, but estimates total remittances to be 2000 USD, concluding that remittance-based investments would be around 600 mill USD/year—an amount that also compares very favourably with FDI in the state sector: https://elestadocomotal.com/2018/01/09/dos-decadas-de-inversion-en-cuba-antesala-del-momento-chino-de-la-reforma/.
- 29.
Havana Consulting Group: “Entrepreneurs exported 9 times more than the foreign capital that was invested in ZEDM in 2017”, 18.08.18: http://www.thehavanaconsultinggroup.com/enUS/Articles/Article/67.
- 30.
See Arthur González (2013): “The #CIA and the manipulation of the Catholic Church”, posted 30.10.13 by cubainsidetheworld, http://cubainsidetheworld.wordpress.com/2013/10/30/the-cia-and-the-manipulation-of-the-catholic-church/, downloaded 02.12.13, where the author interprets plans by the Cuban Catholic Church to train entrepreneurs in Santiago and Havana as part of the subversive plans of the US government against the Cuban Revolution, with the purpose of replacing socialism with capitalism in Cuba.
- 31.
EFE, Havana, 22.04.16.
- 32.
“EEUU autorizó ya $300 millones para negocios en Cuba este año”. Posted on 18.02.16 by Café Fuerte.
- 33.
Ref. the quoted rejection in Chapter 4.1 by ANAP (National Association of Small Farmers), the Party-controlled peasant organisation, to turn down the coffee export invitation.
- 34.
The following estimates of currency earners (not fully reported in official statistics) are based on an interview with economist Omar Everleny Perez, 14ymedio, 01.08.16.
- 35.
According to official daily Granma, Cuba in 2016 had approximately 55,000 health workers in 67 countries, including more than 25,000 doctors. The crisis in Venezuela resulted in significant cuts in oil shipments going to Cuba. Thus, the two countries’ long-standing arrangement to provide cheap Venezuelan oil in return for Cuban professional services, as well as Venezuela’s role as a sponsor of Cuban medical aid to third countries, became increasingly uncertain. The change of government in Brazil in 2016 also seemed to have consequences with a planned one-third reduction of the medical cooperation from 2016 to 2017. (Source: Vito Echevarría: “Forced to diversify—crises in Venezuela and Brazil puts Cuba’s medical service exports to the test”, in CubaStandard, 27.09.16). See also Mario J. Pentón: “Nuevas cifras revelan cuánto gana Cuba con la exportación de profesionales”, El Nuevo Herald, 17.04.17, that is, quoting ex-Minister of Economy José Luis Rodríguez; and Camilo Mesa-Lago. Mesa-Lago claims that the reduction in medical service incomes from Venezuela fell by one-third in 2016 to a total of 6.3 billion USD. Similar incomes from Brazil were also reduced substantially.
- 36.
Pavel Vidal to Bloomberg, 28.11.18.
- 37.
Mario J. Pentón: “Cuba suspende envío de médicos a Brasil por temor a deserciones”, El Nuevo Herald, 14.04.17. There were reports (Brazilian diplomatic sources to AFP November 2018) that as much as 2000 of the 8300 doctors affected by the termination of the agreement with Brazil would stay there and seek to work on private contracts. The Ministry of Public Health reported in 2019 that Cuba had a total of 25.000 medical staff in 66 countries, down from 55.000 in 67 countries in 2016.
- 38.
Estimated on the basis of Tables 4 and 5 in Mesa-Lago (2016), who again has based his calculations on ONEI Anuarios and an exchange with former Economy Minister José Luís Rodríguez (the two economists had previously had deep disagreements about how to calculate the net income from tourism).
- 39.
Carlos Mesa-Lago (2019), op. cit.
- 40.
Observatory of Economic Complexity (OEC), official trade figures for 2017: https://atlas.media.mit.edu/en/profile/country/cub/. One important export product for previous year, re-export of refined petroleum imported from Venezuela, all-but disappeared after 2015.
- 41.
Private e-mail correspondence, 12.05.18.
- 42.
In September 2016, Starwood was acquisitioned by Marriott International for $13.6 billion, together becoming the world’s largest hotel chain.
- 43.
“EEUU, Negocios, Hoteles: Militares y Hoteles. Los negocios estadounidenses continuan su avance en Cuba, pese a las limitaciones y las presiones en todo sentido”. Redacción CE, Madrid. Reproduced by ASCE News, No. 719.
- 44.
US Department of Agriculture Foreign Agricultural Service, reproduced as Figure 1.1 in: https://fas.org/sgp/crs/row/R44119.pdf.
- 45.
Airbnb reported in February 2018 that they counted with 32,000 rent options in Cuba, having realised 1 million reservations during the three years of their operations there (Brian Chesky, Airbnb CEO, quoted in a note posted by Cartas desde Cuba, 23.02.18: “Airbnb llega al millón de reservas en Cuba”). Because of new restrictions under the Trump administration, foreign visitors are now required to provide information about home address and purpose of visit prior to booking.
- 46.
Remark by Cuban economist Pavel Vidal at Cuba Posible seminar in NYC, 26.05.16.
- 47.
Quoted in Ravsberg blog, May 2017.
- 48.
Pedro Monreal: “Un Programa de Estabilidad Económica para Cuba”, Cuba Posible, 14.11.17. For a comparison, during the 1997–1998 downturn in China, as much as 21 million workers at struggling SOEs were sacked. Of these, however, 13 million found new jobs in the private sector, more than 1 million were transferred internally, while a third lost their jobs (according to official at the human resources and social security ministry quoted by CNBC/Reuters, 28.02.16). In Vietnam, Doi Moi permitted the private sector to develop enough for absorbing those laid off in the shrinking state sector. In both cases, the combination of a functioning market economy and access to credits from international financial institutions made such massive economic transformations possible without system breakdown.
- 49.
This calculation is based on “the medium currency exchange”, which gives a figure that is about half the officially reported—but it still includes the free social services (health, education and housing).
- 50.
The veteran economist Carmelo Mesa-Lago awarded great importance to this study, commissioned by the Inter-American Development Bank: “I have spent 55 years studying the Cuban economy, and there is no study that is more important than this one”, he was quoted by El Nuevo Herald (22.01.18) as saying. The study is based on a re-calculation of Cuban economic indicators, following a new index model developed by Vidal where errors originating in the use of official currency rates in Cuban national accounts are eliminated. Real GDP per capita in 2014, it is argued in the study, stood at 3016 USD, only 42% of the official figure of USD 7177. While Cuba in 1970 had an economy 5.3 times larger than the Latin American average, this relationship was in 2011 reduced to 1.5, according to this study.
- 51.
Pavel Vidal: “La economía cubana en 2018: otro año sin colapso y sin progreso”, Cuba Posible, December 2018.
- 52.
Pavel Vidal: “La reforma quedará incompleta si no nos despegamos del modelo de economía centralmente planificada”, Cuba Posible (New York Seminar), 20.09.17.
- 53.
Pavel Vidal: Comentario a las medidas anunciadas por Cabrisas en diciembre 2016 (IPS, 30.12.16). 2016 was officially a year of negative growth, and Vidal estimates that the recession continued through 2017 with a negative growth between −0.5 and −1.4% (Skype interview 26.01.18).
- 54.
Mesa-Lago: “A fin de enmendar el legado de Fidel, a Raúl le queda poco más de un año para acelerar y profundizar sus reformas estructurales.” ASCENews 742, 13.01.17.
- 55.
Table of key macro-economic indicators, in Vidal and Werner: Economic Trend Report, Fourth Quarter 2018.
- 56.
According to Jorge Piñon, one of the leading experts on the Cuban oil economy, the reductions were more than 40% (El Nuevo Herald [Miami], 23.03.17). Carmelo Mesa-Lago, in information provided privately to the author in February 2018, estimates reductions to be from 105,000 to 55,000 bpd, closer to 50%.
- 57.
“Venezuela oil exports to Cuba drop, energy shortages worsen”, Reuters, Havana, 13.07.18: https://www.reuters.com/article/us-venezuela-cuba-oil-exclusive/exclusive-venezuela-oil-exports-to-cuba-drop-energy-shortages-worsen-idUSKBN19Y183. “Slim pickings. Clueless on Cuba’s economy”, The Economist, 30.09.17.
- 58.
See figures quoted by Reuters Havana, 06.12.17; and Emilio Morales in ASCENews No. 785, 29.12.17. According to another source, the corruption-implicated Brazilian mega-company Odebrecht also pulled out of its most important Cuban sugar operation, the management contract with perhaps the most modern Cuban sugar factory (5 de septiembre in Cienfuegos province), where it had made investments in the magnitude of 60 million USD, due to lack of return payments by the Cuban sugar monopoly AZCUBA: https://www.martinoticias.com/a/oscuros-negocios-odebrecht-cuba-negocio-azucarero/165163.html.
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Bye, V. (2020). Achieving the Required Surge in Investment and Growth?. In: Cuba, From Fidel to Raúl and Beyond. Studies of the Americas. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-21806-5_3
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