Q4 2018 New Markets Investor

Q3 2016
expansion in hotels and resorts to accompany a boom in
tourism.
Business disputes are to be handled mostly by arbitration,
bypassing the Cuban legal system. Importantly,
businesses can choose a neutral country whose laws
they want to use, such as the application of Spanish
regulations or tribunals of the International Chamber of
Commerce in Paris.
As for Cuba’s right to expropriate foreign assets, the
government can only seize property under certain
conditions, which are not dissimilar to the rules in other
countries. Multilateral treaties can protect investments,
depending on the place of incorporation. Cuba has
multilateral treaties with 71 countries. Cuba’s ability to
seize assets is a key concern for businesses following
its 1960 privatization of U.S. refineries for refusing to
process Soviet oil, leading to the U.S. embargo.
Besides the new investment law, Cuba has another
carrot for investors. In 2013, the Cuban and Brazilian
governments created the Mariel special development
zone, which sits in Mariel Bay along the northern coast
of Cuba, 28 miles west of Havana. The port and trade
zone, which will have vastly more capacity than the
port in Havana, is being touted as the Caribbean’s first
container terminal facility. It can accommodate large
vessels and benefit from the current expansion of the
Panama Canal, according to news reports.
Mariel will provide investors with even better tax
breaks and other benefits than those under the new
investment law, Mariel investors are shielded from the
12% profit tax for a decade, and all equipment and materials
brought in will be treated as duty-free, according
to news reports. Ana Teresa Igarza, general director
of the Zona Especial de Desarrollo Mariel, recently
divulged that the zone has received over 300 formal
requests to settle there from businesses worldwide.
Cubans have seen an influx of foreign investments
before, but it did not work out. In the 1990s, the fall the
Soviet Union — its main benefactor at the time — led
to a collapse of the Cuban economy. To recover, the
country opened its doors to outside investors. While
Americans were excluded, Europeans, Canadians, Israelis,
Mexicans and South Americans were very active.
They formed joint ventures, with most of them ultimately
ending in failure. Cuba learned valuable lessons
from these ventures realizing that it was important to
conduct due diligence and to get to know their business
partners well before entering into ventures.
Cuba is aiming to attract $2 billion to $2.5 billion in
foreign direct investments per year, Cuba’s minister for
foreign trade and investment said on state TV last year
that the country needs that amount of foreign capital to
achieve its economic growth target of 7% a year.
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New Markets Investor