Cuba bids to lure foreign investment with new port and trade zone

Cuba bids to lure foreign investment with new port and trade zone
By Marc Frank

HAVANA (Reuters) - Cuba published rules and regulations on Monday
governing its first special development zone, touting new port
facilities in Mariel Bay in a bid to attract investors and take
advantage of a renovated Panama Canal.

The decree establishing the zone and related rules takes effect on
November 1 and includes significant tax and customs breaks for foreign
and Cuban companies while maintaining restrictive policies, including
for labor.

Cuba hopes the zone, and others it plans for the future, will "increase
exports, the effective substitution of imports, (spur) high-technology
and local development projects, as well as contribute to the creation of
new jobs," according to reform plans issued by the ruling Communist
Party in 2011.

The plan spoke positively of foreign investment, promised a review of
the cumbersome approval process and said special economic zones, joint
venture golf courses, marinas and new manufacturing projects were planned.

Most experts believe large flows of direct investment will be needed for
development and to create jobs if the government follows through with
plans to lay off up to a million workers in an attempt to lift the
country out of its economic malaise.

The Mariel special development zone covers 180 square miles (466 square
km) west of Havana and is centered around a new container terminal under
construction in Mariel Bay, 28 miles from the Cuban capital.

The zone will be administered by a new state entity under the Council of
Ministers, and investors will be given up to 50-year contracts, compared
with the current 25 years, with the possibility of renewal.

They can have up to 100 percent ownership during the contract, according
to Cuba's foreign investment law.

Investors will be charged virtually no labor or local taxes and will be
granted a 10-year reprieve from paying a 12 percent tax on profits. They
will, however, pay a 14 percent social security tax, a 1 percent sales
or service tax for local transactions, and 0.5 percent of income to a
zone maintenance and development fund.

Foreign managers and technicians will be subject to local income taxes.

All equipment and materials brought in to set up shop will be duty free,
with low import and export rates for material brought in to produce for
export.

However, one of the main complaints of foreign investors in Cuba has not
changed: that they must hire and fire through a state-run labor company
which pays employees in near worthless pesos while investors pay the
company in hard currency.

Investors complain they have little control over their labor force and
must find ways to stimulate their workers, who often receive the
equivalent of around $20 a month for services that the labor company
charges up to twenty times more for.

And investors will still face a complicated approval policy, tough
supervision, and conflict resolution through Cuban entities unless
stipulated otherwise in their contracts. And they must be insured
through Cuban state companies.

MARIEL PORT

The Mariel container terminal and logistical rail and highway support, a
$900 million project, is largely being financed by Brazil and built in
conjunction with Brazil's Grupo Odebrecht SA. The container facility
will be operated by Singaporean port operator PSA International Pte Ltd.

The terminal is scheduled to open in January.

Future plans call for increasing the terminal's capacity, developing
light manufacturing, storage and other facilities near the port, and
building hotels, golf courses and condominiums in the broader area that
runs along the northern coast and 30 miles inland.

Mariel Bay is one of Cuba's finest along the northern coast, and the
port is destined to replace Havana, the country's main port, over the
coming years.

The Mariel terminal, which will have an initial 765 yards of berth, is
ideally situated to handle U.S. cargo if the American trade embargo is
eventually lifted, and will receive U.S. food exports already flowing
into the country under a 2000 amendment to sanctions.

Plans through 2022 call for Mariel to house logistics facilities for
offshore oil exploration and development, the container terminal,
general cargo and bulk foods facilities.

Mariel Port will handle vessels with up drafts up to 49 feet compared
with 36 feet at Havana Bay due to a tunnel under the channel leading
into the Cuban capital's port.

The terminal will have an initial capacity of 850,000 to 1 million
containers, compared with Havana's 350,000.

(Editing by Tom Brown and Jim Marshall)

Source: "Cuba bids to lure foreign investment with new port and trade
zone | GlobalPost" -
http://www.globalpost.com/dispatch/news/thomson-reuters/130923/cuba-bids-lure-foreign-investment-new-port-and-trade-zone