Sunday, June 19, 2016

Foreign investors dust off Cuba projects

Foreign investors dust off Cuba projects

JIBACOA, Cuba -- Twenty years ago a Canadian developer won the right to
build golf courses and condominiums across 2½ miles of lush green
ridgeline and crescent beaches lapped by the emerald waters of the
Florida Straits just 40 miles from Havana.

Year after year, the plan failed to materialize. Then, the U.S. and Cuba
declared detente, setting off a boom in tourism. Now, Montreal-based
developer 360 Vox says it is preparing to break ground on a $1.4 billion
development with 27 holes of golf, four luxury hotels and 2,700 high-end
villas and apartments for sale to foreigners.

"Some people will want to go to Eagle's Peak to see the sunrise and have
a yoga class where they can salute the sun," project head Guy Chartier
said, looking out over miles of beach dotted with pre-revolutionary
stone houses and Soviet-era public campgrounds. "Others will want to get
a round of golf going."

A short drive west along the coast, a Chinese firm is preparing to build
a golf resort in an area once promised to British developers who were
driven out of Cuba in a 2011 corruption case. Closer to the beach resort
of Varadero, another British firm plans to start work by the end of the
year on an 18-hole golf and beach resort with 1,000 apartments and villas.

As Cuba fever seizes investors, communist functionaries and global
corporations are hoping to change the island's reputation as a place
where investment projects go to die. A year and a half into
normalization with the U.S., Cuba faces either an exciting new era of
foreign investment or another in a string of false starts.

After he seized control of Cuba in 1959 and nationalized the U.S.
companies that owned much of the island, Fidel Castro built a centrally
planned socialist economy dependent on large annual subsidies from the
Soviet Union. After the Soviet collapse, Cuba replaced those billions
with highly subsidized Venezuelan oil from socialist ally Hugo Chavez.

The sinking of the Venezuelan economy has left Cuba looking to fill its
budget gap with post-Obama tourism and investment from the profit-driven
world of international capitalism.

But things are moving slowly.

Despite the December 2014 declaration of detente, the U.S. trade embargo
on Cuba prevents most investment from the U.S. and makes it difficult
for other countries. Add to that a bureaucracy that can take months to
move a single document from one ministry to another, and it's no wonder
that projects linger for years, even decades, without much progress.

"They hear about the U.S. normalization and they get a sense of, 'Wow,
maybe Cuba really is now opening up,'" said Richard Feinberg, author of
the new book Open for Business: Building the New Cuban Economy. "Then
they visit and they find that many of the same obstacles to actually
finalizing deals remain in place."

In Jibacoa, privately held 360 Vox hopes to end 20 years of waiting by
starting work in the second half of 2017.

"One thing you need to have here is patience," Chartier said. "Companies
shouldn't come to Cuba if they don't have a long-term view."

A handful of small firms have begun building projects in the Mariel
Economic Development Zone, a low-tax port that Cuba hopes to build into
a magnet for foreign investment and trade. Cuban officials have said
more than a dozen more face imminent approval. Consumer goods
conglomerate Unilever is returning to Cuba after a five-year absence
with a $35 million factory making soap, toothpaste and other
personal-care items. Cuba has begun signing deals for foreign investment
in clean energy, part of the country's plan to wean itself from
dependence on Venezuelan oil.

President Barack Obama's loosening of the half-century-old embargo is
allowing Alabama-based startup Cleber LLC to build a small tractor
factory in the Mariel zone -- the first U.S. factory approved in Cuba
since the island's 1959 revolution. Despite a warm reception by Cuban
officials, the company is still awaiting the paperwork granting initial
approval from the communist government.

"It's a tedious process but it's under a lot of scrutiny and I do
understand that they're trying to take the time to do it," company
founder Saul Berenthal said.

All told, the new projects appear nowhere near the more than $2 billion
a year in foreign investment Cuba says it needs to drag itself out of a
decadeslong cycle of anemic productivity and over-dependence on imports.

It's impossible to know how far Cuba is from reaching its target. For
one of the world's least transparent governments, even basic information
on the annual rate of foreign investment remains a national security secret.

"We have to protect our statistics, our data with lots of care," said
Jose Chaple, director of commercial policy for Latin America and the
Caribbean for Cuba's Ministry of Foreign Trade. "This is part of
defending ourselves from attacks."

The fastest-moving projects on the island appear to be those built by
GAESA, the military-run conglomerate that owns more than a third of
Cuba's 50,000 to 60,000 hotel rooms and plans to build more than 30,000
more by 2030, most in all-inclusive beach resorts.

At Cuba's military-run main port, container ship traffic has risen more
than 40 percent since 2014, when operations moved from Havana to Mariel,
a gritty industrial town west of the capital.

Ship traffic is expected to rise again by next year as the port
finishes, months behind schedule, dredging the harbor entrance to allow
in the biggest ships transiting the newly expanded Panama Canal.

"There's nowhere else I'd rather be right now," said Charles Baker, the
head of the port for PSA International, a Singapore-based ports operator
that runs Mariel on behalf of the military.

Belgian executive Benoit Croonenberghs is investing $8 million in two
new businesses at Mariel: a factory for manufacturing electrical
controls and water-filtering equipment and a warehouse for truck and
heavy equipment rental.

Croonenberghs' family firm has been operating here for 33 years and
makes $90 million a year in sales to the government.

But his enthusiasm hasn't yet proven infectious.

He says he's hosted nearly two dozen Belgian business people since the
declaration of detente but none has moved to invest in the country.

"With the exception of ourselves nobody is investing," Croonenberghs
said. "They need to see something working."

SundayMonday Business on 06/19/2016

Source: Foreign investors dust off Cuba projects -

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