Cuba opens door for more foreign investment

Vietnamese Prime Minister Nguyen Dan Dung (R) walks with Cuban President Raul Castro during a ceremony at the Revolution Palace in Havana, on March 27, 2014. ADALBERTO ROQUE/AFP/Getty Images

HAVANA - Cuban lawmakers approved a new foreign investment law Saturday morning intended to attract foreign capital to the island's faltering economy in the hopes of meeting a target annual economic growth of 7 percent.

The new law replaces the 1995 investment law that has failed to bring in the necessary financing. Growth last year was just 2.7 percent.

Cuban TV broadcast fragments of the morning discussion in which Council of Ministers Vice President Marino Murrillo justifies the provisions of the new law as necessary adjustments in tune with the changing domestic and international economic situations.

Murillo who heads up the team overseeing Cuba's economic reforms singled out agriculture as a priority sector for foreign investment and said external financing is key to the country's development.

Murillo stressed that to reach minimum economic growth of between 5 and 7 percent "demands annual investment rates of around 20 percent and that demands external financing."

He further said the new law will help rid the economy of its current structural problems, particularly in the production of foodstuffs. Murillo stressed however that the investments have to be viewed as a whole noting there is little sense in foreign investment in a dairy business if there is no cattle on the island to supply it. Investment is needed in the herds as well as in the industry, he said.

The new law meant to encourage foreign investors nevertheless keeps a tight control on their interaction with Cuba's emerging private sector. The law will only allow foreign investment in non-state cooperatives, whether or not they are agricultural. But the government will insist on being a player.

"Priority will be given to the cooperative, but wherever there is foreign investment the state will have to be present to control the participation of the non-state formula and the foreigners, so that a concentration of property is not produced," said Murillo, adding the new law provides for there to always be government participation.

This provision excludes the hundreds of thousands of what is known as "cuentapropistas" or the privately employed, many of whom are actually small businesspersons running everything from restaurants to construction trades. Many of these individuals struggle to finance their startups and depend on financial help from relatives or friends living abroad. While impossible to accurately document, it is clear that many of the burgeoning businesses are receiving foreign investment under the table.

Two sectors, education and health care, are totally off limits to foreign investors.

The new investment law, which offers large tax breaks in an effort to attract investors, is part and parcel of the economic restructuring begun by President Raul Castro in 2008, when he took over from his older brother Fidel, sidelined by illness. And as Murillo told lawmakers Saturday, it is provided for in the 300-point guidelines approved by the Communist Party in 2011.

Foreign journalists were not given access to the legislative session, but information leaked in recent weeks indicates the new law cuts taxes on profits by half -- from 30 to 15 percent -- and exempts investors from paying it for 8 years. However, companies investing in natural resources such as nickel or petroleum exploitation could be hit with taxes as high as 50 percent.

One sweetener is that many foreign investors will not have to pay personal income tax.

  • Portia Siegelbaum

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