Via Capitol Hill Cubans, what the “Cuba Experts” will never tell you about investing in Cuba as business partners of the apartheid Castro dictatorship and military junta:
Major Hurdles for Foreign Investors in Cuba
Cross-border debt and equity specialist, William A. Wilson, summarizes them in FDi Intelligence:
There are multiple hurdles for foreign investors in Cuba. Among the most important are:
- a highly ‘political’ approval process;
- the near impossibility in practice of a 100% ownership interest;
- difficulty in obtaining majority control of a local joint venture;
- limitations of local sales (whether of local or foreign products);
- a communist model for employing local staff;
- capricious enforcement of laws; and
- risks of leakage for intellectual property and confidential financial information.
Law number 77 (1995) is the main legal authority governing investment in Cuba. Although Article 13 of the law permits a foreign investor to own 100% of a Cuban entity, this has almost never been granted. Therefore, investors must find a Cuban entity with which to form a joint-venture company. Finding a partner is difficult in every country, but in Cuba the choice is very limited. Almost all Cuban entities with any degree of market presence or expertise are owned by the state or ‘co-operatives’. Not surprisingly, such Cuban partners often have different business goals and are subject to different outside pressures than the foreign investor.
In theory, the foreigner may control the joint venture, but in reality this is not encouraged. In fact, the website of the Ministry of Foreign Affairs says Cuba only accepts the foreign investor having majority control in “justified cases”, but does not expand on what this would entail.
Moreover, the approval process for an investment is complicated and lengthy. It typically takes 18 months or longer (even though the law says a decision should be made in 60 days). The application requires the foreign investor to provide lots of confidential information about the proposed operations. Even more troubling, if the foreign investor has a proposed joint-venture partner (as it almost always will), the foreigner must give all that confidential information to the Cuban partner before knowing whether the investment will be approved. As the Cuban partner may well be a competitor (at least in Cuba), the foreigner risks ending up with no approved investment, no partner and a competing Cuban company with proprietary or confidential information about the foreigner’s business. This information could include know-how, production costs and financial margins.
Finally, an analysis of projects that have been approved by the Cuban government shows it is advantageous if the foreign entity is itself a state-owned entity, a quasi-public entity or a ‘national champion’ from a country with its own dirigiste mentality. For example, among the major projects now in progress is construction of a major port facility by Brazilian conglomerate Odebrecht, which is supported by Brazilian government credits.
Cuba is still far from welcoming capital for capital’s sake. As Cuba’s Ministry of Foreign Affairs states on its website: “It [cannot] be said that in Cuba the foreign investment opening is part of an ongoing privatisation process… national policy is aimed at defending the prevalence of state property in all forms of joint ventures.”