Cuba Considers Foreign Investment

July 13, 2007

HAVANA – Cuba is considering bolstering the participation of foreign investors in sectors crucial to the island’s economic development, according to members of Havana’s expatriate business community.

Business leaders say that the Cuban government would seek to increase foreign investment selectively and in industries that can contribute to economic growth and reduce the country’s excessive dependence on imports.

Those “strategic” areas include tourism, oil, mining and construction, the sources said.

In recent months, the island’s Communist government has instructed its economists to prepare reports on activities that can be developed with the help of foreign investment, the business leaders said.

Cuba “has looked closely after its relations with Venezuela and neglected its relations with other countries and now it seems that it wants to recover them, diversify its risks and, at the same time, increase its liquidity,” said a European business leader who spoke on condition of anonymity.

Foreign participation in Cuban companies and associations was authorized in the 1990s following the collapse of the Soviet Union and the end of Moscow’s generous subsidies to Havana.

The renewed focus on foreign investment by the government, headed for almost a year by Raul Castro, coincides with a drop in tourism of almost 15% – according to unofficial estimates – and a significant fall  in the international price of nickel, a key export.

Since assuming power provisionally upon the illness of older brother Fidel, Raul Castro has shown signs he wants to resolve the serious problems affecting the island’s public transport, farming and housing sectors.

During a session of parliament last week, Foreign Investment Minister Marta Lomas announced a record inflow of $981 million in 2006, 22% more than the previous year. But the increase in foreign investment is not sufficient to compensate for the island’s overdependence on imports, some economists say.

The latest available official data, corresponding to 2005, indicates that Cuba’s imports totaled $7.3 billion compared to $2 billion in merchandise exports.

To cover those import costs, the island counts on close to $2 billion from nickel exports, a similar amount in tourism revenues and the approximately $2.5 billion that the country earns for medical services rendered by Cuban doctors abroad.

Oil-rich Venezuela, Havana’s main economic partner and political ally, supplies the island with about 100,000 barrels per day of crude in exchange for medical and educational services.

Trade between the two countries surpassed $2.6 billion last year, well ahead of the $1.8 billion worth of business Cuba did with China, Havana’s number-two trading partner.

A potential obstacle to any effort at boosting foreign participation in the Cuban economy is Washington, D.C.’s 45-year-old economic embargo against the island.

 

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