Cuba’s zeal for tight control Casts a pall on new markets

 

Damien Cave, The New York Times

 

MARIEL, Cuba — When Raúl Castro officially opened the new container terminal here on Cuba’s northern coast, he described the project and the special business zone alongside it as “a transcendent project for the national economy.”

 

Official documents promised big incentives for investors: Foreign companies would be given greater control over setting wages at factories inside the zone; proposals would be approved or rejected within 60 days.

 

A year later, the Cuban government has yet to announce a single foreign investment. Officials insist that interest is high, but over the past few years, more foreign investors have left Cuba than have arrived. Analysts and some foreign businesspeople say they have been turned off by a government determined to open its economy and political system no more than a crack to keep free markets and broader freedoms in check.

 

“Fundamentally, it’s all about maintaining control,” said Ted Piccone, a senior fellow at the Brookings Institution who studies the Cuban economy. “It’s seeing what works best while still maintaining social and economic controls.”

 

Mr. Castro’s agreement last week with the United States to release political prisoners and normalize relations appears to many experts to be an economic decision at its core. It is driven both by the need for a new source of growth and by a desire to put off, at least for now, more fundamental questions about how deeply the government intends to push changes.

 

The country clearly needs a stimulus: Economic growth is expected to be just 1.3 percent this year, below the government’s target of 2.2 percent, despite more than five years of new policies that allow Cubans to open small businesses, work abroad, and buy and sell property and cars.

 

Beyond that, some analysts say that Venezuela, Cuba’s main benefactor, has no choice but to reduce its subsidized oil deliveries to the island because it is teetering toward its own crisis caused by the global plunge in oil prices. That could threaten to push Cuba back to the blackouts and severe deprivation that followed the collapse of the Soviet Union.

 

Yet according to many economists, President Obama’s plan to allow more interaction between the two countries may not be the lifeline Cuba is hoping for — unless Cuba overcomes its resistance to change as well.

 

“The United States cannot solve the problems of Cuba’s bureaucratic thickets,” said Richard Feinberg, a professor of international political economy at the University of California, San Diego.

 

To reap the benefits of what Mr. Obama is offering, from telecommunications sales to credit cards, he added, Cuba needs to transition from a country where “the safest bet is to do nothing” to one where new ideas are embraced even if they threaten Communist control.

 

At least initially, Cuba may be able to put off the challenge. American companies that provide educational tours to Cuba under current regulations report that interest has skyrocketed since last week’s announcement. At insightCuba, a travel provider in New Rochelle, N.Y., calls and online interest have tripled.

 

About 400,000 Americans, most of them Cuban-Americans, currently travel to Cuba every year. If that number doubles, and if each visitor spends a typical sum of around $1,000, Cuba will earn an additional $400 million from the United States.

 

Americans bringing back $400 worth of Cuban products (no more than $100 in tobacco and rum), as Mr. Obama’s new rules allow, could push that figure higher.

 

But travelers, and the Cuban government, will still face other limits, like capacity. The island’s hotels, especially in Havana, are already full for most of the high season, so more Americans may simply mean fewer Canadians, Europeans and others who have no limit on spending.

 

Cuba also failed to meet its goal of three million visitors in 2013, according to official figures, in part for some of the same reasons that there are no new companies in Mariel’s special development zone, which as of this week was still being leveled by bulldozers. Many new hotel developments have been only inching their way through the Cuban bureaucracy.

 

Foreign investment over all has contracted under the weight of Cuban officialdom and “a general fear of capriciousness of policy toward foreign businesses,” said Archibald Ritter, a professor at Carleton University in Ottawa who studies the Cuban economy.

 

He cited, as an example, the case of a Canadian businessman who is serving a 15-year prison sentence on charges of economic crimes against the state after complaining about corruption among Cuban officials.

 

The country’s most recent appeal for foreign investment, made last month, also clearly shows that officials are divided when it comes to investment of all kinds. They appear to be convinced, despite the evidence so far, that what they have to offer, restrictions included, is more than enough to attract large interest.

 

In the energy sector, too, there are limits to protect the status quo: The portfolio of potential investment is heavily focused on projects that would increase the amount of electricity produced by renewable sources, but these ventures would have to sell their output to the government at prices fixed ahead of time.

 

Even in the industries that have seen the most change since Mr. Castro became president in 2006, like agriculture, results have been tethered by the state. Farmers have complained that laws adopted in 2008 and 2012 to encourage Cubans to develop idle land did not go far enough toward ownership. Lease contracts must be reapproved every 10 years, limiting interest.

 

Michael Mora, 32, a farmer harvesting blood-red beets from the dark soil just outside Havana on Monday, identified another common problem: transportation to bring products to market. “A lot of times, we use bicycles,” he said.

 

The United States is prepared to help. Mr. Obama’s new policy falls short of lifting the trade embargo. But his plan includes provisions allowing Americans to export agricultural equipment for small Cuban farmers, building materials for private residential construction, “goods for use by private-sector Cuba entrepreneurs,” and telecommunications equipment, including cellphones, and the infrastructure needed to expand Internet access.

 

If the United States removes Cuba from the list of states that sponsor terrorism, a prospect raised by Mr. Obama, Cuba could also apply for financing from the International Monetary Fund or other global creditors to help pay for things like tractors or trucks.

 

But with both the United States and the I.M.F., the details would have to be negotiated, and it is not clear whether Cuba would accept the American focus on independent businesses or the demands of global financiers. In the past, Cuba has rejected the kind of transparency that the fund requires, arguing that the United States would use the information to undermine the government.

 

It also bars Cubans in the nascent private sector, most of them self-employed people known as “cuentapropistas,” from importing supplies for their businesses. Whether it is a car or a calculator, all purchases must be made through the state, though the rules are often difficult to enforce. And profits are limited. Small businesses can be started only in certain sectors, and every entrepreneur faces large fees or taxes and restrictions on how many employees can be hired.

 

“In Cuba, they are concerned about people becoming rich,” said Carmelo Mesa-Lago, emeritus professor of economics and Latin America studies at the University of Pittsburgh. As long as the interests of the state supersede the desires of the Cuban people, he added, no shift in American policy will be able to turn the country around.

 

“Cuba has to do a transformation of its economic system to be self-sufficient,” Professor Mesa-Lago said. “That is the key to the whole thing. Unless Cuba transforms its economic system to increase production, even lifting the embargo won’t solve the problem.”

 

Elisabeth Malkin and Randal C. Archibold contributed reporting from Mexico City, and Victoria Burnett from Havana.

 

 

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