Report: Law will let Cubans abroad invest on the island

03/26/2014 7:11 PM

03/26/2014 8:11 PM

Cuba’s new foreign investment law cuts taxes, opens new sectors to foreigners and allows investments by Cubans living abroad as part of ruler Raúl Castro’s efforts to lure fresh capital to his long-stagnant economy, according to published reports.

But the law continues to require government approval for each deal and hiring from widely criticized state-run labor agencies, and does not allow investments by individual Cubans on the island.

Castro is pushing the new law as part of his campaign to inject market reforms into the country’s Soviet-style economy, which shrank by 35 percent after Moscow ended its massive subsidies to the island in the early 1990s.

The rubberstamp legislature, the National Assembly of People’s Power, will meet in a special session Saturday to vote on the draft that officials say was designed to offer investors “facilities, guarantees and legal security.”

The bill has not been published, but reports in the Juventud Rebelde newspaper and two Web sites Wednesday pointed to a wider opening of Cuba’s doors to foreign investments, fixes for some of the problems with the current investment law but no fix for others.

Under the existing 1995 law and regulations, all but a handful of foreign investors are limited to 49 percent ownership of joint ventures with the government. The law calls for a 30 percent tax on profits and a 20 percent tax on labor, plus taxes and fees on personal incomes and a half-dozen other categories.

Cuba reported barely over 400 joint ventures in 2002, and the number has since plunged to about 200. Businessmen have complained the government has been favoring Venezuelan and Chinese enterprises and shuttering others on suspicion of corruption.

The new law cuts the tax on profits to 15 percent, eliminates the labor tax and offers several exemptions. It also eases baking restrictions and allows investors to import and export supplies directly, now largely a function of state enterprises, according to articles in the Miami-based digital magazines OnCuba and Progreso Semanal.

Goods imported for the investment projects will be exempt from duties, and projects that exploit natural resources, such as mining, beaches, forests and bays, may be required to pay extra taxes and fees, the draft reportedly said, giving no details.

But the draft appears to limit the tax incentives to joint ventures and leaves out projects 100 percent owned by foreigners, according to the Reuters news agency, which reported that it had seen a copy of the draft. The full law is expected to be published next week.

Cubans living abroad will be able to invest like any other foreigner, OnCuba noted. The government has never opened its doors to Cuban investors — although the 1995 law allows it — but officials have been talking recently about embracing exile capital. The U.S. embargo outlaws investments by all residents of the United States.

“In the case of us Cubans who live abroad, it seems that our country is opening the doors to us, either because of right or need,” said OnCuba owner Hugo Cancio. “Who better than Cubans living abroad to invest in our country? Who would do it with more enthusiasm and eagerness than a Cuban who not only recognizes and values the opportunity, but from his heart desires the best for his country, his people?”

The draft also lays out procedures for negotiations, banking and environmental requirements and ways to resolve conflicts between the foreign and Cuban sides of an investment, according to the OnCuba report.

Investments approved will be aimed at increasing and diversifying Cuban exports, replacing imports — especially in agriculture and energy — as well as creating new jobs and bringing fresh technology and managerial know-how to the island, it added.

But cabinet ministers or other top government officials must still sign off on each deal – a process that in the past has taken months and even years -- and no foreign investments will be allowed in the health, education or armed forces, OnCuba added.

The draft also notes that the local partners in joint ventures must be legally registered companies, ruling out participation by individual Cubans but perhaps leaving the doors open to some of the recently established private cooperatives, the magazine added.

Cuba does not allow private individuals to register companies, and the 455,000 licensed small-scale businessmen on the island are engaged in “self-employment,” such as carpenters, and do not own companies.

The state-run labor agencies, which pocket the lion’s share of the salaries paid by foreigners to local employees, have been accused of corruption, undermining the loyalty of workers to their bosses and making it difficult for investors to hire good employees.

Carmelo Mesa-Lago, a veteran Cuban economist, said the draft offered some positive changes but left some negative aspects of the 1995 law in place and adds some new limitations.

“Cuba must demonstrate that it will really be more flexible on foreign investments if it really wants to change the mistrusts that exists among investors,” Mesa-Lago wrote in an email to El Nuevo Herald.

Castro has been enforcing a string of market-style reforms in an attempt to jump-start the economy since he succeeded older brother Fidel after he underwent emergency surgery in 2006.

Private economic activity has expanded and medical personnel working abroad are expected to earn more than $8 billion this year. But the purchasing power of the peso remains at pre-1990 levels, productivity remains stagnant and prices are spiking.

Cuba’s economy expanded by 2.7 percent last year and is expected to hit 2.2 percent this year, both meager levels for a country whose unique way of counting its Gross National Product exaggerates the final tally.

Concerns over the stalled economy have sharpened amid the violent protests racking the leftist government of Venezuelan President Nicolás Maduro, which provides Cuba with subsidies estimated at up to $10 billion per year — far more than Moscow provided in the 1970s.

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