Wednesday, March 31, 2010

Investment Climate In Cuba Still Unfavorable to U.S., Experts Say

Investment Climate In Cuba Still Unfavorable to U.S., Experts Say
Posted by Roque Planas on Mar 31st, 2010 and filed under Caribbean,
Cuba, Dispatches.

NEW YORK — The climate for U.S. investment in Cuba remains adverse and
probably won't improve much in the near future, a group of Cuba experts
representing the private sector said at a panel on Tuesday.

The meeting was organized by the New York-based Americas Society, which
together with the Council of the Americas has run a working group to
examine investment opportunities in Cuba for the last year and a half.
The object of the meeting was to identify areas where U.S. companies
position themselves for the moment when trade relations with Cuba,
frozen for the last sixty years, finally thaw.

Their assessment was not optimistic.

"Cuba has persistently ranked as one of the worst business environments
in the world," said Maria Werlau, a consultant who specializes in Cuban

Werlau said that Cuba's economy is "in shambles," suffers from high
external debt, and its investment rules do not compare favorably with
other countries in the region because the government requires foreign
companies to partner with a Cuban state enterprise which retains 51
percent ownership. Foreign companies cannot hire Cuban workers directly
and Cuban wages are not competetive for the region, she added.

Anna Szterenfeld, Latin America editor for The Economist Intelligence
Unit (E.I.U.), offered a similar assessment. The E.I.U. ranks 82
countries according to the attractiveness of their business environment.
Cuba's place: 79th, the lowest in Latin America.

Szternfeld explained Cuba's low ranking as the result of the dominant
position of the state. The majority of areas of potential investment are
guarded by the Cuba's revolutionary government, which views foreign
direct investment as a threat to its sovereignty. The Cuban government
probably will not permit much expansion of private enterprise, domestic
or foreign, within the next five years, according to Szternfeld.

Foreign investors don't just face obstacles erected by the Cuban
government — they also must contend with the U.S. trade embargo. Juan
Belt, director of the consulting firm Chemonics International,
highlighted two areas in particular where U.S. trade restrictions
prevent American companies from investing in Cuba: oil and

The U.S. Geological Survey estimated in 2004 that 4.6 billion barrels of
undiscovered oil lay off Cuba's northern coast. "Cuba has a more
favorable investment climate for oil exploration" than many countries in
Latin America, "and obviously much better than Mexico, where you cannot
do exploration," Belt said. "American oil companies are very interested."

Belt said that telecommunications offers another key area of potential
investment to U.S. companies, because the Cuban market is so
underdeveloped, having less cellular phones than Haiti.

He said that when working for the U.S. Agency for International
Devlopment in post-conflict areas, he saw that the easiest sector to
bring foreign investment into was telecommunications. "When the bullets
were still flying in Afghanistan and Iraq, there were people putting up
towers, and right now one the largest private companies in Afghanistan
is one of the cell [phone] companies," Belt said.

The Obama administration authorized U.S. telecommunications companies to
donate equipment to the island and establish roaming agreements with
Cuban providers in April of 2009, but Christopher Sabatini of the
Americas Society said that current rules remain prohibitive. For
example, U.S. companies cannot invest in Cuban telecommunications

"Despite the announcement by President Obama in April, and regulations
that came out in September, there are various severe restrictions on
what U.S. investors can do," Sabatini said.

The panelists' pessimism about the future of investment opportunities in
Cuba highlighted the lack of change in economic relations between the
U.S. and Cuba that has taken place under the Obama adminstration.

U.S.-Cuba relations have improved somewhat since hitting a low point
during the George W. Bush administration, which tightened travel
restrictions for Cuban Americans and began enforcing long-ignored laws
prohibiting the U.S. dollar from being circulated in Cuba.

But the Obama administration has maintained the U.S. policy of
conditioning a relaxation of the trade embargo on Cuba's release of
political prisoners and liberalization of the political system. The
Cuban government, which views the political prisoners as mercenaries
supported by Washington, demands the unilateral end of the embargo.
Consequently, trade relations are at a standstill for the time being.

Stephen Sokol, a researcher with Columbia University who has studied
Cuba, said the meeting was "successful," but added that Cuba-watchers
have been talking about the country's economic stagnation and lack of
investment opportunities since the 1990s.

"There is a lot of Groundhog day about this," Sokol said.

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