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Exploring and Living in Cuba

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Cuba is gradually open itself to the world, but there is difficulty of doing business. However, business cannot thrive in a controlled environment.

Internet will be a huge stumbling block to doing business since the nation still suffers from one of the lowest connectivity rates in the world. Without Internet freedom, knowledge cannot be freely shared, so that Cuba’s economic development is greatly hindered. As President Obama himself declared to the Cuban people, “The Internet is one of the greatest engines of growth in human history. There has to be a complete opening and liberalization of the Internet”.

Internet access has improved slightly over the last few years but not enough. Now you can find a few Wi-Fi hotspots in Cuban cities that are controlled and managed by the Cuban authorities. Users must pay a cost of $2 USD per hour. Since this sum exceeds two days’ wages for the average Cuban, one can only conclude that the Internet is not freely available to all.

The state retains a chokehold on the economy including tourism, and political oppression continues. Cuba’s monopoly over almost all aspects of the economy, contribute to uncertainty for those planning to do business in the island nation.

Since the travel ban has been lifted in twelve categories, there are eventually going to be five million Americans visiting every year, and that’s going to create certainty for investment in the hotel and travel industry. U.S. businesses are going to want to capitalize on the opportunities created by all those American tourists heading south, but they can’t unless the trade embargo is lifted.

There is also no clear sign of reform in Cuba’s economic regulatory environment for foreign enterprise. In fact, under Cuban law, any foreign company that wishes to do business on the island must enter a subsidiary agreement, under which the Cuban government owns a minimum of 51 percent of that company’s holdings in Cuba.

Cuba’s 2014 foreign investment law provides for foreign direct investment through joint ventures, wholly foreign-owned entities, or contract investments (such as contracts for hotel management or the provision of professional services). In practice, however, Cuba’s government remains unwilling to approve most FDI projects that include wholly foreign-owned entities. Most approved projects are joint ventures (with at least a 51 percent Cuban equity share) or contract investments. In addition, a package of tax incentives for foreign investors is available only to joint venture projects.

As one Cuba expert stated, “It doesn’t appear to be their goal to privatize their economy. It’s a state-owned, state-planned economy For U.S. businesses, it’s easier to work in a market-based economy.”

But U.S. officials and businesses want to see more direct dealings with Cuban entrepreneurs, something that government officials are not quite ready to step aside in order to facilitate.

The Cuban government, still clearly prefers to channel all business opportunities to state-run enterprises." American businesses will face challenges in operating in Cuba. The Cuban government has things to do if it really wants to take full advantage of the opportunities available.”

Although long-term leases are available in some cases, most land in Cuba is owned by the state. Restrictions on foreign ownership of real property create obvious risks for foreign companies seeking to conduct business in Cuba. This, combined with numerous other investor concerns—including competing or partnering with state-owned enterprises; the country’s labor system, which can complicate both hiring and laying off workers; onerous approval processes; and licensing procedures—creates an atmosphere that is generally considered challenging to foreign investment in Cuba.

 The lack of rights to own land and some physical goods in Cuba is a significant concern for foreign investors in Cuba.

The Cuban legal system has been a cause for concern, particularly for potential foreign investors in Cuba with regard to the settling of disputes. Cuban lawyers are all employees of the Cuban government; there is no private practice of law in Cuba. The domestic arbitration system lacks transparency, so there is little information available to determine whether the system is fair to foreign investors or favors the state. While some industry sources say it is difficult or impossible to find favorable resolutions of disputes against the Cuban government, others suggest that in commercial matters, the system is fair and often finds against the government. In matters relating to national security, however, or those with political implications, it is generally agreed that the Cuban government will prevail. The Cuban government’s recent willingness to allow international arbitration clauses in contracts may indicate a desire to create a friendlier atmosphere for investors.

Dual currency and exchange rates can pose a problem to doing business. As previously mentioned, Cuba currently uses two currencies, the Cuban peso (CUP) and the convertible peso (CUC), neither convertible outside of Cuba. Pegged to the US dollar, the CUC is used for foreign trade, the tourism sector, some restaurants and paladares (private restaurants), high-end stores, and much of the private sector.

The CUP is used by the Cuban population for most domestic transactions, and all wages to Cubans are paid in CUP, regardless of the sector in which they work. Cuba also has multiple exchange rates. An official exchange rate of 1 CUP: 1 CUC is used by the government and all state-owned entities, while exchange centers use a rate of 24 CUP: 1 CUC or 25 CUP: 1 CUC, depending on whether the currency is being bought or sold. The multiple currencies and exchange rates have created serious distortions in the Cuban economy. The government announced plans to merge the two currencies, but the merger appears to be delayed, and official information on the process has yet to be released.

Cuba’s infrastructure needs both repair and further development. In recent years there have been successful upgrades to Cuban infrastructure, including the new port of Mariel, the railway expansion to the new port, and telecommunications improvements in certain areas, among others. Because the Cuban government manages most imports and handles the distribution of imported goods within the country, it is difficult to estimate the extent to which poor infrastructure affects trade. Nevertheless, telecommunications connections are still poor, both within the island and to the rest of the world; this is viewed as an obstacle to doing business that affects all foreign firms. Lifting the ban on dollars in transactions would certainly improve doing business.

State trading, storage, and distribution is another concern. The Cuban government currently controls most aspects of international trade and domestic distribution. Most imports and exports go through Cuban state-owned entities, and distribution is controlled by the government. To encourage foreign investment, the government has allowed some foreign firms to import and export directly, but the growing private sector and cooperatives in Cuba have little to no ability to source or access the foreign inputs they need if they are to grow. Further, an inefficient distribution process causes supply bottlenecks throughout the country. One result of these limitations is that an increasing flow of the goods needed for the private and cooperative sectors, valued as high as $3.5 billion yearly, is entering Cuba via travelers from the US. If US restrictions are removed, growth in US exports to Cuba likely will continue to depend on the purchasing decisions of Cuban importing entities. The degree of government control over storage and distribution channels may further limit potential US exports to Cuba and deter potential investors.

Nevertheless, some American businesses have prospered. Airbnb began operating in Cuba recently and Sprint now has a roaming agreement with the Cuban state telecommunications company, Etecsa. Cleber, an Alabama company, received a license in February from the Treasury

 Cuba to allow small and medium-sized private businesses

Communist Party documents published on May 24, 2016 said a category of small, mid-sized and 'micro' private business was being added to the party's master plan for social and economic development.

 Cuba will legalize small and medium-sized private businesses, a move that could significantly expand the space allowed for private enterprise in one of the world's last communist countries.

Once considered to be a mortal threat to the Cuba regime, private businesses – and business people in particular – will now have official status and will hopefully find an end to the practice of arbitrary crackdowns and suspicion that threatened to undermine emerging capitalists seeking to satisfy demand for goods and services.

Until now, the government has allowed private enterprise only by self-employed workers in several hundred established categories like restaurant owner, taxi driver or hairdresser. Many of those workers have become de-facto small business owners employing other Cubans.

But there are widespread complaints about the difficulties of running a business in a system that does not officially recognize them. Low-level officials often engage in crackdowns on successful businesses for supposed violations of the confusing rules on self-employment.

Communist Party documents published recently said a category of small, mid-sized and "micro" private business is being added to the party's master plan for social and economic development, which was approved by Cuban Communist Party Congress. The twice-a-decade meeting sets the direction for the single-party state for the coming five years.

The documents say that the three categories of business will be recognized as legal entities separate from their owners, implying a degree of protection that hasn't so far existed for self-employed workers.

As the United States starts to ease the restrictions on travel and commerce with Cuba, a swell of American tourists is expected to arrive with fat wallets. New restaurants are already opening every week, poised to greet them

For Cubans, uncertainties loom. Will the coming changes unshackle the island from its dire poverty? Or will those changes enrich an affluent upper class, ripping apart thewe’re-in-it-together social pact forged in Cuba’s revolution over the past half century?

"Private property in certain means of production contributes to employment, economic efficiency and well-being, in a context in which socialist property relationships predominate," reads one section of the "Conceptualization of the Cuban Economic and Social Model of Socialist Development."

Reforms initiated by President Raul Castro after he became president in 2008 have allowed about half a million Cubans to transition to work in the private sector despite the extensive limits on self-employment. New categories of small and mid-sized businesses create the potential for many more jobs in the private sector, although Castro's reforms have been slow and marked by periodic reversals of many reforms.


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