Cuba Recentralization

[Jim Devine <jdevine03@xxxxxxxxx>]

http://www.latimes.com/business/la-ft-cuba13jun13,1,2062621.story

GLOBAL REPORT

Foreign Investors Get the Boot as Cuba Recentralizes Its Economy
Ventures under Castro's government are being closed down, and firms
find they have little choice but to take a loss.

By Marc Frank
Financial Times [printed in the L.A. TIMES]

June 13, 2005

HAVANA — It has been more than a decade since Cuba, suffering from a
post-Soviet economic collapse and worries about the U.S., opened its
door to foreign businesses.

Now many investors — mainly Europeans who took the plunge — are being
asked to leave.

Only half the homes rented to expatriates by the state's real estate
monopoly are now occupied, and at the Havana International School,
matriculation is down about a third from two years ago.

On average, one joint venture and two smaller cooperative production
ventures have closed each week since 2002, when there were 700 in the
country.

Joint ventures are done with government partners, which usually hold
50% or more of the shares. Cooperative production agreements involve a
foreign investor that supplies machinery, credits and supplies in
exchange for a share of profit or product, mainly in labor-intensive
sectors such as light industry and food processing.

"I would not be surprised if in the end there are only around 50 joint
ventures in the country and just a handful of cooperative production
agreements," said an employee at the Foreign Investment and Economic
Cooperation Ministry.

Relations with the European Union and other Western nations remain
tense because of President Fidel Castro's repression of dissent, and
Cuba is increasingly turning toward countries such as China and
Venezuela, which it sees as being less influenced by the U.S.

Yet the purge appears to be related less to these factors than to the
recentralizing of finance and trade and the elimination of the partial
autonomy that state companies were granted in the 1990s. "Changes over
the last two years are introducing significant corrections in the
Cuban economy, considerably limiting the action of market mechanisms,"
Jose Luis Rodriguez, economy and planning minister, told local
economists last month.

Cuba is now interested in partnering only with well-known companies in
strategic sectors of the economy, says Marta Lomas, foreign investment
and economic cooperation minister.

Big companies, some operating through subsidiaries, are holding their
own. They include Swiss giant Nestle (bottled water and other consumer
goods), Pernod Ricard of France (rum), Telecom Italia
(telecommunications), Sherritt International of Canada (nickel, oil,
gas and power) and British American Tobacco (cigarettes) and Sol Melia
of Spain (tourism).

European investors whose joint ventures are liquidating complain of
endless haggling with state companies and ministry officials over how
and when their share of investments will be paid and the often
millions of dollars they are owed for financing operating costs.

European diplomats say the Cubans are usually within their rights in
ending business relationships but often do so with little explanation
and with only the dubious promise that they will someday pay money
owed foreign partners.

"What you have here is renationalization without compensation," one
European commercial representative said.

Some firms are fighting in domestic courts. Others are considering
international arbitration, though they are pessimistic about being
paid if they win.

Cuban officials did not respond to requests for interviews. Castro has
criticized investors several times this year, accusing them of
arranging exclusive supply contracts for their own ventures and
charging exorbitant interest to finance the imports. He has also said
foreign traders enjoy margins of as much as 40%.

The firms have little choice but to take a loss in equipment,
warehoused products, personnel training and other costs. Cuban law
states that they must sell what they have to the government, which
pays little, or to other foreigners, of whom there are fewer and
fewer, or take it with them out of the country.
-- 
Jim Devine
"Segui il tuo corso, e lascia dir le genti." (Go your own way and let
people talk.) -- Karl, paraphrasing Dante.