Doing business in, or with Cuba?

By Dr. Jose Azel in Global Risk Insights:

Doing Business in, or with Cuba?

First, let’s get the preposition right.

All commentary regarding entering the Cuban market makes reference to investing “in” Cuba. But, when used as a preposition, “in” innocently indicates inclusion within a space or place.

However, “in” is an insufficient and misleading preposition with reference to Cuban investments. Investing “in” Cuba is a naive expression that closes the eyes to the “with” character of those investments.

Cuba is not like other foreign markets where the investor’s due diligence requires mostly investigating demographics, local market information, and maybe some political risks. Cuba is a totalitarian state.

Investing in Cuba necessarily requires investing in a partnership with the Cuban government, and more specifically with the Cuban military. It is thus much more precise to use the preposition “with”’ to denote “accompanied by.”

Investing with Cuba, in association with the Cuban military, requires a much more rigorous due diligence.

Investing “in” Cuba requires the investor to contend ‘only’ with factors such as median income of $20.00 per month, outdated internet, communications and information systems, an unfriendly business environment, violation of worker’s rights, widespread corruption, unreliable energy, outdated water and sewer systems, a crumbling infrastructure, a bankrupt economy, an awkward dual currency system, and much more.

In addition, investing “with” Cuba requires foreign firms to accept being minority partners, with the Cuban government representing the controlling shareholder.

Under this arrangement, the Cuban government expects foreign investments to generate revenues for the state on its terms. If the venture fails to meet the expectations of the state, it may arbitrarily terminate the agreement, and there is no independent judicial system to adjudicate any investor claims.

It is also a mischaracterization to speak of a “private sector” in the country with the suggestion that such a sector exists as possible partners for American investors. There is no private sector in Cuba in the sense that we use that term in free market economies.

The so-called self-employed (cuentapropistas) in the country are not equivalent to a private sector.

These are individuals that have been granted permission by the State to operate in one of 201 highly specified domestic trade activities and under very restricted conditions. They do not have legal standing as would a sole proprietorship, partnership or corporation in the United States.

It is therefore very misleading to speak of a private sector in Cuba.

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