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EU to start talks with Cuba on a co-operation accord

Original Essay here: http://www.bdlive.co.za/world/americas/2014/01/31/eu-to-start-talks-with-cuba-on-a-co-operation-accord

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BRUSSELS, JANUARY 31 2014 (Reuters) — The European Union (EU) will agree next month to deepen relations with Cuba in its most significant overture to the communist island since the bloc lifted diplomatic sanctions in 2008, people close to the matter have told Reuters.

Foreign ministers from the EU’s 28 countries will give the go-ahead on February 10 to launch talks with Havana on a special co-operation accord to increase trade, investment and dialogue on human rights. The pact could be agreed by the end of 2015.

“Cuba wants capital and the EU wants influence,” said one person involved in the talks who declined to be named because of the sensitivity of the issue. “This co-operation could serve as a prelude to much more.”

Two other people with knowledge of the negotiations told Reuters that a consensus had been reached in Brussels to give momentum to Cuba’s market-oriented reforms under President Raul Castro and to position European companies for any transition to a more capitalist economy there in the longer term.

While the initial effect of a co-operation agreement will be limited, the symbolism is huge for the EU, whose ties with Cuba had been strained since it imposed sanctions in 2003 in response to Havana’s arrest of 75 dissidents.  Although the EU lifted those sanctions in 2008, the normalisation of relations has been tortuous because of resistance from Poland and the Czech Republic due to their communist past.

Havana has rejected the EU’s “common position” on Cuba that the bloc adopted in 1996 to promote human rights and democracy in the country.

Furthermore, the US, Cuba’s long-time foe that has kept an embargo against the Caribbean island since 1962, had exerted pressure on Brussels to try to isolate Havana. Washington has not sought to block the EU’s latest efforts, people close to the talks said, while Poland and the Czech Republic now back a deal with Cuba.

In a sign of impatience with the status quo, the Netherlands sent its foreign minister to Havana in January. This first such trip by the Dutch since the 1959 Cuban Revolution broke with EU policy to limit high-level visits. Spain, a former colonial power in Latin America and the Caribbean, has also been pushing for a change of approach since ailing, long-time Cuban leader Fidel Castro handed power to his younger brother Raul in 2008. Some EU countries see the 1996 “common position” policy as outdated because 18 EU governments have bilateral agreements with Cuba outside the common position, making it hard for the bloc to speak with one voice.

Still, Spanish Foreign Minister Jose Manuel Garcia-Margallo has been adamant that the “common position” will remain for the time being while the European Commission, the EU executive, negotiates the co-operation pact.

“If Europe wants to have a presence when there’s a transition in Cuba, the EU has to start working now.

“It’s right to start dialogue now so that Europe isn’t absent when a transition happens,” said Carlos Malamud, head of Latin American research at the Real Instituto Elcano, a think-tank in Madrid.

A co-operation pact, which the EU has used as a tool in the past to strengthen relations with Central America and Asia, is not likely to increase trade greatly because Cuba sells very little to Europe. Besides cigars and rum, Cuba’s exports are not of huge interest to the EU, but Brussels believes developing business ties is the best way to press for change in Cuba. The EU is Cuba’s biggest foreign investor and Cuba’s second biggest trading partner after Venezuela, and a third of the tourists to the island every year come from the EU.

Cuba recently opened a Chinese-style special economic zone and is preparing a new foreign investment law. The country is seeking foreign investment at its port facilities in Mariel Bay to take advantage of the expansion of the Panama Canal.

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Jeff Franks: Key political risks to watch in Cuba

By Jeff Franks, for Reuters; HAVANA | Fri Feb 3, 2012 10:57am EST

HAVANA Feb 3 (Reuters) – Cuba is opening the door to private management of some state-run cafes and food service outlets in an apparent test of further reforms aimed at keeping the island one of the world’s last communist countries.

The government said food prices rose nearly 20 percent in 2011 in a warning sign that economic change will not be painless.

Spain’s Repsol YPF brought the massive Scarabeo 9 drilling rig into Cuban waters and began drilling what Cuba hopes will be the first of many wells in its untapped offshore oilfields.

ECONOMIC REFORMS

In eastern Holguin province, officials said 211 state-owned cafeterias would be leased to employeesin a semi-privatization similar to what has been done nationally with barber shops and beauty salons the past year and recently expanded to other service businesses such as watch repair and carpentry shops. The Holguin program has not been mentioned in national media, but is likely a trial run before it becomes generalized, as was done with the other services.

The government, which wants to slash a million jobs from its payroll and encourage more private initiative, has said it will turn many small businesses, nationalized since the 1960s, over to employee cooperatives. It is encouraging self-employment, with more than 362,000 people now working for themselves. Economy Minister Adel Yzquierdo Rodriguez told the National Assembly in late December that 170,000 state jobs would be cut in 2012 and as many as 240,000 new non-state jobs added. The government’s goal is to have up to 40 percent of the island workforce of 5.2 million in non-state jobs by 2015.

President Raul Castro has made reform of Cuba’s lagging agricultural sector a top priority and the Cuban state, which owns 70 percent of the country’s land, has leased 3.5 million acres (1.4 million hectares) to 150,000 private farmers since he succeeded older brother Fidel Castro as president in February 2008. In some areas, the state has increased the land farmers can lease to 165 acres (67 hectares), extended their leases to 25 years, allowed them to build homes on the land and will let them pass the leases on to family members. Yet food output was up just 2 percent in 2011 and still below 2005 levels.

That, reduced food imports by the cash-strapped government and reforms allowing farmers to sell more of their production for market prices combined to make food prices shoot up in 2011. The National Statistics Office reported that meat prices rose 8.7 percent while produce prices increased 24.1 percent, for an average of 19.8 percent on the year..

At the same time, the average monthly salary inched up only a few percentage points to the equivalent of $19 a month, the government said. The statistics stated what Cubans already knew — their buying power has shrunk under Castro’s reforms.

President Castro told the National Assembly that Cuba still expected to spend $1.7 billion on food imports in 2012.

He also emphasized at a Communist Party conference the importance of an ongoing crackdown on corruption, which already has shuttered three foreign firms and sent executives of some of Cuba’s biggest state-run firms to prison. He said the party would implement term limits for the country’s leaders, but he gave no details.

What to watch: The pace of reforms and their consequences; The development of small businesses; Agricultural production and food prices.

FINANCIAL HEALTH

Castro said the economy grew 2.7 percent in 2011 and was expected to rise 3.4 percent in 2012. Cuba said it drew a record 2.7 million tourists in 2011, bringing in revenues of about $2.3 billion.

Travel industry experts say tourism has boomed this winter as the Arab Spring scared Europeans away from northern Africa, relaxed U.S. regulations made it easier for Americans to visit the island and Castro’s reforms drew visitors curious to see the effects of changes. They said Cuba needs more hotels to accommodate its growing tourism industry, which is a top hard currency earner for the country.

Cuba is heavily indebted and still recovering from a liquidity crisis that led to a default on payments and freezing of foreign business bank accounts in 2009. Castro told the National Assembly that accounts for foreign suppliers to Cuba had been unfrozen and steps taken to prevent the problem from happening again.

Hopes that reforms would bring more foreign investment have been slow to materialize, but Brazilian company Odebrecht said it would sign a contract to help Cuba improve its troubled sugar industry. One executive said the deal would include ethanol production. Long-awaited golf course developments, aimed at attracting wealthier tourists, remain on hold.

What to watch: Resolution of outstanding short-term debt; Signs of increased interest in foreign investment; Growth of tourism and Cuba’s ability to handle it

OIL PLANS

The Chinese-built Scarabeo 9 arrived in Cuban waters and at January’s end began drilling the first of three exploration wells in Cuba’s part of the Gulf of Mexico. Spain’s Repsol YPF and its partners plan to drill two of the wells and Malaysia’s Petronas and its partner, Russia’s Gazprom Neft, will drill the other, all this year and with the same rig.

The project has drawn opposition in the U.S. Congress, but, to allay safety concerns, Repsol allowed U.S. experts to inspect the Scarabeo 9 in Trinidad and Tobago. They said it met all international engineering and safety standards.U.S. companies are forbidden from operating in Cuba by the U.S. trade embargo.

Cuba depends on imports from its oil-rich ally Venezuela, but says it may have 20 billion barrels of oil offshore. The U.S. Geological Survey has estimated 5 billion barrels.

What to watch:  Results of Repsol’s exploratory well;  U.S. pressure to stop the drilling.

FOREIGN RELATIONS

A planned Papal visit in Marchimproved ties with Brazil, whose President Dilma Rousseff paid an official visit in January,are bright spots even as Cuba faces a more hostile Spanish government elected in November.

A major concern for Cuba is the health of Venezuelan President Hugo Chavez, a loyal ally whose government provides 114,000 barrels of oil a day and investment to Cuba. He underwent chemotherapy in Cuba and has declared himself cancer free, but experts say it is too soon to tell. If he were unable to continue in office, it would be a big blow to Cuba.

U.S.-Cuba relations, which thawed briefly under President Barack Obama, have been frozen by the imprisonment of U.S. aid contractor Alan Gross.He is serving a 15-year sentence for providing Internet gear to Cuban Jews under a U.S. program promoting Cuban political change. A document reported to be the court’s sentence said Gross knew the political aims of his work and tried to hide it from Cuban authorities despite his claims to the contrary.

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Cuba accepts Brazilian investment in its most emblematic economic sector: sugar

(Reuters).—The Brazilian giant Odebrecht plans to produce sugar in Cuba, the company reported Monday in the first injection of foreign capital in a sector so far closed in the communist-ruled island.

 

Steam Locomotives at the now defunct Australia sugar mill, November 1994, photo by Arch Ritter

Odebrecht Group signed with the state of Cuban Sugar Business Administration a “productive management contract” to wit “September 5” in the central province of Cienfuegos.

“The agreement for a period of 10 years is to increase sugar production and milling capacity and help the revitalization” of the industry, Odebrecht said in an email sent to Reuters through his press office.

The project would open to foreign capital, the underfunded Cuba’s sugar industry, whose production has plummeted from about 8.0 million tons in the 1970s to just 1.2 million tonnes in the last harvest. In addition, it will deepen Brazil’s role in modernizing the dilapidated productive infrastructure of the island.

Odebrecht did not elaborate.

But a Brazilian sugar industry executive told Reuters that the contract could be signed this week during a visit to Cuba, Brazilian President Dilma Rousseff. Cuba allowed more than a decade, the inflow of foreign capital to develop other strategic industries such as tourism and oil recently, where a consortium led by Repsol-YPF this year will begin to explore Cuban waters in the Gulf of Mexico.

Private companies from other countries have spent years negotiating its entry into the sugar industry in Cuba, nationalized shortly after Fidel Castro’s revolution in 1959. The opening comes after a major restructuring of the industry in late 2011 as part of the efforts of President Raul Castro to modernize the island’s socialist economy.

Do you also ethanol?

According to the director of the Brazilian sugar industry with knowledge of the project, Odebrecht also produce ethanol from biomass energy in Cuba. “Cuba is opening up the possibility of producing ethanol accompanied by power generation and Odebrecht will mount a distillery there,” said the businessman.

“It’s a similar project that Odebrechtis developing in Angola,” he added in reference to a joint venture of $ 258 million Angolan oil company Sonangol with to produce some 260,000 tons of sugar, 30 million liters of ethanol and 45 megawatts of power power.

Ethanol production on a large scale in Cuba has met with opposition from former President Fidel Castro, an ardent critic of the use of food crops like corn to make biofuels. Some experts believe that if Cuba could revive its sugar industry to become the third largest producer of biofuels in the world behind the United States and Brazil.

Ron Soligo, an economist at Rice University in Houston who has studied Cuba’s sugar industry, estimates that the island could produce about 7,500 million liters of ethanol annually. “But developing the ethanol industry in Cuba will take a while, since much of the land has been abandoned for years,” he said.

“Due to the centralized nature of the Cuban economy, a large Brazilian company can be the right partner,” he added.

Brazil, the second largest ethanol producer in the world, has provided technical assistance the Cuban authorities for the production of biofuels from sugar cane. “The issue is on the table. There is planned investment in sugar and there is a possibility that at some point this can be extended to the ethanol industry,” said a Brazilian Foreign Ministry source.

Odebrecht’s entry in the modernization of the depressed sugar industry expand its role in the infrastructure of the island. The company is currently one of the leading ethanol producers in Brazil through its subsidiary ETH.

Brazilian construction works executed for 800 million dollars to upgrade the container port of Mariel west of Havana. The project largely funded by the government’s National Development Bank of Brazil is seen as a key business platform if the U.S. lifts its embargo on the island.

Repairs, at the now defunct Australia sugar mill, november 1994, Photo by Arch Ritter

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