Foreign businesses tread carefully as Cuba opens up

Foreign businesses tread carefully as Cuba opens up
Marc Frank in Havana
February 1, 2015 12:40 pm

With a view of the sea sparkling in the distance, Ceiba Investments
enjoys some of the best corporate office space in Cuba's rundown capital
city.
Complete with high-speed internet, boutiques, travel agencies and banks,
the Miramar Trade Center, a sprawling complex of six modern edifices in
an upmarket district of Havana, is home to international construction
firms, Russian oil companies, Canadian and European banks and traders.
But even in this rarefied environment, success does not come easy for
foreign companies on a Caribbean island that has a long history of
communist rule and is only slowly opening up its economy. Businesses say
they are hampered by local regulations and US sanctions related to
international finance.
As American companies begin to explore new opportunities here after the
historic decision by Cuba and the US to renew diplomatic relations, they
can learn much from those already with a foot in the door. International
behemoths such as Bougyues, Nestlé and Anheuser-Busch Inbev have
interests in Cuba. There are 200 operating investment projects in Cuba,
ranging from joint ventures to management agreements and oil
exploration, according to government statistics.
But while many have been successful, about 60 per cent of the businesses
established here by foreigners since the fall of communism in eastern
Europe have closed, according to government statistics. Some of them —
analysts and diplomats say — were forced out by the Cuban government.
"Cuba is one of the only places where every direct investment requires
the authorisation of the highest government body. It is also different
since nearly everything is owned by the state," said Sabastiaan Berger,
a Dutch corporate lawyer with more than 15 years' experience in Cuba and
the chief executive of Ceiba, whose investments include the Miramar
Trade Center and hotels.
Founding a joint venture in Cuba if you are a small or medium sized
foreign business is the same as putting a noose around your own neck
- Michel Villand
"Can you do business here?" asks Cameron Young, a Canadian lawyer and Mr
Berger's longtime partner. "Of course. The trade centre is full." But,
he added: "Your state partner is also the supplier, the employer of your
staff, the buyer, the regulating authority and the entity that taxes
you. So it's a complex place to enter into a normal business transaction."
Just ask Michel Villand, a Frenchman who in the 1990s invested his
fortune in a joint venture pastry business, Pain de Paris, with two
factories and a number of retail outlets. He says he was forced out of
business in 2007 because his venture was a success and his Cuban
partners decided they wanted it all.
"Founding a joint venture in Cuba if you are a small or medium sized
foreign business is the same as putting a noose around your own neck,"
he wrote in his memoir "My Business Partner Fidel Castro", published in
Spain, which details the trials and tribulations he says he suffered.
The fate of Coral Capital, Ceiba's only real competitor in the country
and a partner in Havana's upmarket Saratoga Hotel, also illustrates the
pitfalls that await the unwary. The company was raided and closed in
2011 as part of a drive against corrupt trading practices.
Foreign executives, dozens of Cuban staff, officials and businessmen,
found themselves behind bars. Some pleaded guilty, plea bargained and
co-operated, others fought the charges. After being held without charges
for more than a year, Coral capital's foreign managers were convicted of
minor infractions in 2013 and deported.
Stephen Purvis, a British architect and former head of development
projects at Coral Capital, said a defendant caught up in the corruption
dragnet had falsely denounced him as part of a plea-bargain arrangement.
Initially accused of "revealing state secrets" and "illegal activities",
he was held at the infamous Villa Marista state security interrogation
centre for months. He eventually wound up at the Condesa prison for
foreigners, charged with "economic crimes". He never saw the specific
charges against him and a lawyer was never present during his interviews.
Mr Purvis described Cuba's legal system as Kafkaesque. "The process is
contrary to any western concept of fairness and they blatantly ignore
all the relevant international laws."
He was eventually charged with permitting his employees to handle bills
of exchange because such activities were not part of their job
description. "The fact that this had been going on for 10 years, that
each transaction had been approved by the central bank and that in each
case the relevant ministry had approved the underlying deal and that we
were subject to a variety of audits every year was irrelevant," he said.
Patience, persistence and perseverance is the advice an Asian diplomat
offers those eager to invest in Cuba— advice veteran hotel manager Eric
Peyre agrees with. He supervises three hotels in Cuba for the French
firm Accor.
"In my more than 20 years working as foreign manager in the Cuban
tourism industry, I have never seen anyone lose money at the end of the
year," he said.
Success is certainly possible, says trade finance banker William White,
the former head of the Republic Bank's office in Cuba. But he adds: "Be
ready to put up with a lack of economic information, delays in obtaining
decisions from the state, and regulation which can hamper and delay
business operations."

Source: Foreign businesses tread carefully as Cuba opens up - FT.com -
http://www.ft.com/cms/s/0/eb663b9a-a7b3-11e4-8e78-00144feab7de.html#axzz3QaJhQucc