Cuba, famous for cigars, salsa dancing and Che Guevara, is now open for business! In the past year, Cuba has slowly been opening up to external markets and Lebanon is one of the first countries to have set foot on this territory.
Cuba has undergone a number of changes in order to attract investments and business. First, they implemented the Law on Foreign Investment (LFI), also known as Law 118, which provides great incentives to attract new technology and foreign capital as well as increase domestic production. It also provides the main vehicles for foreign investment, be it a joint venture company, an international economic association contract or full foreign ownership. Its main objective is to establish the legal framework for foreign investments and the guarantees and legal security to attract and utilize foreign capital. It also provides greater tax incentives because of a special taxation regime: there are no more taxes on dividends. Companies in joint ventures are exempt from all taxes on profits for the first eight years, and thereafter only pay a 15 percent tax rate (previously 30 percent).
Opening the investment door
They are exempt from paying the wholesale and service taxes during the first year, from paying labor taxes, and from paying customs taxes for the importation of equipment, machinery and other assets during the investment process. However, foreign capital companies are obliged to pay taxes for the duration of their contract. There were also some key changes that helped to promote foreign investment, such as allowing 100 percent foreign ownership, recognizing the intellectual property rights and technological innovation of the foreign investor, and the guarantee to freely transfer profits abroad without paying taxes or other charges. Additionally, mixed companies, foreign owned companies and contractual international economic association are to receive preferential treatment concerning pricing, quality and terms when purchasing domestic goods and services. This law is oriented towards diversifying and expanding the Cuban market, as well as accessing state of the art technology, generating new jobs, harnessing new managerial methods and developing renewable sources of energy. It prioritizes 11 sectors: agriculture and forestry, construction, energy and mining, the food industry, healthcare, the light chemical and electrical industries, pharmaceuticals, the sugar industry, tourism, transport and wholesale trade.
Secondly, the Zona Especial de Desarollo (ZED) Mariel, the first special development zone created by the Decree Law no 313, is another method used to attract investments. It is not a free trade zone, but rather an area where production of goods and services are incorporated to promote innovation of new technology, industrial concentration, import substitutions, export generators, and sources of high quality jobs. It already ensures investors have basic infrastructure, access roads, a stable supply of drinking water and electricity, and a communication system interconnected with fibre optics. In this zone, there are some sectors that take priority, such as biotech and pharmaceutical, containers and packaging, renewable energy, agriculture, agro food industry, telecommunications and informatics, tourism and real estate, and investment and infrastructure. The objective of the ZED Mariel is to contribute to national development and generate exports, while promoting the replacement of imports, the transfer of cutting-edge technology and know-how, and skills referring to business management. It also aims to attract foreign investment, generate new sources of employment, favour environmental sustainability, develop infrastructure necessary for economic progress, stimulate the establishment of national or foreign enterprises and ensure its coordination with the rest of the economy.
The Portfolio of Opportunities for Foreign Investment states that there are 246 business opportunities presently in Cuba. They range across various sectors and domains, available in both the ZED Mariel and the rest of the country.
According to Rafif Berro, a representative from the Ministry of Economy and Trade, they have launched, along with the Lebanese Cuba Business Council (LCBC), a process to amend the trade agreements between Cuba and Lebanon. They are first reviewing existing agreements to see what can be improved, and will later change them so they become more specialized. This is not limited to the exchange of goods and services, but also encompasses joint ventures. They are grooming Cuba to become an entry point for this type of development. When asked about the future, Berro says he sees a partnership between Cuba and Lebanon. Some Lebanese products may be produced for Cuba specifically, such as programming and software development. Berro doesn’t believe it’s going to be a one sided direction, but rather a complementary one.
The Lebanese Ministry of Economy and Trade has also been seeking non-classical markets such as Cuba as a way to begin exchange with countries outside of the Arab world and Europe. They have launched negotiations for free trade agreements with Venezuela, Uruguay, Argentina, Brazil and Paraguay. Cuba’s favourable geographical location might be the entry point for these Latin American countries. In some ways, the opening of Cuba has happened at the optimal time for Lebanon since it will hopefully be the start of a long list of non classical markets.
Mohammad Choucair, the chairman of the Chamber of Commerce, Industry and Agriculture, said that the Chamber has given its full support to the LCBC in order to open the capacity for investing in Cuba. Lebanon is one of the first countries preparing itself for Cuba and the advantage it holds are threefold: (1) there is an existing diplomatic relationship, (2) the Lebanese know how to work in difficult countries (with years of instability and lack of resources) and (3) there are over 50,000 people of Lebanese origin already living in Cuba. A history exists between these two countries which will aid negotiations.
Early bird catches the Cuban worm
The president of the LCBC, Ali Kazma, is the person selling and promoting Cuba to potential investors. He has announced that the objective of LCBC at the moment is to prove its commitment to doing business in Cuba, which is why they have launched an impressive advertising campaign to promote the country through videos and other media. They want to show the Cuban government that the council is serious, and as part of this campaign, the first Cuban Lebanese Economic Forum will be held on September 29. Cuba is ready to open its doors but this has to be done slowly. The country is not equipped to handle all the demand, so it made a ten year plan. “We are just placing our foot in the door” he said.
Cuba has a lot to offer, its projects are worth $8 million and ZED Mariel has built the biggest port in Cuba. The LCBC doesn’t expect or want all the projects, but they do want a piece. Cuba Invest, a business created by Kazma but unrelated to the LCBC, has two projects lined up, including a boutique hotel which will hopefully be finalized by February 2016. “We believe it’s going to take 2 years to start generating a revenue on these projects. It’s a long process but it’s an investment.” said Kazma. Cuba Invest is not only working with Lebanese companies; it is recruiting international companies to work in Cuba through Cuba Invest. The first website, LCBCouncil.com, is already up and running.
Cuba still has a long way to go. There is uncertainty about the Cuban government’s commitment to foreign investment and state control of the economic activities which might hinder its prosperity. It’s a land that is in need of a lot of reforms. Lebanon can help it take the first step.