Tag Archives: Foreign Investment

Cuban sugar harvest falters; foreign investment sought

Posted on March 5, 2014 by Arch Ritter

  By Marc Frank

Original here:  Cuban Sugar Harvest, 2014   

HAVANA, March 4 (Reuters) – For the third consecutive year Cuba’s reorganized sugar industry is failing to perform up to expectations, increasing pressure on the government to open up the once proud sector to foreign investment.

Already one mill, the first since the industry was nationalized soon after the 1959 revolution, is under foreign management, with at least seven others on the auction block.

AZCUBA, the state-run holding company that replaced the Sugar Ministry three years ago, announced plans to produce 1.8 million tonnes of raw sugar this season, 18 percent more than last season’s 1.6 million tonnes. But the harvest is 20 percent behind schedule, sugar reporter Juan Varela Perez wrote recently in Granma, the Communist Party daily.

“Continuous and heavy rainfall in almost all provinces of the country has affected the harvest since January,” state-run Radio Rebelde said late last week, reporting on a meeting of AZCUBA executives at the end of February. “To this has been added the habitual problems of inputs arriving late, disorganization and the poor quality and slowness of repairs,” the report said.

Sugar was once Cuba’s leading export, both before the revolution and afterward, when the former Soviet Union bought Cuban sugar at guaranteed prices. Today it is Cuba’s seventh largest earner of foreign currency, behind services, remittances, tourism, nickel, pharmaceuticals, and cigars.

“These days it is a true odyssey to go through a harvest. The mills need more profound repairs, but that costs millions upon millions of dollars,” Manuel Osorio, a mill worker in eastern Granma province, said in a telephone interview on Tuesday. “So they do some superficial repairs and start grinding and immediately the problems begin and this year to top it off it is hot and raining almost every day. The cane needs cool and dry weather to mature. If not, it is like milling weeds.”

The sugar harvest begins in December with the “winter” season and runs into May, with January through March the key months as dry and cool weather increases yields, but not this year.

“I can’t remember a wetter winter and it is almost impossible to harvest,” sugarcane cutter Arnaldo Hernandez said in a telephone interview from eastern Holguin province.

Cuban sugar plantations lack adequate drainage, making harvesting by machine difficult when it rains, and humid weather retards the production of sugar in cane.

“Going into the plantations is a heroic task, and when the cane reaches the mills it yields little sugar,” Hernandez said. “Look, even the Guaraperas (sugarcane juice) they sell in the city is like water. I know because I tried some myself yesterday.”

Rainfall was twice the average for the month in key eastern and central provinces through most of February, according to official media.

“So far this year 115.2 millimeters (4.5 inches) of rain has fallen in (the eastern province of) Las Tunas, twice the historic average,” the National Information Agency reported in late February. The agency said the harvest in Las Tunas was 35,000 tonnes of raw sugar behind schedule to date toward a plan of 194,000 tonnes through May.

A similar situation was reported in central Villa Clara, where the goal is 218,000 tonnes, and in central Camaguey, which reported production to date was 13 percent, or 11,000 tonnes, below plan.

INVESTMENT OPENING

Cuba produced just 1.2 million tonnes of raw sugar three seasons ago when AZCUBA was formed, compared with 8 million tonnes in the early 1990s, before the demise of the Soviet Union led to the industry’s near collapse. Industry plans call for an annual average increase in output of 15 percent through 2016, though over the last three harvests the increase has been 12 percent, according to AZCUBA. The poor performance so far this year may accelerate AZCUBA’s plans to open the sector to private investment.

President Raul Castro, who assumed power from his ailing brother Fidel Castro in 2008, is trying to revive the country’s economy through reforms passed by the Communist Party in 2011. The plans include more foreign investment.

This year, the Cuban Chamber of Commerce listed seven more sugar mills as candidates for foreign investment, all of which were built after the revolution and are therefore not subject to claims by previous owners. The remaining 48 mills in the country were all built more than 60 years ago.

This month the Cuban National Assembly is expected to pass a new foreign investment law that makes the island, and agriculture, more investor friendly.

Odebrecht SA, a Brazilian corporation, began administering a mill in central Cienfuegos province this year, the first foreign company allowed into the industry since 1959. Odebrecht subsidiary, Compañía de Obras en Infraestructura, plans to upgrade the mill as well as the supporting farm and transport sectors, and has expressed an interest in other mills, as have a number of other foreign companies. Its 13-year contract calls for an investment of around $140 million to increase output to more than 120,000 tonnes of raw sugar from 40,000 tonnes.

Cuba consumes between 600,000 and 700,000 tonnes of sugar a year and has an agreement to sell China 400,000 tonnes annually, with what remains sold to other countries.

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Mechanized Zafra

cimg3076Cane Transport

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An Aerial View of what was Left of the Australia Sugar Mill, 2011

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The Changing Slogans of Cuba’s Leadership

Posted on December 18, 2013 by Arch Ritter

pedro_campos1December 17, 2013 |  “Down with Capital, Long Live Capital!” Pedro Campos HAVANA TIMES

Those in Cuba who once bet on the complete expropriation and nationalization of foreign capital today beseech foreign capital to come in their aid, offering investors every imaginable guarantee. The Cuban State economy is in crisis, but not as a result of the imperialist blockade or the collapse of the Soviet Union, as the defenders of “State socialism” often say. The main reasons for the crisis must be looked for in more than fifty years of nearly-absolute state control, in the extreme centralization of decisions regarding how and how much of the billions of rubles received as subsidies from the former Soviet Union and the billions of Cuban pesos and hard currency produced by the working class were spent over this period of time, in the all-encompassing intervention of the State in the economy through domestic and foreign trade monopolies. It is to be found, also, in the State’s almost complete control over the means of production, in the nationalization of international capital, the capital of Cuba’s high and petite bourgeoisie, of free, individual and family workers – recall the “revolutionary offensive” of 1968 – of cooperatives and worker associations. The low salaries of workers, the maintenance of wage labor for the State, the financial imbalances generated by high spending in gigantic State institutions – such as the Armed Forces, State Security, the Party’s political and grassroots apparatuses, propaganda networks entirely subordinated to the State / Party / government, the country’s unwieldy foreign service – and international campaigns aimed at securing support for the government are some of the other causes behind the crisis. All of this could be summed up as the catastrophic result of that series of aberrant, archaic and dogmatic conceptions that Stalinism developed under the banner of Marxism-Leninism. According to the Stalinist logic, a political and military elite is to determine and regulate a society’s laws, economy, way of life and just about everything else in the name of the communist Party, the revolution, socialism and the working class – so-called “real socialism”, whose only real characteristics have been the absence of democracy and the refusal to socialize political and economic power. I have insisted on this elsewhere: unless the economic, political and social failure of this false socialism is acknowledged, the mistakes made will never truly be rectified. Those who defend this unjust system and now unscrupulously try to “update” it mistakenly identify the Cuban revolution with the Cuban government/State/Party that has made and continues to make every absurd mistake, “validating” the claims of right-wingers worldwide regarding the “unviability of socialism” (perhaps the best help global capitalism could hope for). Today, Cuba’s State economy can no longer rely on massive subsidies from the Soviet Union, Venezuela is experiencing a serious economic crisis and cannot continue to provide the aid Chavez offered the island. Likewise, the governments of powerful allies such as Russia, China and Brazil only offer credits that must be repaid. The bureaucratic apparatus of Cuba’s government/Party/State has refused to consider the truly socialist option: it has refused to share the country’s economic power with the people, with Cubans at home and abroad, with the workers. It has refused to allow workers to participate in the administration, management and revenue-collection of State companies and to grant full freedom to the self-employed and cooperatives, instead subjecting these to regulations, experiments and all manner of toing-and-froing. Naturally, workers identify less and less with a State that only caters to the interests of an elitist, bureaucratic caste which continues to determine the country’s laws, investments, estates and the lives of people. Faced with this complex situation, torn apart by its own contradictions and flip-flopping, the Cuban government/State/Party has now decided to contract legal matrimony with international capital, in order to be able to continue exploiting Cuban workers with its aid. The ironies of history! The “revolutionary leadership”, thirsty for foreign capital, today assures us it will not nationalize foreign investments made at El Mariel, the immense commercial project dependent on the end of the US blockade / embargo. The same government that blamed international capital – and US capital in particular – of all the world’s evils, that once boasted of having nationalized (placed under State control, to be more accurate) all foreign properties, today swears blind that it will respect international capital and begs, beseeches its powerful northern neighbor to lift the restrictions that prevent US millionaires from showering Cuba with dollars. They are not concerned about the risk that big, transnational companies – particularly US companies – will take possession of the resources and wealth of the “Pearl of the Antilles”, the “Key to the Gulf”, the “World’s Cruise Ship”, offering foreign investors the sweat of Cuban laborers on a silver platter, in order to share with them the surplus value they can squeeze out of workers together. This is typical of the annexationist stance that Cuba’s new Right – which has taken power in “socialist” Cuba – cannot conceal. We are dealing with the same people whose slogan once was “down with Capital”, those who today yell: “long live Capital!” The traditional Cuban Right based in the United States does not conceal its intentions of restoring capitalism on the island. The new Right offers us a pig in a poke, painting itself a “socialist” red while acquiescing to Yankee capital, allegedly excluding the old, “imperialist” capitalists (no, the new ones are “anti-imperialists”), so that the nouveaux riches and bureau-bourgeoisie, allied to and financially dependent on international capital, can survive the inevitable collapse. This comes as no surprise. Many of us in Cuba’s democratic and socialist left have been saying for many years that the bureaucratic State has only two options: coming to an agreement with the Cuban workers and people or with foreign capital. The second alternative has been the one chosen in all places where “State socialism” was essayed, where the powerful, authoritarian elite re-converted back to capitalism and became a new type of bourgeoisie. We are not against foreign investment. The question is who these investments benefit and what type of economy they are to serve, whether they are aimed at overcoming the economic and financial problems of the bureau-bourgeoisie and Cuba’s new Right or at developing the mid-sized and small companies and cooperatives of a socialist economy. During a fund-raising campaign in Miami, President Barack Obama assured Cuban dissidents he would not negotiate with the Cuban government in what is left of his term in office, while speaking of the need to change the United States’ long-standing foreign policy towards Cuba. The Democrats are already scrambling to secure votes from the Cuban and Hispanic communities, in view of the fact that there is a good chance the Republicans will put forth a Cuban-born senator as presidential candidate in the coming elections. If that were to happen and the Republicans won… Many concerns, questions and disagreements must exist in the high echelons of Cuba’s leadership. What did the US president mean? If there are to be no negotiations, the blockade will not be lifted and American investments will not come. What will they do with the Mariel project, its three million containers and their debt to Brazil? What steps could be taken to ensure the inflow of US capital, without putting their political power at risk? If this US president doesn’t lift the blockade, is that possibility to be discarded by Cuba’s current leaders? If the Republicans were to win the coming elections and a man of Cuban origin were to take office, what would they do? Now, has anyone in Cuba’s distinguished government of generals asked the Cuban people what they want? With every new development, what becomes clearer and clearer is that Cuba needs to democratize society, allow all Cubans to freely express our thoughts and to peacefully and democratically fight for their realization, allow for freedom of expression and association, the free and democratic election of all public officials and full access to the Internet. This process of democratization would allow all Cubans of good will to take part in the building of a democratic future of peace, justice and harmony, with everyone and for everyone’s benefit, regardless of their political views, religion, skin color or sexual orientation. Let’s hope open debate and the interests of the people prevail over the petty interests of extremists. Socialism in defense of life.

 

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Emilio Morales, “JOINT VENTURES ARE THE BIG QUESTION IN UP-DATING THE CUBAN MODEL”

Posted on October 29, 2013 by Arch Ritter

By Emilio Morales and translated by Joseph L. Scarpaci, Miami (The Havana Consulting Group).

Original Article here: The Havana Consulting Group, Joint Ventures

There is a longing in Cuba for the ‘old days’ of the 1990s when there was a successful boom in creating joint-venture companies on the island. Such nostalgia stems from the economic and political crisis in Venezuela, which has lessened the flow of capital from Big-Brother Venezuela.

Joint-venture companies played a key role in helping the Cuban economy recovery in the 1990s when Soviet aid dried up and the so-called Special Period began.

Many of these companies supported the expanding tourist sector and the decriminalization of the U.S. dollar, which became a staple in a dollarized retail market.

This spate of joint ventures sought to develop tourism infrastructure, assist in import substitution, and revive the national economy.

Joint venture companies concentrated mainly in the industrial sector, tourism, food processing, and real estate. Assuming there was a prior agreement with the Cuban counterpart, decisions were usually made by the foreign partner because they had put up the capital and the know-how.

In this stage of the island’s history with joint ventures, foreign companies played a key role training personnel about modern marketing research methods. This was a time when the economic teams of the armed forces launched the so-called ‘business improvement’ (perfeccionamiento empresarial in Spanish) programs.

Upper management teams of these companies learned modern marketing research techniques. Training this echelon of Cuban businessmen and women was a way to ensure loyalty, avoid corruption, and safeguard information.

Some $3 billion drove this surge of joint-venture operations and parallel activities in duty-free zones.

Uncertainty lowers the expectations of reforms.

Around 2002, the number of joint ventures and amount of investment capital began declining. Two years later, the government did an about-face and began centralizing the economy once again which, in turn, caused investment to dry up and erode the economic reforms launched in the 1990s.

As a result, some 200 joint-venture operations folded and investment plummeted. The Cuban government took to prioritizing investments with such friendly nations as Venezuela, China and Brazil to fill this investment void, offering private investors slim pickings.

Investment and joint-venture operations dropped off quickly between 1999 and 2011, except in Venezuela, where they shot up from 13 to 30. Morales

Figure 1. Number of Businesses Operating in Foreign Direct Investment, 1999-2001.

Data source: Ministry of Foreign Investment and Collaboration (1999) and the Ministry of Foreign Trade and Foreign Investment (2001, calculated by The Havana Consulting Group.

Those foreign companies that remained in Cuba during this period had to endure, from 2008 to 2010, diminished or no payments that were owed to them by the island’s government (called the corralito, or little corral). Considerable tension resulted, particularly between the Spanish diplomatic corps that pleaded for payment to some 300 Spanish firms who had operations there.

This acute two-year financial crisis stemmed from the island’s lack of liquidity that not only affected the supply of raw materials in the sectors where these foreign firms operated, but decreased inventory in hard-currency retail chains and in tourism. The Cuban government’s failure to make payments led to a further decline in foreign investment as investors got jittery.

Raúl Castro introduced a series of economic reforms called “updating the Cuban economic model” when he came to power. This entailed trying to insert market mechanisms at all levels of the economy with the socialist planning system. Joint ventures were at the center of these measures so that the economy could receive foreign investment. In all instances, the Cuban government maintains at least 51% control of these companies.

From the start of these reforms until October 2013, the bulk of them have tried to expand the private sector and agriculture. However, the pace of foreign investment has not gone as expected because of corruption charges made against some foreign investors residing on the island, and Cuban business representatives of joint-venture firms.

Cuban authorities have detained or jailed several foreign businessmen and high-ranking Cuban officials (including one minister and several vice ministers and Cuban CEOs. They are charged with corruption, bribery, and related crimes. Some have been sentenced up to 10 years while others were acquitted after having spent more than a year in jail while awaiting trial.

Undoubtedly, this anticorruption has proven unattractive to foreign investors because of the uncertainty and insecurity the matter has created.

Searching for investors.

Despite all this, the Cuban government has created a special zone adjacent to the Mariel port, just west of Havana. The Brazilian government has invested $900 million, which the Cuban government hopes will attract foreign investment and give the economy a second chance.

By the looks of things, the Cuban government is moving forward with plans to attract investment. It is noteworthy that Venezuela, its principle political ally and one of two pillars of the Cuban economy, is coping with a deep crisis back home. Still, these strategic actions aim to exceed the results obtained in the 1990s.

Potential gains in joint ventures will likely concentrate in the tourism, agriculture and real-estate sectors.

However, it is unclear whether the traditional business partners already located on the island will play a prominent role. The lack of transparency about the jailing of foreign businessmen and the closing of joint ventures is unattractive to international investors.

If we consider the recent announcement about shifting to a single currency, it is obvious that foreign companies with investments in Cuba take a beating. Government efforts to attract a new wave of investors to the new Mariel port facilities could be impacted adversely because of these proposed monetary changes.

Another weakness is the lack of flexible and attractive foreign investment laws.

This is why the government urgently seeks a new wave of foreign investors. To do that, it has announced that it is reworking its investment laws so that they appeal to the international community. Moreover, for the first time in half a century, these new laws may consider allowing Cubans who reside off the island to invest.

Until now, however, these new laws have not appeared. Until they do, uncertainty grows, the crisis deepens, and the country is losing the glamour and allure it needs to attract new investment.

01MeliaCohiba-GeneralHotel Melia Cohiba, Spanish-Cuban Joint Venture

Sherritt-RefinerySherritt International Nickel Refinery, Fort Saskatchewan Alberta: Cuban-Canadian Joint Venture in Canada!

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The Tax Regimen for the Mariel Export Processing Zone: More Tax Discrimination against Cuban Micro-enterprises and Citizens?

Posted on September 26, 2013 by Arch Ritter

 By Arch Ritter

The Mariel Export Processing Zone (EPZ) is the second attempt since May 1997[i] to set up an EPZ that will promote foreign investment and thereby generate jobs, income, domestic value added and foreign exchange earnings for Cuba. This new container port facility and industrial park will free Havana Harbor for restoration and regeneration ultimately for recreational rather than industrial purposes. One might expect that Brazilian and Chinese enterprises – private and state-owned- will seize the opportunity to operate in Mariel vigorously with an eye for exports or re-exports to the Caribbean region.

The regulation and tax regimes for the Mariel EPZ were announced on September 23, 2013 (Marc Frank, Reuters, September 24 2013). The tax regime for the foreign firms operating in the Mariel EPZ is generous. It includes:

  •    a ten-year holiday from paying a tax on profits  and
  • presumably the full ex-patriation of profits;
  •   a 12% tax rate after 10 years;
  • the normal Cuban income tax rate for foreign workers
  •   a 14% (of wage) payment for workers’ social security;
  • zero tax on imported equipment; low duties on imported materials; and
  •  0.5% for EPZ maintenance.

These provisions should provide a strong incentive for foreign firms to locate in the EPZ. On the other hand, this tax regime in itself will not generate a huge amount of foreign exchange revenues for the Cuban Government.

The down-side of the tax regime for foreign investors and the major earner of foreign exchange for the government will be the hidden taxation involved in the hiring of labor. EPZ enterprises, like those in joint enterprises will have to pay hard currency to a state company to cover the wages and salaries of Cuban workers at a rate around $US 1.00 = 1 peso (CuP in Moneda Nacional) while the rate that is relevant for Cuban citizens is $US 1.00 = 26 pesos (CuP). The government can then sell the hard currency (“convertible pesos” or CuCs) at the rate of 1CuC = 26 CuP, meaning a profit on each CuC of 25 CuPs. This profit to the government is in effect a 96% tax rate (1 – 25/26 = 0.038) .  This counterbalances to some extent the generosity of the rest of the tax regime for the EPZ firms.

In the words of Marc Frank:

“However, one of the main complaints of foreign investors in Cuba has not changed: that they must hire and fire through a state-run labor company which pays employees in near worthless pesos while investors pay the company in hard currency. Investors complain they have little control over their labor force and must find ways to stimulate their workers, who often receive the equivalent of around $20 a month for services that the labor company charges up to twenty times more for.” Frank, Reuters, September 23, 2013

 EPZ enterprises also would prefer to operate with a reasonable and realistic exchange rate and the power to hire labor directly rather than to go through the state labor company.

The accompanying table compares the tax regimes for micro-enterprise, foreign firms in joint enterprises and EPZ enterprises. While the reforms of the micro-enterprise tax regime in 2010-2011 reduced the discrimination favoring foreign enterprises, but did so only slightly. For foreign firms the tax base is total revenues minus all costs of production and investment. In contrast, for micro-enterprises the tax base is total revenue minus arbitrary and limited maximum allowable levels of input costs ranging from 10 to 40 percent depending on the activity, and regardless of true production costs. As a result, for Cuban micro-enterprises the effective tax rate can be very high and could exceed 100% while the effective tax rate for foreign enterprises is exceedingly low. Moreover, investment costs are deductible from future income streams for foreign firms, this being the normal international convention. But for Cuban micro-enterprise, investment costs are deductible only within the 10 to 40% allowable cost deduction levels for the current year. 

The highest tax rate or bracket for domestic micro-enterprises is 50% while that for foreign firms in joint-enterprises is 30% generally but 50 % for mining (namely for Sherritt International). The Mariel EPZ rate is 0.0% for 10 years and 12% thereafter.

The EPZ firms can import equipment and materials at 0.0% import duty. For many imported inputs required for micro-enterprises, the sales tax they pay in the “convertible currency” stores is 140%, though wholesale markets are to appear before long providing imported inputs at prices that may be a good deal lower.

All in all, the differential tax regimes represent a surprising type of discrimination against Cuban citizens and in favor of the foreign firms in joint enterprises or the Mariel EPZ. The tax system permits very low taxes for the foreign owners of enterprises investing in the EPZ. IN contrast, Cuban micro-enterprises face a daunting tax regime.

From the perspective of Cuba’s national interest, the tax regime has another weakness. This is the heavy but hidden taxation on the payment of labor in the EPZ. The effective 96% tax operating through the dual exchange rate system does generate revenue for the Government. However, by making labor relatively expensive for the EPZ firms, it will provide a disincentive to job creation in the EPZs. This is a central objective of Cuban economic policy at this time as it tries to absorb up to 1 million workers that it considers to be redundant in the state sector of the economy.

Moreover, while the wage compensation to Cuban workers is pitifully low under the dual exchange rate system, the cost to employers is high. Under the wage payment systems of the previous EPZs, illustrated in the Table 2 below, the wage costs to employers were well above neighboring countries in the Caribbean region. This may well persist under the tax arrangements for the new Mariel EPZ.

[i]Three EPZs were established in 1997 at Mariel, Berroa, some ten kilometers from the port of Havana  and Wajay by the airport outside Havana. Their performance was mediocre; hence the new approach for a “Super-EPZ” at new container port at Mariel.

Table 2.Source: Larry Willmore, Export processing Zones in Cuba, in A. Ritter (editor). The Cuban Economy. University of Pittsburgh Press 2004.

 

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Cuba bids to lure foreign investment with new port and trade zone

Posted on September 25, 2013 by Arch Ritter

By Marc Frank

Original Article Here:   Mariel

Mariel Harbor

HAVANA, Sept 23 (Reuters) – Cuba published rules and regulations on Monday governing its first special development zone, touting new port facilities in Mariel Bay in a bid to attract investors and take advantage of a renovated Panama Canal.

The decree establishing the zone and related rules takes effect on Nov. 1 and includes significant tax and customs breaks for foreign and Cuban companies while maintaining restrictive policies, including for labor.

Cuba hopes the zone, and others it plans for the future, will “increase exports, the effective substitution of imports, (spur) high-technology and local development projects, as well as contribute to the creation of new jobs,” according to reform plans issued by the ruling Communist Party in 2011.

The plan spoke positively of foreign investment, promised a review of the cumbersome approval process and said special economic zones, joint venture golf courses, marinas and new manufacturing projects were planned. Most experts believe large flows of direct investment will be needed for development and to create jobs if the government follows through with plans to lay off up to a million workers in an attempt to lift the country out of its economic malaise.

The Mariel special development zone covers 180 square miles (466 square km) west of Havana and is centered around a new container terminal under construction in Mariel Bay, 28 miles (45 km) from the Cuban capital.

The zone will be administered by a new state entity under the Council of Ministers, and investors will be given up to 50-year contracts, compared with the current 25 years, with the possibility of renewal. They can have up to 100 percent ownership during the contract, according to Cuba’s foreign investment law.

Investors will be charged virtually no labor or local taxes and will be granted a 10-year reprieve from paying a 12 percent tax on profits. They will, however, pay a 14 percent social security tax, a 1 percent sales or service tax for local transactions, and 0.5 percent of income to a zone maintenance and development fund.

Foreign managers and technicians will be subject to local income taxes. All equipment and materials brought in to set up shop will be duty free, with low import and export rates for material brought in to produce for export.

However, one of the main complaints of foreign investors in Cuba has not changed: that they must hire and fire through a state-run labor company which pays employees in near worthless pesos while investors pay the company in hard currency.

Investors complain they have little control over their labor force and must find ways to stimulate their workers, who often receive the equivalent of around $20 a month for services that the labor company charges up to twenty times more for.

And investors will still face a complicated approval policy, tough supervision, and conflict resolution through Cuban entities unless stipulated otherwise in their contracts. And they must be insured through Cuban state companies.

MARIEL PORT

The Mariel container terminal and logistical rail and highway support, a $900 million project, is largely being financed by Brazil and built in conjunction with Brazil’s Grupo Odebrecht SA. The container facility will be operated by Singaporean port operator PSA International Pte Ltd. The terminal is scheduled to open in January.

Future plans call for increasing the terminal’s capacity, developing light manufacturing, storage and other facilities near the port, and building hotels, golf courses and condominiums in the broader area that runs along the northern coast and 30 miles (48 km) inland.

Mariel Bay is one of Cuba’s finest along the northern coast, and the port is destined to replace Havana, the country’s main port, over the coming years. The Mariel terminal, which will have an initial 765 yards (700 meters) of berth, is ideally situated to handle U.S. cargo if the American trade embargo is eventually lifted, and will receive U.S. food exports already flowing into the country under a 2000 amendment to sanctions.

Plans through 2022 call for Mariel to house logistics facilities for offshore oil exploration and development, the container terminal, general cargo and bulk foods facilities. Mariel Port will handle vessels with up drafts up to 49 feet (15 meters) compared with 36 feet (11 meters) at Havana Bay due to a tunnel under the channel leading into the Cuban capital’s port.

The terminal will have an initial capacity of 850,000 to 1 million containers, compared with Havana’s 350,000.

Leaving Mariel, April 1980

April 23, 1980: Arriving in Key West  on the shrimp boat Big Babe.

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Stephen Purvis, Wrongfully Accused of Spying and Fraud: Letter to the Economist

Posted on September 23, 2013 by Arch Ritter

From The Economist, August 13, 2013

“Dear Editor,

I enjoyed reading about my misfortunes in the Economist, albeit many months after publication and in the company of fellow inmates in the Cuban high security prison, La Condesa. I would ask you to correct the impression that you give in the May 9th 2012 edition and subsequent articles that I was accused and detained for corruption.

During my 8 month interrogation in the Vila Marista I was accused of many things, starting with revelations of state secrets, but never of corruption. After a further 7 months held with a host of convicted serious criminals and a handful of confused businessmen, most of whom were in a parallel predicament to mine, I was finally charged and sentenced for participating in various supposed breaches of financial regulations. The fact that the Central bank had specifically approved the transactions in question for 12 years, and that by their sentencing the court has in effect potentially criminalised every foreign business investing or trading in Cuba was considered irrelevant by the judges. I am thankful however that the judges finally determined that my sentence should not only have with a conditional release date a few days before the trail thus conveniently justifying my 15 months in prison, but, bizarrely was to be non-custodial. So my Kafkaesque experience at the sharp end of Cuban justice ended as abruptly as it began.

I spent time with a number of foreign businessmen arrested during 2011 and 2012 from a variety of countries, although representatives from Brazil, Venezuela and China were conspicuous in the absence. Very few of my fellow sufferers have been reported in the press and there are many more in the system than is widely known. As they are all still either waiting for charges, trial or sentencing they will certainly not be talking to the press. Whilst a few of them are being charged with corruption many are not and the accusations range from sabotage, damage to the economy, tax avoidance and illegal economic activity. It is absolutely clear that the war against corruption may be a convenient political banner to hide behind and one that foreign governments and press will support. But the reasons for actively and aggressively pursuing foreign business are far more complicated.  Why for example is the representative of Ericsson in jail for exactly the same activities as their Chinese competitor who is not? Why for example was one senior European engineer invited back to discuss a potential new project only to be arrested for paying technical workers five years ago when he was a temporary resident in Cuba?

You interpret the economic liberalisation evident at street level as an indication of a desire for fundamental change. It is true that these reforms are welcomed, especially the dramatic increase in remittance flows that have injected fresh hard currency into the bottom strata of a perennially cash strapped economy. But until the law relating to foreign investment and commerce is revised and the security service changes its modus operandi for enforcing these laws, Cuba will remain extremely risky for non-bilateral foreign business and foreign executives should be under no illusion about the great personal risks they run if they chose to do business there.  As businessmen emerge from their awful experience and tell their individual stories perhaps the real reasons for this concerted attack against business’s and individuals that have historically been friends of Cuba will become a bit clearer. In the meantime your intrepid reporters could usefully investigate the individuals and cliques who are benefitting from the market reorganization and newly nationalized assets resulting from this “war on corruption”.

Yours faithfully, Stephen Purvis”

Stephen Purvis and Family after his return to Britain

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Cuba, home of the world’s oddest property market

Posted on June 22, 2013 by Arch Ritter

Financial Times, June 21, 2013 5:02 pm

By John Arlidge

The country is finally allowing its people to buy and sell homes but property lawyers and agents are still illegal.

It’s only 9am but it’s already 33C on the Malecón, Havana’s corniche, and my brain feels like a conch fritter. I’ve come to meet a man who we will call Rafael – because that’s his name. But that’s the only part of his name he is prepared to reveal. Rafael is an estate agent but he does not want anyone to know it. “Being an estate agent is illegal here,” he says.

If we do agree a price, Rafael will advise me not to buy the penthouse in the normal way. Instead, to avoid tax, I should pay him a nominal amount locally, say 20 per cent, and “deposit the rest in an account in Spain, please”. I must not talk about the true price because, under new laws, anyone caught lying about the price of property goes to prison. Also, I must not reveal the name of the lawyer who does the paperwork because working as a private property lawyer is illegal.

Undercover estate agents? A legal system that is illegal? Jail for lying about house prices – which everyone the world over does? Welcome to the oddest property market in the world. Welcome to Cuba.

Half a century after Fidel Castro’s government expropriated all private property, the sunshine socialist state is up for sale – in part. Raúl Castro, who took over as president from his ailing brother in 2008, has introduced new laws that allow Cubans to buy and sell homes. Billions of dollars in property assets that have been frozen in place and time, unvalued or undervalued, are now up for grabs.

Raúl Castro’s move is the latest – and boldest – step in a slow economic liberalisation programme designed to generate economic growth. Cuba desperately needs new sources of revenue. It is only kept afloat thanks to cheap oil, and other subsidies worth $5bn a year from its ideological ally, Venezuela. The subsidy deal was agreed by Fidel Castro and former Venezuelan president Hugo Chávez, who died in March. If Venezuela’s new president, Nicolás Maduro, renegotiates the agreement – and many analysts say that, with Venezuela’s economy slumping, he has no choice – Cuba will grind to a halt.

After half a century in which they could only swap houses in a creaky, bureaucratic and often corrupt state-run process known as permuta (exchange), which involved finding two properties of roughly equal value and then getting state approval to transfer the title, Cubans are relishing their new-found economic freedomFirst-in-a-lifetime buyer Guillermo Rey stands next to the scruffy portico of a four-bedroom, three-bathroom house in Vedado, Havana’s most high-end, fashionable district. The price, says the owner Rosa Marin, is 350,000 CUC, or convertible pesos, Cuba’s hard currency, which is roughly equivalent in value to the US dollar. She is selling because she wants to move into a smaller property “and buy my daughter a car, a good one, a Lada”.

It is a scene repeated all over Havana. The market is growing so fast that queues form outside the tumbledown offices of Cubisima, a Havana-based property sales website. “Every day we get more people looking to sell and more people looking to buy,” Mayelin Aguilar tells me as she keys the latest listings into her bulky Russian-built desktop computer – so old it still runs Windows 95.

The tree-lined Prado is polka-dotted with estate agents, their listings written in longhand in school exercise books. Their commission? A whopping 5 per cent – if, that is, the buyer pays up. With estate agency not on the approved list of private businesses Cubans can now set up, buyers know agents have no recourse to law, so many simply refuse to pay. “I’m lucky if I get commission for one deal in five,” says one agent.

Some 45,000 homes were sold in 2012, according to Cuba’s National Statistics Office. Observers say informal deals take that number to almost 100,000. Prices range from $10,000 for a small, run-down flat in Old Havana to $500,000 for villas in sought-after districts, such as Siboney and Miramar, and more than $2m for penthouses in modern blocks. The average price last year was just $16,000. The Cuban on the calle is still desperately poor.

This being Cuba, the conditions surrounding home sales are complicated and, occasionally, bonkers. The law says that only Cubans and permanent residents can buy and sell property and they must limit themselves to one main residence and, if they have the money, one holiday home. Raúl Castro does not want Cubans to become property barons.

Nor does he want to encourage armies of foreign investors, especially the many arch-critics of the regime, to descend on Havana and buy it up, block by block. But, thanks to an early flirtation with capitalism 20 years ago, there are a few apartment buildings in Havana where foreigners can buy. The best are in the Atlantic Building, a 25-storey tower on the Malecón, where Rafael shows me the penthouse he says is worth $2.5m. Few want to say so publicly but some are being snapped up by Miami-based Cubans, via local relatives, making it difficult to divine whether the émigré Cuban or the relative is the real buyer. President Barack Obama recently relaxed the restrictions on foreign remittances from Cubans living in the US. Up to $5bn a year now flows into Havana and much of it ends up in bricks and mortar.

Other overseas investors get around the restrictions by giving money to a Cuban friend, or more often, girlfriend, to buy a property – although, when the deal is completed, some swiftly discover that their girlfriend is no longer their girlfriend. “I took a risk and it failed,” sighs one Dutch-born investor, whose $400,000 “home” in the fashionable Kholy western suburbs is now home to his former girlfriend and her extended family who cannot believe their luck – and his naivety.

Tax is troublesome, too. Both sellers and buyers must pay 4 per cent but most disguise the value of deals to reduce the liability. Raúl Castro’s dream of generating much-needed tax revenue from home sales is, so far, a forlorn hope.

But he might have an ace up his linen guayabera shirt – or, rather, 130km down the cracked highway from Havana in Varadero. It is Cuba’s “touristic zone”, a ghetto of white sand and whiter westerners, who sip mojitos and snap up Che Guevara T-shirts without bothering to wonder what Che would make of them splurging their Yankee dollars on a swanky beach holiday.

“This is where the £1.5m villas will be. And, over here, right next to an 18-hole golf course, is where the country club will be,” says Andrew Macdonald, striding across the scrub in canary yellow shorts. The Scots-born entrepreneur runs Esencia, an Anglo-Cuban firm, that wants to build Cuba’s first new golf course since the revolution, with 800 homes available for foreigners to buy.

He has signed up some big names to build the $350m development at Carbonera, near Varadero. Sir Terence Conran will design the homes. Adrian Zecha, founder of Aman resorts, is in charge of the country-club-cum-hotel and spa. Golf champion Tony Jacklin will help design the golf course. “Cuba is the top emerging tourism market in the Caribbean by a mile, and it’s in the top five emerging markets globally,” Macdonald says. “It’s a long slog getting stuff done but the potential is huge.”

“Slog” hardly does justice to the tortuous process he has had to undergo to get this far, and which has cost him $3m on feasibility studies. He began negotiations in 2006 and each year the government has said it will approve the venture. But each year then becomes next year. Manuel Marrero, Cuba’s minister of tourism, says the deal has finally been approved in cabinet but Macdonald still does not have the formal sign-off he craves.

Ministers may not like it but they know the only way to balance the books is to encourage the local market

If and when Macdonald, 47, does get the formal go-ahead, it will mark the end of Cuba’s bunker mentality when it comes to golf. Fidel Castro declared golf “incompatible with the glorious revolution” and ordered Cuba’s courses to be put to less “bourgeois” use. Today, one of them lies abandoned just outside Havana; another is a military special forces training ground; and a third forms the rolling lawns of a city’s arts school.

Macdonald wants to build 150 colonial-style oceanfront villas and 670 apartments. Prices for the apartments will start from $2,700 per sq metre and range from 75-140 sq metres. The villas will cost $3,750 per sq metre and range from 350-600 sq metres. Six-hundred investors have registered an interest, Macdonald says. Buyers will have what passes for freehold title under Cuba’s nascent property laws, and will be able to rent out their property.

 Artist’s Depiction of Esencia Housing Project Proposal

Cuba has retained the original Spanish, pre-revolutionary land registry and Macdonald says it shows that no overseas parties have a claim on the land at Carbonera. Tens of thousands of exiled Cubans, who left the country after the revolution, still claim rights over properties. On a bluff just along the coast from Carbonera stands the DuPont villa, the former vacation home of the wealthy US chemicals family. It is now a government-run guest house.

Investing in Cuba is only for the most steely-nerved. Not only is there the vexed question of potential claims on properties from exiled Cubans, the Cuban government has a long, ignominious history of first encouraging and then choking off economic liberalisation. It relaxed restrictions on home sales 15 years ago, only to reverse the policy a few years later.

This time, however, observers say Raúl Castro, who is more pragmatic and less ideological than his older brother, is unlikely to do a U-turn. One western business leader, who has set up a financial services consultancy in Havana, says: “Cuba is bankrupt. Ministers may not like it but they know the only way to balance the books is to encourage the local market and to allow overseas investors to build homes and golf courses and maybe eventually buy villas in Havana.”

That would be good news for Rafael. The more the market expands, the sooner he hopes the government will legalise his profession. “That way,” he smiles, “the next time you come into Cuba, I can tell you my name.”

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Toronto Businessman Sarkis Yacoubian sentenced to 9 years in Cuba on corruption charges

Posted on June 20, 2013 by Arch Ritter

Toronto man sentenced to 9 years in Cuba on corruption charges

thestar.com/ By: Julian Sher Investigative News reporter, Published on Wed Jun 19 2013

For almost two years as he sat in a Havana prison awaiting trial on corruption charges, North York businessman Sarkis Yacoubian held out hope that by collaborating with the Cuban authorities and fingering a wide web of foreign and domestic corporate intrigue, he would get some leniency.

“They are going to bring down my sentence, provided that I go along with them,” he had told the Star in a series of exclusive jailhouse phone interviews.

But that didn’t happen.

Three weeks after he was put on trial in late May, Yacoubian finally got word he has been sentenced to nine years in jail.

Sarkis Yacoubian

“We were shocked,” said Krikor Yacoubian, Sarkis’ brother in Toronto. “We were anticipating less with the collaboration, but they did not budge much.”

Krikor says his jailed brother was stunned when he first heard the news from his Cuban lawyer.

“He was silent for awhile, for a good minute,” he said. “Not tearful or angry. He said, ‘OK let’s go to the next step.’”

That next step, the family says, will be a protracted battle to try to get the 53-year-old Yacoubian transferred to Canada to serve out his sentence here.

“To my knowledge it is the first time that any Canadian businessman has been sentenced for corruption,” said John Kirk, a professor at Dalhousie University’s Department of Spanish and Latin American Studies who has written several books on Cuba.

“Clearly this is intended to send a message to Cubans and foreign investors alike,” he said. “Several deputy ministers in Cuba and dozens of bureaucrats have also received heavy sentences.”

Yacoubian’s cousin and business associate, a Lebanese citizen named Krikor Bayassalian, was sentenced to four years as a co-defendant, the family says.

The details of the key Canadian connection to Cuba’s widening corruption scandals were revealed last month in a joint investigation by the Toronto Star and El Nuevo Herald, the Spanish-language affiliate of the Miami Herald.

Arrested in July 2011 and detained without charges, Yacoubian – a McGill MBA graduate who operated a $30 million transport and trading company called Tri-Star Caribbean — was formally accused in April of bribery, tax evasion and “activities damaging to the economy.”

Yacoubian disputed many of the specifics of the case but he said he decided to cooperate with the Cubans, exposing what he called the “black forces” of corruption and naming more than a dozen foreign companies and executives.

“I told everything and I told how these schemes were done,” he told the Star. “It was just eating me alive. Maybe in my conscience I wanted my company to be brought down so that I could tell once for all things that are going on.”

In September 2011, Cuban authorities arrested a second GTA man –73-year-old Cy Tokmakjian, whose $80 million Tokmakjian Group company is one of the largest foreign operations in Cuba.

His family told the Star he has still not been charged.

Krikor Yacoubian says the family has decided not to appeal his brother’s sentence but to immediately start the lengthy legal and diplomatic manoeuvres to get Sarkis transferred to Canada under a prisoner transfer treaty Canada signed with Cuba in 1999.

“I don’t want my brother to rot in Cuba,” said Krikor Yacoubian.

 

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Remittances Drive the Cuban Economy

Posted on June 11, 2013 by Arch Ritter

By Emilio Morales and Joseph L. Scarpaci, Miami (The Havana Consulting Group).— Fidel Castro’s government reluctantly accepted remittances from abroad in 1993 when it realized it needed access to hard currency to survive.

It was a devastating ideological blow at the beginning of the so-called ‘Special Period in a Time of Peace’ because it revealed that the Cuban exile community had become a lifeline for the island. Suddenly, U.S. dollars started inundating the island and would never leave. Both the Cuban society and the exile community were startled by this bold move.

The former Cuban leader probably never imagined that the forced opening up to dollars was going to become the most efficient driver in the economy over the last 20 years. Not a single Cuban economist foresaw that outcome. Today, remittances reach 62% of Cuban households, sustain about 90% of the retail market, and provide tens of thousands of jobs.

Money sent from overseas far exceeds the value of the once powerful sugar industry which, in 1993, began a huge decline from which it has not recovered. Remittances in 2013 surpass net profits from tourism, nickel, and medical products manufactured by the Cuban biotech industry.

Table 1. Remittances versus Other Sources of Hard Currency in Cuba, 2012 (in millions of US dollars)

No.

Source

2012

1

Remittances received in cash

$2,605.12

2

In-kind remittances

$2,500.00

3

Total remittances

$5,105.12

4

Tourism revenues

$2,613.30

5

Nickel exports

$1,413.00

6

Pharmaceutical exports

$500.00

7

Sugar exports

$391.30

Data sources: Calculated by The Havana Consulting Group, based on their data and open-source statistics published by the Oficina Nacional de Estadísticas e Información (ONEI), Havana.

The table above shows that remittances ($5.1 billion) outstrip the leading four sectors of the Cuban economy combined ($4.9 billion). Moreover, the figures for items 4 through 7 do not take into account expenses incurred in generating those gross revenues (i.e., costs of processing sugar, manufacturing drugs, food imports, etc.). Sending remittances does not cost the Cuban government money, but it circulates throughout he economy and supports most Cubans in some way.

White House Policies Trigger Growth in Remittances

Barack Obama’s arrival in the White House has directly influenced the increase in money being sent to Cuba. In the past four years, $1 billion USD of remittances have infused the Cuban economy.

Cash remittances in 2012 reached a record $2.61 billion USD; a 13.5% increase over 2011.

In other words, cash remittances outweigh government salaries by 3 to 1. The current monthly mean salary according to ONEI (the official government statistics agency) is 445 Cuban pesos, or the equivalent of just under $19 USD. Today, the economically active work force is 5.01 million workers, of which about 80% (4.08 million) draw state paychecks, whereas the balance is self-employed, agricultural, or cooperative workers.

If we use the official exchange rates that one Cuban convertible peso (CUC) equals 24 pesos (CUP) or one US dollar, the annual payout for state workers is three times less than the volume of money that Cuban émigrés send to family back home. Include in-kind remittance contributions (gifts, appliances, clothing, etc., brought to Cuba during visits), and the ratio leaps to 5.5 to 1.

Behind this growth in sending money to Cuba is the opening up of travel to Cuba as well as eliminating restrictions on sending money there. In 2012, just over a half a million Cubans residing abroad visited Cuba, making them the second largest tourist group in the island’s market; only Canadians (1.1 million visits) surpass them.

Out-migration from Cuba –about 47,000 annually on average over the past decade or nearly a half million émigrés—is also a contributing factor because those who have most recently left the island are the ones most inclined to send money back home. That was not the pattern with the original exile community in the 1960s; sending dollars to the island was forbidden back then.

We also need to acknowledge that several reforms introduced by the Cuban government in the past three years have encouraged remittances. This cash infusion helps to start home restaurants (paladares), B&Bs, car rentals, and more recently the buying and selling of private cars and real-estate. These businesses are aided by the 1.6 million cell phones in use today –available to the general public only since 2007—of which 70% are paid for by Cubans living off the island.

Never at a loss to encourage remittances, the Cuban government announced just last month the opening of 118 Internet stations that charge very high hourly rates. The new cyber cafés will initially cluster in the tourist poles across the island and the provincial-capital cities.

At the present, then, the role the Cuban diaspora plays in developing the island’s economy has never been greater, despite the restrictions on how and where money can be invested. However, the short term is unlikely to witness a greater influx of capital beyond the diaspora’s giving. Witness the failures in recent offshore gas and oil oil drillings that have come up ‘dry’ and the political and economic crisis in post-Chávez Venezuela is mired. This may create a broader space for the exiles to have a more direct hand in rebuilding the country.

Like it or not, Cuban exiles carry economic clout on the island. They have a lot of skin in the game; some of it is economic, and a lot of it is love of family. Their role in shaping the lives of many will be transformative in years to come, and on both shorelines that straddle the Florida Straits.

Last Updated (Tuesday, 11 June 2013 04:20)

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The Economist: “A tale of politics, corruption and golf”

Posted on May 31, 2013 by Arch Ritter

 

May 25th 2013 | HAVANA |THE ECONOMIST

AFTER the 1959 revolution Fidel Castro declared that golf was a “bourgeois” hobby, unsuitable for communists. Most of the island’s courses were built on, and no new ones have been developed since. But the government has just given the go-ahead to a new golf resort, in what it claims is “the start of a whole new policy to increase the presence of golf in Cuba”. In the same week it pressed ahead with the prosecutions of several foreign businessmen for corruption. The developments, which seem to be linked, show how Cuba is changing its attitude to business.

The $350m Carbonera Club, near the beach resort of Varadero, is to be developed by Esencia, a British company. A few days before the project was approved, Esencia had staged a golf tournament which was won by Mr Castro’s son Antonio. The development will include residential properties available for purchase by foreigners. Other big tourism projects are under way. The government has given the go-ahead to the construction of a 1,300 berth marina, also in Varadero, which would be the largest in the Caribbean. The island’s airports are to be upgraded too, with help from Brazil’s development bank.

Raúl Castro, Fidel’s brother, has slowly begun to open Cuba’s economy since becoming president in 2008. Cubans may now buy homes and cars, and small businesses such as restaurants and bars have proliferated. But Raúl has been at pains to stress that his intention is to “update” Cuba’s socialist model, rather than reintroduce full-blown capitalism. Perhaps to make that clear, foreign businessmen on the island have had a particularly hard time under his watch. Several have been held without charge for almost two years, ostensibly for corrupt practices. Now, in a move which could be a precursor to their release, they are about to go on trial.

Sarkis Yacoubian, a Canadian of Armenian origin who ran a transport and trading company, will probably be first in court. In July 2011 state security officers raided his office and took him to Havana’s notorious detention centre, Villa Marista, where he apparently admitted paying bribes to state employees (all of whom, from labourers to managers, earn about $20 a month). Some officials were slipped a few ten-dollar notes, or a dinner. At least one was given $50,000.

Mr Yacoubian’s confession soon triggered further arrests. In September 2011 authorities detained his business partner turned rival, Cy Tokmakjian, a fellow Canadian-Armenian. His company, Tokmakjian, had the lucrative sole concession to import Hyundai vehicles to Cuba, and also supplied heavy machinery to the nickel industry.

A month later Amado Fahkre, a managing partner of Coral Capital, a British fund with property and art investments on the island, was arrested. The following year Coral’s chief operating officer, Stephen Purvis, was taken into custody, too. Many other foreign investors fled following the crackdown. Those who stayed complained that it had become much harder to meet Cuban officials.

By announcing the new golf investments at the same time as ending the legal limbo of the jailed foreigners, Raúl may be signalling that once again the island is open for business. The trials and the more relaxed attitude to investment are part of the same process, says one Western diplomat: “After two years of indecision, something is happening.”

Something has to. Cuba’s economy has long been propped up by Venezuela, which provides most of Cuba’s oil in return for tens of thousands of Cuban doctors and security advisers. Nicolás Maduro, Venezuela’s new president, has pledged loyalty to Cuba. But his narrow, disputed election victory last month, and Venezuela’s nosediving economy, mean that Cuba needs other options. Much as Fidel may disapprove, it seems that the sport of stockbrokers is part of the plan.

A Game for Revolutionaries?

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