Author Archives: Feinberg Richard E.

IS CUBA “OPEN FOR BUSINESS”? BOOK REVIEW BY TED HENKEN

ZZZZZZZZZZZZZZZZZZZBy Ted Henken. Complete review is available here: http://cubacounterpoints.com/archives/3832

A review of Open for Business: Building The New Cuban Economy by Richard E. Feinberg,  August 30, 2016, Washington, D.C.Brookings Institution Press, 264 pages, $22.00;    ISBN-10: 0815727674’;     ISBN-13: 978-0815727675

Introduction

A few years ago I ran into a fellow watcher of Cuba’s economy in my favorite local New York coffee shop. It was just after the publication of my own recent book on the emergent Cuban private sector, which I co-wrote with the Canadian economist Archibald Ritter. Keen on announcing my good fortune (and great timing!) to my colleague, I whipped the book out and proudly presented it to her. However, when she saw the title, Entrepreneurial Cuba, she looked up at me with a skeptical grin and said: “Well, aren’t you the optimistic one?!” I laughed, quickly assuring her that while the title was indeed up-beat, the contents of the book were a decidedly more complex, critical, and ambivalent affair, filled with equal parts new opportunities, old obstacles, significant reforms, and frightful omens.

Similarly, the title of Richard Feinberg’s own eminently readable and richly informative new book, Open for Business: Building the New Cuban Economy, slyly posits a reality of economic “openness” that is aspirational. The author himself admits that this position is still as much a government slogan for the future as it is an achieved present-day reality. While Feinberg tells his readers that Cuba is indeed “open for business” on the book’s eye-catching cover, the actual contents of the book’s wide-ranging eight chapters highlight aspects of Cuba’s new post-Fidel economy that place an emphatic and well deserved question mark (?) after this claim.

Far from falling prey to the “irrational exuberance” of facile boosterism or blatant apologetics that tend to characterize much business-oriented writing about Cuba these days, Feinberg’s book is a critical-minded and deeply informed evaluation of the pro-market experiments undertaken by the Cuban government over the past two decades with a special emphasis on Raúl Castro’s economic reforms between 2010-2016. Thankfully, Feinberg goes beyond an exclusive focus on the top-down administrative efforts on the part of the government to solve its chronic economic problems (chapter 2). Feinberg does consider the so-called “update” of Cuba’s state socialist economic model that is often in league with sympathetic foreign governments like China, Brazil, and Venezuela (Chapter 3) and pioneering foreign firms including Sherritt, Meliá, and Unilever (chapters 4-5).

Notably, chapter 6 on entrepreneurial Cuba tells the fascinating story of Cuba’s emerging private entrepreneurs and middle classes. According to Feinberg, now this new economic class includes as many as two million people and makes up 40% of the island’s workforce (a well-sourced if questionable claim). This is followed by a wonderfully original chapter that profiles a dozen Cuban “millennial voices”; youthful, and quite hopeful, pioneers in fields as diverse as business, art, media, academics, and technology. These innovative sections of the book allow the author to offer his readers a refreshingly rich and diverse portrait of the grass-roots efforts of everyday citizens to “open Cuba for business” from the inside and for the benefit of Cubans themselves.

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Conclusion

Not a typical academic monograph focused on a single aspect of the Cuban economy, Feinberg’s “Open for Business” is instead a globally-informed analysis of what are arguably the three most important and dynamic aspects of Cuba’s new economy: International trade, foreign investment, and the island’s emerging domestic entrepreneurs. His wide-ranging yet richly detailed focus – enhanced by multiple foreign investor case studies and vivid profiles of Cuba’s emerging entrepreneurs and pioneering millennials – makes this book required reading not just for professional economists and other academics, but also – and perhaps especially – for the growing ranks of potential foreign investors looking for independent, hard-nosed, and practical advice about Cuba’s unique business environment as they contemplate their own entreé into the Cuban market. It will also be useful and revelatory tool for U.S. policymakers as they gauge how best to “engage” the Cuban government over questions of trade and investment and “empower” the Cuban people, especially the emerging Cuban entrepreneurial middle classes.

open-for-business

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RECONCILING U.S. PROPERTY CLAIMS IN CUBA: TRANSFORMING TRAUMA INTO OPPORTUNITY

Richard Feinberg, December 2015,  Brookings Institute

Original Here: Reconciling U.S. Property Claims in Cuba: Transforming Trauma into Opportunity.” 

zzzzzzzzz CONCLUSION:  . A Grand Bargain?

In their opening meetings, the U.S. and Cuba will present their conflicting claims. One possible outcome is protracted and contentious negotiations. But there is a much more promising alternative approach: to take advantage of the very size and complexity of the conflicting claims and to make their resolution the centerpiece of a grand bargain that would resolve some of the other remaining points of tension between the two nations, and embrace an ambitious, forward-looking development strategy for Cuba.

There are precedents for such a grand bargain, in such cases as the Soviet Union, Vietnam, and China. The Roosevelt-Litvinov agreements—negotiated in the White House directly between the U.S. president and Soviet foreign minister—laid the foundations for renewing diplomatic relations, and one might argue for the World War II alliance that defeated the axis powers. Similarly, the claims settlement with Vietnam was one piece of a much broader normalization process between the two once bitter adversaries—two nations that now label themselves strategic allies. Pointedly, at the August 14, 2015 flag-raising ceremony at the U.S. Embassy in Havana, Secretary of State John Kerry remarked:

“And last week, I was in Hanoi to mark the twentieth anniversary of normalization of relations between the United States and Vietnam. Think about that. A long and terrible war that inflicted indelible scars on body and mind, followed by two decades of mutual healing, followed by another two decades of diplomatic and commercial engagement. In this period, Vietnam evolved from a country torn apart by violence into a dynamic society with one of the world’s fastest growing economies.”

In recent U.S.-Cuban relations, there is also the precedent of the December 17, 2014 announcements, when the return of Alan Gross and a CIA asset for three Cuba spies was wrapped in the larger story of normalizing diplomatic relations, and on the U.S. side, the relaxing of certain travel and economic restrictions.

The two-tiered settlement strategy outlined above allows for U.S. firms to re-engage in Cuba. At the same time, some individual claimants and their families harbor deep affections for Cuba and would probably be willing to contribute to its future development. Cuba could consider special incentives to regain this legacy of the island’s past, and for interested claimants to match their awards with re-investments in new projects.

With the right incentives, Cuba could also attract the capital and talents of many of the two million Cuban-Americans resident in the United States. With their separate legal issues and emotional charges, and the vastness of their numbers, the property claims of Cuban-Americans will require their own treatment (more on this in a subsequent paper). But the settlement of U.S. property claims might include a general framework for the future consideration of issues of concern to Cuban-Americans – with the overarching goal being reconciliation of the diaspora with the homeland.

The settlement of U.S. claims could be wrapped in a package of economic opportunities for Cuba. Importantly, the United States could further relax its economic sanctions (amending or repealing Helms-Burton), providing more trade and investment opportunities – and the capacity for Cuba to earn the foreign exchange needed to service debt obligations. In turn, Cuba will have to accelerate and deepen its economic reforms, to offer a more attractive business environment for investors and exporters. Politically, the Cuban government could present a significant softening of the U.S. embargo as a victory, offsetting any concessions made in the claims negotiations. A comprehensive package might also be more attractive to the U.S. Congress; formal Congressional consent would enhance the measures’ legitimacy and durability and help to close off any court challenges, should some claimants be unsatisfied with the final settlement. It is time for Cuba to enter the international financial institutions and the United States should no longer stand in the way. The IFIs can play a vital role, in providing capital and connections to the global marketplace. The IMF and World Bank are also deep repository of knowledge on transitions from central planning to more market-driven economic systems.

The claims settlement agreement between the United States and Hungary contained an annex where it was agreed, inter alia, that the Hungarian Government intended to settle outstanding dollar bonds through direct talks with bondholders; and that the United States would seek authority from its legislature to accord Most-Favored Nation (MFN) treatment to Hungary, subject to separate negotiations.

75 In a grand bargain, the United States could offer to work with Cuba and other creditors to renegotiate Cuba’s outstanding official (Paris Club) and commercial (London Club) debts on terms that take into account Cuba’s capacity to pay.76 The U.S. government continues to carry on its books $36.3 million of Cuban obligations to the U.S. Export-Import Bank (Ex-Im Bank), which could be addressed within the Paris Club framework.77 The United States could also agree to reconsider remaining trade and investment restrictions.

At this stage, it would be too much to expect agreement on a detailed development strategy for Cuba. But a process could be put in place whereby Cuba would work with its many international partners, including the United States, to forge a twenty-first century development model that preserves the social gains of the revolution but that also raises labor productivity and living standards.

Under President Raúl Castro, Cuba has initiated economic reform and the international community can accompany it by adding its expertise and resources. It would not be too much for the claims ettlement talks, if they agree on a two-tiered strategy, to include a discussion of the business climate, and what additional steps Cuba needs to take to attract badly needed foreign investment. As strict socialist property relations are gradually replaced by a more hybrid economic system, Cuba will need to design and  implement new property regimes that promote individual initiative but that also encompass land-use, housing, natural resources and other regulatory oversight protective of the public interest and consistent with sustainable and equitable growth.

The strategic goals in a massive claims resolution process must be political: to heal the deep wounds of past conflicts, to lay foundations for peaceful coexistence and the non-violent resolution of disputes, to avoid jeopardizing fiscal balances and crippling debt burdens, to build investor confidence and  international reputation, and to help render the Cuban economy more open and competitive. These vital goals will not always be fully convergent with the more traditional, legal objective focused narrowly on the rights of property claimants. In designing and implementing solutions, as claimants bang on doors and demand attention, policy makers should not lose sight of their overriding purposes. In the interests of both Cuba and the United States, the twentieth-century trauma of massive property seizures should be transformed into a twenty-first century economic development opportunity.

 zzzzzRichard-Feinberg

Richard Feinberg is a nonresident senior fellow with the Latin America Initiative at the Brookings Institution. He is a professor of international political economy at the School of Global Policy and Strategy, University of California, San Diego. His four decades of engagement with inter-American relations spans government service (in the White House, Department of State, and U.S. Treasury), numerous Washington, D.C.-based public policy institutes, the Peace Corps (Chile), and now in academia. He is also the book reviewer for the Western Hemisphere section of Foreign Affairs magazine.

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FINANCIAL TIMES SPECIAL REPORT ON CUBA, June 16, 2015

Financial Times, June 16, 2015

Document here: Financial Times SPECIAL REPORT on CUBA June 16 2015

Authors:

John Paul Rathbone, Latin America Editor; Geoff Dyer, US diplomatic correspondent; Richard Feinberg, Professor, UCLA San Diego; Marc Frank, Journalist based in Cuba; Cardiff Garcia, FT Alphaville reporter

obama-castroTHAW IN US RELATIONS RAISES EXPECTATIONS; Tentative signs of openness heighten hopes, but is the island ready to do business?

NEW CONNECTION DIVIDES OPINION; President Obama’s overtures play better than expected at home — although not with everyone

STRAITS DEALING BRIDGES MANY GAPS; Retailers in Florida cash in on items needed by customers across the water

GLIMMERS OF GLASNOST BEGIN TO WARM ISLAND; Government retains a firm grip, but there are signs it is loosening a little

NEW PORT ZONE HARBOURS BIG AMBITIONS; A would-be capitalist enclave in a socialist state, the Mariel project is emblematic of change

STATE EXPERIMENTS WITH CO-OPERATIVE THINKING; From garages and restaurants to dealers in exotic birds, co-ops are expanding

CUBA’S NASCENT KNOWLEGE ECONOMY; The island could capitalise on a wealth of expertise in science

US COMPANIES STILL FACE INVESTMENT HURDLES; Bureaucracy, eroded infrastructure and regulatory risk are among hurdles

GOVERNMENT LIKELY TO END TO DUAL CURRENCY; Change would be part of reforms to remove price distortins

COMPENSATION IS KEY TO FUTURE RELATIONS; What now for legal claims by those who lost property in the revolution?

OPINION: WHAT CUBA CAN LEARN FROM VIETNAM; The island has the resources and location to create a balanced economy

 There is a new entry among Cuba’s roll of important dates. Alongside Fidel Castro’s 26th of July movement and the January 1 1959 “triumph of the revolution”, there is now December 17 2014. That was the day when Barack Obama and Raúl Castro, the US and Cuban presidents, announced that they wanted to normalise bilateral relations and end more than 50 years of cold war enmity.

 To be sure, communist Cuba was already changing. After formally becoming president in 2008, Mr Castro began a tentative economic liberalisation process to boost the country’s flagging economy — especially urgent now that Venezuela’s growing crisis jeopardises the $1.5bn of aid it sends every year. But the December 17 announcement lit a bonfire of expectations among US businesses — even if Cuba’s $80bn economy, for all its exotic allure, is much the same size as the Dominican Republic’s. “There is a new sense of excitement, of US companies coming to look and thinking of starting seed businesses,” says one long-established European investor in Havana. “It makes sense. Start small, learn how the system works and then see how it all goes.”

 So, how might it all go? Continue reading:  Financial Times SPECIAL REPORT on CUBA June 16 2015

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Brookings Institution: CUBA’S ECONOMIC CHANGE IN COMPARATIVE PERSPECTIVE

Edited by RICHARD E. FEINBERG AND TED PICCONE

Full Document Here: Brookings, 2014:  Cuba’s Economic Change

                         TABLE OF CONTENTS

 Introduction and Overview    Richard Feinberg

Policies for Economic Growth: Cuba’s New Era,  Juan Triana Cordovi and Ricardo Torres Pérez

Economic Transformations and Institutional Changes in Cuba. Antonio F. Romero Gómez

Institutional Changes of Cuba’s Economic-Social Reforms: State and Market Roles, Progress, Hurdles, Comparisons, Monitoring and Effect. Carmelo Mesa-Lago

Economic Growth and Restructuring through Trade and FDI: Costa Rican Experiences of Interest to Cuba, Alberto Trejos

Monetary Reform in Cuba Leading up to 2016: Between Gradualism and the “Big Bang” Pavel Vidal Alejandro and Omar Everleny Pérez Villanueva

Exchange Rate Unification: The Cuban Case. Augusto de la Torre and Alain Ize

New Picture (2)

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REACTIONS TO DECEMBER 2014 US-CUBA STEPS TOWARDS RAPPROCHEMENT: Farber, Feinberg and Piccone

SAMUEL FARBER, “THE ALTERNATIVE IN CUBA

Jacobin, December 22, 2014

 Original Article Here: The resumption of US – Cuban relations is a real victory. But Cuban workers face renewed economic liberalization with little political opening.

…………

Conclusion

Independently of the considerations that led the governments of Cuba and the United States to reach this agreement, it is a major gain for the Cuban people.

First, because it acknowledges that the imperial power of the US was not able to coerce the imposition of its socio-economic and political system, handing a victory for the principle of national self-determination. It is up to Cubans and Cubans alone to decide the destiny of their country. Second, because in practical terms, it can improve the standard of living of Cubans and help to liberalize, although not necessarily democratize, the conditions of their political oppression and economic exploitation, making it easier to organize and act to defend their interests in an autonomous fashion against both the state and the new capitalists.

This has been the case of China, where thousands of protests occur every year to protect the standard of living and rights of the mass of the population in spite of the persistence of the one-party state.

Contrary to what many liberals thought right after the Cuban Revolution, the issue was never whether the end of the blockade would lead the Castro brothers to become more democratic. That possibility was never and is not in the cards, except for those who believe that the establishment of Cuban Communism was merely a reaction to American imperialism instead of what Che Guevara admitted was half the outcome of imperialist constraint and half the outcome of the Cuban leaders choice.

What is real is the likelihood that the end of the blockade will undermine the support for the Castro government thereby facilitating the resistance and political formulation of alternatives to its rule.

That Cuba will be free from the grasp of US imperialism even if the economic blockade comes to an end is not likely. The more “normal” imperialist power broadly experienced in the Global South will replace the more coercive and criminal one of the blockade era, especially if a successful alliance develops between American capital and the native state capitalists of the emerging Sino-Vietnamese model, as it happened in China and Vietnam. Even at the purely political level, there are many conflicts that are clearly foreseeable, like, for example, one that was left unmentioned in the Obama-Castro agreement involving the return of revolutionary exiles, such as Assata Shakur, to prison in the United States.

With the passing of the historic generation of revolutionary leaders within the next decade, a new political landscape will emerge where left-wing opposition political action may resurface and give strength to the nascent critical left in Cuba. Some may argue that since socialism of a democratic and revolutionary orientation is not likely to be on the immediate agenda, there is no point to put forward such a perspective. But it is this political vision advocating for the democratic self-management of Cuban society that can shape a compelling resistance to the economic liberalization that is likely to come to the island.

By invoking solidarity with the most vulnerable, and calling for class, racial and gender equality, a movement can build unity against both the old and the emerging oppression.

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Richard Feinberg,DIPLOMATIC SHOCK AND AWE: OBAMA ELATES CUBANS,

|Brookings, December 22, 2014 9:00am

Original Here: Diplomatic Shock and Awe: Obama Elates Cubans

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Focusing on Next Steps

The U.S. bureaucracy is now under pressure to transform Obama’s promises into deeds. The upcoming April Summit of the Americas in Panama sets a deadline for issuing the new regulations liberalizing travel and commerce. In a speech before the National Assembly on December 20, Castro announced that he would personally attend the Summit, where he would “express our positions with respect for all of the other heads of state.” So the Panama conclave will bring Obama and Castro face-to-face. They will want to be able to report real progress in warming relations and in improving the economic prospects of ordinary Cubans.

Already there is speculation that the Panama Summit will witness a second round of initiatives, fed by Obama’s pledge to discuss with Congress a formal and full lifting of economic sanctions.

Both governments have raised hopes. But the Cuban government, accustomed to operating in deep secrecy, will have to learn how to manage popular expectations in a more relaxed international environment—where the United States can no longer be blamed for its own economic mistakes. And if promises are kept, Cuba will finally enter a post-Cold War era where informed citizens have ready access to the Internet and a world of information.

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Ted Piccone ON CUBA, OBAMA GOES LONG AND CASTRO HOLDS ON”

Brookings, December 22, 2014 9:51am

Original Article Here: On Cuba, Obama and Castro

Introduction

It’s hard to overstate the sense of relief and joy that was felt in both Washington and Havana as Presidents Barack Obama and Raúl Castro simultaneously announced a breakthrough in their two countries’ long-running hostilities. There was, of course, much anger and hand-wringing as well and a host of questions about what happens next. But it’s worth taking a moment to understand how both sides got to this point and why it portends a major shift in U.S. foreign policy and potentially, in Cuban society.

………………….

.Conclusion

The head-snapping confluence of events on December 17—the simultaneous presidential announcements and returning flights home of prized Americans and Cubans; the holiday season celebration of loss and redemption and hope in the Jewish, Catholic and Afro-Cuban traditions; and the powerful language employed by President Obama in particular—make this a watershed moment in U.S. foreign policy. It marks the beginning of the end of five decades of hostility between two proud neighbors with distinct systems of governance. It symbolizes the end of the Cold War just as tremors of a new cold war between Washington and Moscow are growing. It signifies a reset in U.S.-Latin American relations on the eve of an unprecedented summit meeting of all the region’s leaders. It recognizes the failure of comprehensive punitive sanctions against a general population in favor of targeted sanctions for specific transgressions, as recently adopted in the case of Venezuela. It underscores that democratic change cannot be imposed by external coercion but only by supporting indigenous citizen movements willing to take the difficult and brave steps to demand it themselves. It declares the end of the strangle-hold of a minority faction of Cuban-American hardliners on an important foreign policy issue that affects all Americans. And most importantly, it restores hope on both sides of the Florida straits that change will continue, as it must, to improve the livelihoods and rights of millions of citizens in both countries. It was the big enchilada.

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Havana Bars: The Next Wave of Private Innovation

By Richard Feinberg

Cuba Standard, May 7, 2014

Original Here: Cuba Standard

 Among investors focused on Cuban markets, private bars and clubs are the new big thing. Within the last 18 months, enterprising Cuban investors have spiced up an already vibrating Havana night life by opening a variety of chic watering holes.

By all accounts, many investors are achieving their primary goal: rapid returns on risk capital.

And middle-class Cubans — not just tourists and expats — are enjoying the widening diversity of options for evening destinations.

 

Stiff competition, narrow market

For the emerging private sector — promoted by Raúl Castro since he took over from his ailing brother Fidel in 2008 — the previous big story was the paladares, privately run restaurants generally located within family homes. But so many enterprising Cubans seized the opportunity to earn gastronomic profits that the restaurant market quickly turned terribly competitive.

Many fine-dining paladares cater primarily to well-heeled tourists, charging prices that are moderate by international standards but far out of the reach of nearly all Cubans. Most Cubans working for the state receive the miserable wage of $20 per month — roughly the cost of a single paladar meal.

Facing this dual challenge of stiff competition in the restaurant space and the narrow tourism market, innovative Cuban entrepreneurs seized upon nocturnal entertainment as an exciting solution. Havana is not without bars, often featuring Buena Vista Social Club–style bands in Havana Vieja that appeal to middle-age tourists — but not to hip young Cubans or international travelers looking for the latest music video or mixed cocktail creations.

The newly launched bars/clubs feature flat-screen TVs with contemporary sounds. Dancing begins around 10 pm and whirls well into the early morning hours. Some of the bar-hopping crowd may be exiting the paladares, in search of the after-hours fun for which Havana is so famous — but with a contemporary beat.

Significantly, the new upscale bars are also attracting Cubans – by keeping their prices within the range of what could be labeled the Cuban middle or upper-middle classes.

Entrance or cover charges are minimal and local beers sell for the equivalent of $2, tapas for just $2 – $6, heavier fare for $6 -15. These prices still lock out most Cubans, but are within the range of perhaps five percent of the 2 million Habaneros. (Alas, the Cuban government does not publish statistics on income distribution.)

Even if a Cuban couple limits their consumption to two beers each and a few snacks, how can they afford an evening on the town? Where do they find the $20 — the equivalent of a full month’s state salary? The sources of this middle-class purchasing power: profits from their own thriving private businesses, wages and tips earned in the tourist trade, bonuses granted by joint ventures, or remittances sent by generous family and friends living abroad. Cubans who served overseas — as diplomats, military attachés, or medical personnel — can accumulate savings. And privileged offspring of senior government officials are known to enjoy free beverages and bites.

As recently noted by AP correspondent Peter Orsi, the elites of the remarkably large and talented Cuban creative class — painters, dancers, musicians, film makers — also earn a good living; the farándula — the inbreed creative classes — congregate at Café Madrigal, Privé, and Espacios.

In Havana these days, trendy bars are not the only visible indicators of Cuba’s prosperous upper-middle classes and their lucky, beautiful children. Expensive daycare centers and domestic housekeepers, 21st century cars with private license plates replacing the iconic but decrepit 1950s Chevrolets, and expensive cell phones with e-mail service — all signal the emergence of new money.

At the new nocturnal watering holes, successful Cubans mingle comfortably with foreigners: the resident expatriate community of diplomats and business executives as well as tourists — mostly Europeans and Canadians, but also increasingly Americans, permitted to travel legally to Cuba under people-to-people educational programs licensed by the Obama administration.

 

The places

Two of the hottest Havana bars, Sangri-La and Up-and-Down (their ownership overlaps), are so packed on weekends that their overcrowded dance floors challenge even the most fluid salsa dancers. Intimate but very lively, Up-and-Down exploits the increasing stratification of Cuban society by differentiating the entry fee for the upstairs VIP lounges: a minimum of $20 consumption per person, priced for foreigners and a thin slice of the best-heeled Cubans. The bartender at Up-and-Down is rightly famous for his designer tropical drinks laced with plentiful pours.

 A combination restaurant and terraza bar, El Cocinero is a dramatic conversion of an old cooking oil factory into a two-floor industrial entertainment space. The plush first floor dining décor is dominated by a large black-and-white minimalist painting, while the al fresco upstairs features comfortable butterfly lounge chairs and a neon-lite bar. Typically, the denim-clad waitresses are youthful and attractive, and frequently with university degrees in their back pockets.

 

Product placement

A theatrical production of a Cuban-authored drama currently running in Havana, Rascacielos (Skyscrapers), is co-sponsored by the embassies of Spain and The Netherlands — and by El Cocinero and StarBien, a plush paladar (co-owned and managed by the gracious son of the minister of the interior). The commercial sponsorships earned product placements — explicit mentions in the text of the play — one dramatic signal of the growing weight and self-confidence of the emerging private sector.

Other trendy Havana dispensaries of alcohol and nocturnal diversion include Fábrica de Arte (featuring avantgarde paintings), Capricho (tasty tapas, serene ambiance), Escencia Havana (pre-revolution nostalgia in an 1880 villa), O’Reilly 304 (in Old Havana, superb vegetarian soup with three varieties of chili peppers), Toke (a mostly gay clientele, next to the Cabaret Las Vegas), and two new dimly lit dance clubs catering to a younger crowd, Melén and Las Piedras.

 zEl Cocinero upstairs; Photos by Richard Feinberg

 In many of Havana’s new bars, the décor and the crowd are sophisticated and universal: Their Miami equivalents have similar vibes, albeit with more bling and, as one Cuban male observed, more silicon. Island-bound Cubans have less jewelry to flaunt, and may sense that the Communist government, while more permissive today than during the decades of Fidel Castro’s austere rule, would still look askance at ostentatious displays of new wealth.

 

Small investment, quick return

Chats with owners and managers of these after-hour establishments suggest initial capital investments of roughly $30,000 – $70,000 (small by international standards). No entrepreneur reported commercial bank backing, which is scarce in Cuba. Rather, funds come from savings of family and friends, and in some cases money transfers from abroad – as donations, loans, or informal equity arrangements. Working within an uncertain business climate, these newly minted Cuban entrepreneurs often seek to recoup their capital in 12-24 months, a potentially feasible goal due to low costs of labor, rent, and utilities, and often interest-free financing.

zzPaul Sosa at his bar

The award for the most economical opening goes to Mamainé (as in the popular Cuban song, Mamainé, Mamainé, todos los negros tomamos café), a comfortable coffee and cocktail bar constructed by environmentalist and artist Paul Sosa using recycled woods and iron work. Spending less than $5,000 to fashion the 36-seat establishment within his parents’ home, Paul attracts both tourists and locals with strong $1 espresso coffees and $2 made-to-order mojitos.

 State-owned beer garden

Not to be outdone by the dynamic private sector, Cuban state companies have recently opened two large bars. Sloppy Joe’s, a revival of a pre-revolutionary saloon with a legendary 59-foot mahogany bar, once again caters mostly to tourists. More original, the government gloriously transformed an old timber and tobacco warehouse on Havana Bay into a large beer garden. The affordable prices and spectacular brightly painted murals attract Cuban families as well as foreigners. On one Sunday afternoon, the author viewed more than one Cuban child watching his parents enjoy the Austrian-made tall tubes of chilled beer.

 zzzOld warehouse, new beer garden

Cuban capitalists not only must confront uneven competition from state-run firms, but also face regulatory uncertainty: bars are still not an officially sanctioned category of business, so their owners must register them as restaurants — making them vulnerable to government inspectors. Not surprisingly, in this high-risk business climate, investors seek a quick return on capital. But short of an abrupt shift in government policy, it is a safe bet that bold entrepreneurs will continue to provide Havana’s after-hours revelers with new and exciting entertainment options.

 

Richard E. Feinberg, professor of international economy at the University of California, San Diego, writes about and travels frequently to Cuba. Three of his recent publications on the Cuban economy, including Safe Landing for Cuba?, can be found at www.brookings.edu

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Richard Feinberg: “Cuba’s New Investment Law: Open for Business?”

Richard Feinberg, April 1, 2014 1:30pm

We are still awaiting the publication of Cuba’s new foreign investment law, passed by the National Assembly on Saturday March 29 2014. In the meantime, here is a brief outline and discussion from Richard Feinberg in a Brookings Blog.

Original here: Cuba’s New Investment Law

 Dateline Havana: The Cuban legislature has approved a new foreign direct investment law (FDI), and the detailed follow-on regulations will be issued within the next 90 days. From my informal conversations in Havana, Cubans on the street seem to accept with enthusiasm the government’s dual message: that the new guidelines will not compromise Cuban sovereignty – a key gain of the 1959 revolution – but will encourage badly needed inflows of foreign capital and technology.

In a shift from past practices, government messaging has emphasized the importance of foreign investment worldwide, with the Communist Party daily, Granma (March 31, 2014), quoting a government commission declaring that “no country today has successfully developed without foreign investment as a component of its political economy.” President Raúl Castro asserted that “we must take into account the absolute necessity to stimulate and attract foreign investment, to add dynamism to our economic and social development.”

Experienced commentators have noted, however, that many of the more positive paragraphs in the new law could also be found in the previous 1995 FDI regulations, which were outweighed by more restrictive clauses and by a recalcitrant bureaucracy that in recent years has approved very few major new foreign ventures.

Several of the more promising sections of the new law echo recommendations in the 2012 Brookings monograph, The New Cuban Economy: What Roles for Foreign Investment?:

·         A strong official recognition that FDI must be integral to Cuba’s development strategy, if the country is to depart from its sluggish economic path.

·         Majority foreign ownership is an option (although this was also the case, if ignored in practice, under the 1995 regime).

·         The project approval process should be streamlined and made more transparent.

·         Firms should have more flexibility with regard to wage scales, such that remuneration can be a stimulus to productivity. In addition, the much anticipated currency unification will likely reduce the extraordinarily heavy tax on wages paid by foreign investors.

Other noteworthy aspects of the new law include reductions in certain taxes, and the promise of just compensation in the event of expropriation. But some existing obstacles to investment appear not to have been adequately addressed. For example, the new law continues to press investors on local content requirements, even as it also notes the importance of firm integration into global value chains.

The proof will be in the pudding, and investors will be watching closing for the fine print in the new regulations and, most importantly, for the implementation of the approval process. The new law recognizes that Cuba badly needs foreign investment in many sectors of its economy, including but not limited to agriculture and sugar, energy, bio-technology, construction, and tourism. Will the government establish an investment climate that attracts foreign investments, and a truly transparent bureaucratic process that vets proposals in a prompt timeframe competitive with international standards?

U.S.-based businesses, of course, will not be able to take advantage of any new investment opportunities, as a result of long-standing and comprehensive commercial sanctions. Other foreign businesses, however, are likely to get a head start soon

 Cuba Canada

Former Sherritt International CEO, Ian Delaney and Raul Castro, Captivated!

melia-cohiba-aerial-view-98The Melia Cohiba Hotel, Havana

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Soft Landing in Cuba? Emerging Entrepreneurs and Middle Classes

By: Richard Feinberg

An excellent and fascinating examination of Cuba’s emerging private sector by Richard Feinberg was published in November by the Brookings Institution and is available at the Brookings Web Site here: Feinberg Study.

The complete  document is available here: Soft landing iin Cuba: Emerging Entrepreneurs.

Table of Contents:

New Picture (8)

From the Brookings Site:

A dynamic, independent private sector is rapidly emerging in Cuba, despite the dominance of the state-run socialist system. The private sector is quickly absorbing workers laid off from the state, enlarging its growing middle classes and defining a new Cuba. The old narrative — that Fidel and Raul Castro had to pass from the scene before real change could occur — has been discredited by these current trends.

More and more Cubans are opening bed and breakfasts, cafes and snack bars, small shops and markets, and offering services in areas such as construction and technology. But challenges in accessing capital, along with burdensome taxation, often prevent some of these operations from growing into larger firms.

It remains to be seen whether the powerful Cuba state is prepared to allow these businesses to expand and partner with state entities, creating a hybrid market socialist economy that can accelerate growth into a legitimate boom.

In Soft Landing for Cuba? Emerging Entrepreneurs and Middle Classes, Richard Feinberg provides:

• History of emerging private enterprise in Cuba

• Case studies of the challenges entrepreneurs face in launching and expanding their operations

• Recommendations on what the Cuban – and U.S. – governments can do to can cultivate a more inclusive economy, bringing prosperity to the wider population.

New Picture (7)Richard FeinbergRichard Feinberg

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Richard Feinberg: The New Cuban Economy What Roles for Foreign Investment?

A new study by Richard Feinberg on direct foreign investment in the Cuban context has just been published by the Brookings Institution.  This is the best recent study on the topic and is well worth a read. The Introduction and the recommendations that are relevant for the Cuban Government are presented below.

The complete report is located here:  Feinberg, The New Cuban Economy, What Role for Foreign Investment 2012

1. Introduction

The Cuban revolution defined itself in large measure in terms of what it was not: not a dependency of the United States; not a dominion governed by global corporations; not a liberal, market-driven economy. As the guerrilla army made its triumphal entry into Havana and the infant revolution shifted leftward, a hallmark of its anti-imperialist ethos became the loudly proclaimed nationalizations of the U.S.-based firms that had controlled many key sectors of the Cuban economy, including hotels and gambling casinos, public utilities, oil refineries, and the rich sugar mills. In the strategic conflict with the United States, the “historic enemy,” the revolution consolidated its power through the excision of the U.S. economic presence.

For revolutionary Cuba, foreign investment has been about more than dollars and cents. It’s about cultural identity and national sovereignty. It’s also about a model of socialist planning, a hybrid of Marxist-Leninism and Fidelismo, which has jealously guarded its domination over all aspects of the economy. During its five decades of rule, the regime’s political and social goals always dominated economic policy; security of the revolution trumped productivity.

Fidel Castro’s brand of anti-capitalism included a strong dose of anti-globalization. For many years, El Comandante en Jefe hosted a large international conference on globalization where he would lecture thousands of delegates with his denunciations of the many evils of multinational firms that spread brutal exploitation and dehumanizing inequality around the world. Not surprisingly, Cuba has received  remarkably small inflows of foreign investment, even taking into account the size of its economy. In the 21st century, the globe is awash in trans-border investments by corporations, large and small. Many developing countries, other than those damaged by severe civil conflicts, receive shares that significantly bolster their growth prospects.

The expansion of foreign direct investment (FDI) into developing countries is one of the great stories of recent decades, rising from $14 billion in 1985 to $617 billion in 2010.1 While FDI2 cannot substitute for domestic savings and investment, it can add significantly to domestic efforts and significantly speed growth.

Today’s ailing Cuban economy, whose 11.2 million people yield the modest GNP reported officially at $64 billion3 (and possibly much less at realistic exchange rates), badly need additional external cooperation— notwithstanding heavily-subsidized oil imports from Venezuela. As with any economy, domestic choices made at home and by Cubans will largely determine the country’s fate. Yet, as Cubans have been well aware since the arrival of Christopher Columbus, the encroaching international economy matters greatly; it can be a source of not only harsh punishments but also great benefits.

In the Brookings Institution monograph Reaching Out: Cuba’s New Economy and the International Response, I explored the modest contributions already being made by certain bilateral and regional cooperation agencies and the larger potential benefits awaiting Cuba if it joins the core global and regional financial institutions—namely the International Monetary Fund, the World Bank, the Inter- American Development Bank, and the Andean Development Corporation.

This sequel explores the contributions that private foreign investments have been making, and could make on a much greater scale, to propel Cuba onto a more prosperous and sustainable growth path.

Sol Melia Havana

6. Policy Recommendations

It is time for Cuba to extract its rightful share of benefits from participating actively in the global economy. But the Cuban economy has a long way to go before most foreign investors would be willing to take significant risks on the island. Most importantly, Cuba needs to overcome its animosities and fears and reach a national  consensus that, as a small island economy, its economic future depends upon a healthy engagement with the international economy. As many other proud nations have discovered, it is possible to accept FDI without sacrificing national sovereignty and governance capacity. On the contrary, FDI can provide resources—including investment capital and fiscal revenues—that enhance national choices.

If Cuba had allowed FDI inflows equal to 5 percent of its GDP during the last decade, or roughly $2.5 billion a year, Cuba would have supplemented its domestic savings by some $25 billion.  This would have enhanced its ability to recapitalize its productive base while preserving and upgrading the quality of its social services. The Cuban government should send clear signals—including to its own bureaucrats—that it has moved beyond ambiguity and distrust toward a reasoned appreciation of the benefits that foreign investment can bring to a small island economy.

To begin to gradually improve the investment climate, Cuba could:

Complement the 2011 reform guidelines with a coherent national competitiveness strategy that announces a prominent role for foreign investment. In designing this forward-looking strategy, the government should consult with existing joint venture executives.

Completely overhaul the investment approval process, making it more transparent and much faster, as promised in the 2011 guidelines. To facilitate rational decision making by both parties, representatives of proposed investments should have ready access to responsible government officials. So that potential investors can better design projects to meet Cuban national priorities, official rulings should be accompanied by robust explanations. Smaller investments should be placed on a fast-track authorization process.

Detail the approval criteria for the new FTZs, with its fiscal incentives, and include a coherent list of priority clusters.

Remove the fixed-time horizon facing investments outside of the FTZs, which promotes myopic behavior and disinvestment as the deadline approaches.

Not exclude multinationals that serve the domestic market simply because they do not readily fit into a national export promotion strategy. Cuban firms cannot replicate the massiveR&D and product innovation pipelines that characterize international giants such as Nestlé or Unilever, and whose outputs Cuban consumers will demand.

Build forcefully on the successful strategy of selling quality Cuban products through established international marketing machines. This can be accomplished, for example, by forging alliances among pharmaceutical giants with global reach to make patented Cuban medical innovations available to consumers worldwide.

Encourage FDI to integrate local firms into their supply chains. An inter-ministerial committee should build an integrated strategy to assist local firms to meet acquisition requirements. Include private businesses and cooperatives in an ambitious trade facilitation strategy that targets small and medium enterprises.

Permit foreign investors to form a business association that would allow them to engage in a constructive dialogue with the government. Encourage investors to adapt corporate responsibility practices that observe Cuban laws and national goals and serve corporate stakeholders, including workers, communities, and consumers.

Sharply reduce the implicit tax on labor, to the benefit of Cuban workers and the competitiveness of exports. Eventually dismantle the dual currency labor payment system altogether.

Recast the anti-corruption campaign to focus on root causes: low wages and nontransparency.This can be done, for example, by shining sunlight on the procurement procedures of government entities and SOEs. Combating corruption in both the public and private spheres is critical to sustainable economic development, but properly structured incentives, not arbitrary prosecutions, are the more sustainable pathway toward ethical business practices.

Publish much more data and analysis on the capital account and on FDI, including impacts on savings and investment, employment and wage levels, supply chain integration, and net export earnings.

Cuba could benefit tremendously from learning from other nations that have successfully extracted benefits from foreign investment. The international financial institutions (IFIs) offer a cost-effective short-cut to assess the applicability of comparative country  experiences. As argued in Reaching Out: Cuba’s New Economy and the International Response, now is the time for the international development community to engage in Cuba and support its incipient economic reform process.

Under their own new guidelines, the international financial institutions are capable of working within Cuban national priorities while they contribute their unique bundles of knowledge and capital.  With regard to FDI, IFIs are particularly well equipped. Furthermore, the presence of the IFIs would add credibility to Cuban investment commitments and to contract enforcement—important ingredients in establishing a more secure investment climate in a changing Cuba.

For these reasons, Cuba should signal to the IFIs its interest in entering a gradual path toward receiving, first technical assistance (studies, training) and eventually full membership.

Sherritt International, Cuba

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Richard Feinberg via Brookings Institution: “Reaching Out: Cuba’s New Economy and the International Response”

FOREIGN POLICY at BROOKINGS

The full document can be found here:Richard E. Feinberg, Cuba’s New Economy and the International Response, Brookings, November 2011

“Reaching Out: Cuba’s New Economy and the International Response,” a new report by Brookings Nonresident Senior Fellow Richard Feinberg, urges the international development community to reach out to Cuba to promote its economic renewal. The report offers a detailed pathway for a gradual, systematic rapprochement between Cuba and the international financial institutions (International Monetary Fund, World Bank,
and Inter-American Development Bank). In the first such survey, it also provides an overview of the existing foreign assistance programs sponsored by capitalist nations in Cuba.

The study further analyzes the reform process occurring in Cuba today and describes Cuba’s strategy of engaging with the dynamic emerging market economies, largely
overlooked by U.S. analysts. The report finds that since the dissolution of the Soviet Union, Cuba has reached out to Europe and Canada, and most dramatically and successfully to the emerging market economies of China, Brazil, and Venezuela. Far from isolated by U.S. sanctions, the Cuban economy has become deeply integrated into global trading and investment markets.

Feinberg asserts that the international financial institutions (IFIs) house a wealth of accumulated knowledge and financial resources that fit well with the needs of a
reform-minded Cuba seeking greater economic efficiency and competitiveness. As
evident in their successful relations with Vietnam and Nicaragua, the IFIs –
having reformed their own terms of engagement – can perform effectively in
proud, strong states allergic to external interference. The study reviews the foreign assistance programs of donors such as the European Union, Spain, and Canada and concludes that development cooperation can achieve results in Cuba, improve the lives of beneficiaries, empower independent small producers, and promote decentralized decision-making to local communities.

Based on these research findings, Feinberg offers these specific policy recommendations:

· The international development community should support Cuba’s incipient economic reform process and bolster the struggling reformist factions within Cuba.

· The U.S. government should recognize that in Cuba today the opportunity is in economic reform, legitimized by the regime and openly debated by the Cuban public. Promoting economic reform is the most realistic option for advancing political pluralism in Cuba.

· The IFIs should complete their historical goal of full universality and bring Cuba in from the cold. The gradual warming of IFI-Cuba relations should begin with the provision of policy advice and technical training – prior to full membership.

· The US should not stand in the way of Cuba’s gradual re-admission to the IMF/World Bank. There is no better way to encourage progressive market-oriented reforms in Cuba.

According to Feinberg, the U.S. and international community can do more to help strengthen reform factions on the island. Feinberg concludes that inside Cuba, the forces of progressive change and the forces of bureaucratic inertia and resistance are locked in a fierce struggle. The United States should join with the international development community to bolster Cuba’s forces in favor of forward-looking economic reform.

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