Cuba’s Zeal for Tight Control Casts a Pall on New Markets

Cuba's Zeal for Tight Control Casts a Pall on New Markets
By DAMIEN CAVEDEC. 23, 2014

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.

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.

"People are excited about the news," said Tom Popper, president of
insightCuba. "Guests are saying that they want to go now, before Cuba
changes."

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.

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In tourism, for example, Cuba is calling for investment in a number of
new areas, while stating that in Havana and Varadero, two especially
desirable locations, investor participation "will be the exception" as
state firms are favored.

Source: Cuba's Zeal for Tight Control Casts a Pall on New Markets -
NYTimes.com -
http://www.nytimes.com/2014/12/24/world/cubas-zeal-for-tight-control-clashes-with-need-for-growth.html