Cuban Economy Benefiting From Foreign Investment

August 2, 2002

GAINESVILLE, Fla. — Despite U.S. efforts to curb its growth, the Cuban economy continues to develop, partly with the help of foreign investment that includes tourism and money sent from relatives living in United States, according to a University of Florida researcher.

While 2001 was a dismal year for investment in the Cuban economy with less capital entering the island, foreign investment represents a growing part of the nation’s economy, according to research by Paolo Spadoni, a UF doctoral student in Latin American studies. However, the Cuban government dismisses the importance of foreign investment to avoid seeming dependent on outside monies, said Spadoni, who presented his findings Thursday at the 12th annual Association for the Study of the Cuban Economy in Miami.

“Foreign investment has helped Cuba find new markets for its main products, increased the competitiveness of Cuban production and stimulated import substitution,” Spadoni said.

Foreign investment in Cuba is a double-edged sword, Spadoni said, but indicators show the nation is a valuable and growing market for international trade. The Cuban government has become more selective in promoting joint ventures with foreign companies, mainly focusing on projects that involve large amounts of capital and loan financing.

Spadoni’s presentation, “Foreign Investment in Cuba: Recent Developments and Role in the Economy,” analyzes the latest results of foreign investment in Cuba and attempts to give a sense of the effect foreign capital has on the Cuban economy. Among the topics he examines is the Helms-Burton Act, which President Bill Clinton signed into law in 1996 to prevent foreign aid to the island nation by economically penalizing countries that trade with Cuba. Through interviews and research, Spadoni discovered that foreign investment is an important and emerging factor in the nation’s economy.

Spadoni also discovered that while foreign companies are required to pay specific wages to Cuban workers, the country’s government seizes the vast majority of that income.

The real problem for investors, however, is that Cuban workers cost companies more than those in other Latin American countries.

“You might end up paying a Cuban worker $250 while the government pays the same workers 250 pesos – the equivalent of $10 dollars per month,” Spadoni said.

One of the emerging trends in foreign investment is a concept called cooperated production detailed in Cuba’s Law 77. Under this type of agreement,small and mid-size foreign companies, mostly from Spain and Italy, use functioning installations and facilities in Cuba, mainly in work-intensive sectors such as light and machinery industries.The companies provide raw materials, technological equipment and technological assistance. The Cuban government then pays the workers in local currency.

“In the agreements contemplated by Law 77, the foreign companies are required to pay the Cuban workers, recruited by a Cuban entity, in dollars while the government pays them the equivalent in pesos,” Spadoni said.

Cuban workers receive their wages in domestic currency at the official exchange rate of one peso per dollar. Due to generalized shortages of goods available through the government’s normal distribution system, however, workers are increasingly compelled to buy dollars at the unofficial exchange rate, which is currently about 26 pesos per dollar, in order to purchase the products available in stores that deal only with dollars.

In addition, foreigncurrency enters the island when families, mainly from South Florida, send money -remittances – to relatives back in Cuba. Remittances total about $1 billion every year, said Terry McCoy, a UF professor of Latin American studies who supervised Spadoni’s research.

McCoy agrees that foreign investment has become a significant part of the Cuban economy and that it would benefit from U.S. ventures there.

Many foreign backers, predominantly from Canada and Western Europe, are taking advantage of the opportunities in Cuba, while American investors are unable to invest in the country’s growing markets, said McCoy, director of the Latin American Business Environment Program at UF’s Center for Latin American Studies.

“Everyone realizes it will become much more profitable when U.S. citizens are allowed to go in and invest. They are trying to establish a presence before it opens to U.S. investors,” McCoy said. “Everyone else in the world has normal relations with Cuba. We’re the exception.”