Given Cuba’s imminent loss of subsidies and other types of donations from Venezuela, various media outlets have broadcast the Castro regime’s supposed strategy to attract foreign investments to the island. Like actors in a road movie, the authorities of the Cuban regime have gone on a crazed search for investments as if time were running out.
To develop their projects, private businesspeople who invest in Cuba are obliged to accept conditions that do not correspond broadly with those established by international law in most other parts of the world. In Cuba, the lack of concrete opportunities to invest exacerbates the risk already associated with any investment.
This risk is rooted in the Stalinist nature of the regime, a system that penalizes property rights and the way resources are assigned to the market. State intervention substitutes for economic planning and tries to determine the areas where the international private investor can operate.
Face the facts: the regime that directs the lives and the destinies of Cubans wants to impose its own criteria on decisions made by foreign investors. It amounts to a kind of capitalist-monopolist socialism, in which the rationale for investment is systematically reduced.
In the globalized world of the twenty-first century, it makes sense to try to attract foreign investment. In fact, the modernization of any economy—including its opening to the world, its competitiveness and its capacity to generate employment and wealth—depends in large measure on doing just this.
But what can the Castro regime offer foreign investors?
Natural resources? This will not be easy, since the island’s supply of precious metals, oil, forestry resources and fisheries that could readily attract foreign investors is extremely limited. The land—highly unproductive through neglect and bad management—is the property of the state.
Solid and growing consumer demand? Again, this is questionable since salaries in Cuba ($18 a month) and most Cubans’ acquisition of power is very limited.
High levels of R&D? Inefficient state enterprises, abandoned to their fate by the political leadership, do not offer positive indicators or productivity. Also, R&D is localized in areas that the state refuses to open to foreign capital.
A banking system and consolidated capital markets? Nothing could be farther from reality. Until quite recently, all banking in the Castro economy was marginal and politically penalized. Banking in Cuba is light years away from where a financial system should be if it were to be compatible with foreign investment.
Attractive infrastructure and a high level of social income? This is doubtful in a country in which the share of gross capital formation as a percent of GDP barely reaches 9 percent, one of the lowest rates in Latin America.
Are there real opportunities to invest in Cuba? Even in potentially productive sectors—biotechnology, health, and tourism—the regime is not offering opportunities to foreign investors for the medium or long term. But these are precisely the ones that ought to be open.
The result is that the current attempt in Cuba to attract investors is nothing more than a show. Just like the attempt to create a list of occupations that are open to self-employment, or the renting of agricultural lands to the labor force, or the supposed opening of private lending by banks, the search for foreign investors is nothing more than a politically expedient move lacking all content. One cannot, of course, predict the outcome of Cuba’s search for foreign investors, but, by and large, it will be deficient. The reality is that control of the Cuban economy remains in the hands of state planners—the vast majority of property in Cuba is state-owned, and the economy is controlled by political considerations. Under such circumstances, there is no real reason to invest.
But even if the aforementioned considerations were not sufficient, the current crisis in financial markets hardly suggests that now is the moment to look for financing. Cuba is still resolving outstanding investment disputes at the Paris Club, among other places. Financial advisors to the Castro regime ought to insist that Cuba fulfill its responsibilities before mortgaging or selling the economy’s scant resources. The construction of a house never begins with the roof.
June 1: This AQ-Efecto Naím segment looks at sustainable cities in the hemisphere.