Sunday, November 24, 2013


HAVANA, Cuba — One country, two systems. The formula has worked for China’s business-minded communists. Can it succeed in Cuba?

President Raul Castro’s government is building its own version of a Chinese-style economic zone on the banks of the Mariel Bay, 30 miles west of Havana, where the laws of scientific Marxism will not apply.

Inside a 180-square-mile special economic zone, Cuban planners have envisioned a global capitalist enclave where foreign companies can install manufacturing plants, research centers and operational hubs.

This island within an island will operate on the business principles of globalization -- not tropical socialism -- and like China’s 1980s reforms, it would offer communist authorities an expedient way to compartmentalize economics and ideology.

The zone would lure foreign businesses with the guarantee of a 10-year tax holiday and virtually unfettered freedom to import raw materials and repatriate profits. The Cuban government began accepting bids from international investors this month.

At the core of the project is a $900 million deep-water port terminal being built by the Brazilian construction firm Odebrecht, primarily with Brazilian government loans. Due to open in January, it is designed to handle the new wave of larger “post-Panamax” ships expected to dominate global commerce when the Panama Canal expansion is completed in 2015.

The town of Mariel (pop. 40,000), a forlorn fishing village coated in a scrim of dust from the local cement plant, is set to become Cuba’s industrial hub of the future.

The town was the site of the 1980 “boatlift” in which more than 100,000 islanders fled for the United States. But Cuba sees a massive influx of foreign capital coming to the placid waters of its bay, especially Chinese firms looking for a modern shipping container terminal in the Caribbean.

“The Chinese companies that today produce in China and bring their goods here could produce here in Cuba, in this special zone ... with many incentives,” Foreign Trade and Investment Minister Rodrigo Malmierca told China’s Xinhua news agency this month during Havana’s annual International Trade Fair.

By setting up their operations in the special zone, Malmierca said, Chinese companies would be well-position to supply the rest of Caribbean, Central America and Mexico.

He also affirmed a promise from Cuban leaders that property within the special zone cannot be expropriated -- a necessary assurance on an island where billions worth of foreign assets were nationalized after Fidel Castro’s 1959 Revolution.

Cuban trade officials say investors from Russia, China, Vietnam, Germany, Spain, Japan, Mexico and Brazil have expressed interest.

Skeptics of the project see it as the latest repository for Cuban state-sponsored hype, now that foreign oil companies have all but given up their hunt for crude in Cuban waters.

Others doubt international investors will choose to put their money on the island when they could go to another country like the Dominican Republic, which has lower labor costs and an established track record for manufacturing. The Mariel project’s promoters say it will be the Caribbean’s biggest shipping port once completed, but other cities in the region are likely to catch up.

Another big disincentive: the long-standing US trade sanctions, which ban Cuban imports and prohibit ships that stop on the island from calling at US ports for six months.

With a perfectly-shaped “pocket bay” pointed at the US Gulf Coast, Mariel would otherwise be well-positioned for a post-embargo future of robust trade between the US and Cuba.

But with the trade sanctions firmly in place and other US measures aimed at companies doing business on the island, Cuba will have to sweeten its offers to foreign firms by adding additional incentives, analysts say.

Cuba is offering investors 50-year contracts and 100 percent ownership of their businesses, duty-free imports and virtually zero taxes for the first decade of operation.

Raul Castro’s government has cast the Mariel project primarily as a job-creation program. It’s looking to slash the number of Cuban workers employed by the state, and the island’s economy desperately needs new sources of employment, not to mention technology and training.

Still, doubts linger about the types of industries that would see Cuba as an attractive site for export-driven manufacturing, since the island’s labor force has little experience with modern assembly plants or advanced technology.

Cuban officials say their goal is to attract more sophisticated industries to the special zone, but this remains a big unknown, said Jonathan Benjamin-Alvarado, a Cuba scholar at the University of Nebraska-Omaha.

“Rum and cigars won’t cut it, but if medical devices, pharmaceuticals and some value-added manufactures are coming out of the special economic zone, it could be very attractive for outside investors,” he said.

“It remains to be seen if the terms of trade will be enticing for investment or if they cause more of the doubts that have kept them away from Cuba in the past.”

In particular, companies may be discouraged by Cuban laws that prohibit them from hiring workers directly, making them go through a government agency instead.

The agency pays workers a fraction of what they would otherwise receive, forcing foreign companies to pay their workers on the side in order to keep them motivated.

It’s the type of gimmickry that outside investors and manufacturers may not want to put up with.

A few critics have also seized on the ideological gymnastics of Cuba’s communist authorities, who rail against “exploitative” global capitalists on state television while rolling out a red carpet for them at Mariel.

“What about the rest of us?” wrote Pedro Campos, a critic of Castro’s from the left. “Sweat shops, exploitation, prohibitions, misery, layoffs, high taxes, edicts in place of democratic laws and a new labor code so that ‘employers’ — a euphemism for capitalist exploiters — do as they wish with defenseless workers.

"Those are the possibilities they’re offering to investors so they can squeeze workers as much as they want.”

Cuba shutters private theaters, threatens other businesses
People watch a 3D movie at a private movie theater in Havana, Cuba, Monday, Oct. 28, 2013.

Cuba closed dozens of home-based movie theaters on Saturday and reaffirmed its plans to end the private sale of imported goods as communist authorities pressed for "order, discipline and obedience" in the growing small business sector.

A government statement issued through official media said home-based theaters and video games will "stop immediately in any type of self employment," a local euphemism for small business.

The statement said "the showing of movies, including in 3D salons, and likewise the organization of computer games, has never been authorized."

The government banned the private sale of imported goods last month, a measure that potentially affects some 20,000 small businesses and their employees who sell clothing, hardware and other goods brought in informally by travelers, some of whom visit the Caribbean island regularly carrying merchandise from the United States, Spain and Latin American countries.

President Raul Castro, who replaced his brother Fidel in 2008, has instituted a series of market-oriented reforms to Cuba's Soviet style economy where the state still employs 79 percent of the 5 million-strong labor force. "These measures are corrections to continue bringing order to this form of management, fight impunity and insist people live up to the law," the government said on Saturday.

"In no way does this mean a step backward. Quite the contrary, we will continue to decidedly advance in the updating of our economic model," it said, adding that would only be possible "in an atmosphere of order, discipline and obedience."

The import ban has created a fury among entrepreneurs and the public who have tired of buying high priced and low quality clothing from state-run establishments.

Saturday's closing of private theaters will add fuel to the fire as they have been overwhelmingly welcomed by the public.

Marlene, a Havana housewife, said her neighbor was planning to open a 3D salon.

"The state has no 3D theaters, so what is their problem. Sometimes the government seems to want to make our lives worse for the fun of it," she said, asking her last name not be used.

State role questioned
Cuban economist Juan Triana, in his regular Thursday commentary on state-run Radio Taino, said that the government should get out of businesses it had no reason to be in, referring to the ban on imports.

"Is it really worthwhile for the state to continue expending effort, money and prestige in an activity it was not designed for ... and which in general undermines its prestige due to the quality of the products, but also theft, corruption, many costs that are difficult to cover even though prices are very often two or three times their value," he said.

On Saturday the government said it had decided to postpone the ban on imports until January to give vendors time to liquidate their inventories.

Three years ago the government opened up retail services to "self employment" in the form of 200 licensed activities from clowns, seamstresses, food vendors, taxis and the building trades, to small businesses such as restaurants, cafeterias, bed and breakfasts and entertainment.

The government said the measure was aimed at absorbing excess state labor, improving services, eliminating inefficiencies and bringing black-market activity above ground.

There are now 442,000 self-employed people in Cuba, of whom around 100,000 work as employees of small businesses, according to the government.

Enterprising residents have taken advantage of some of the categories - for example entertainer or seamstress - to offer movies, video games and imported clothing and supplies in greater variety and at lower cost than the state.

In September the government added 12 new licenses, including real estate broker, but also listed all self-employed categories and the content of approved activity. It added phrases such as for seamstress, "does not include the sale of manufactured or imported clothing."

Since then, state employees have been visiting all license holders to review their activities and warn them if they are stepping over the line.

"These recent restrictions reflect an on-going struggle between those Cuban officials who envision a dynamic private sector as benefiting Cuban consumers - in these cases of modern video entertainment and low-cost imported clothing - and those government officials who fear loss of state control over the national economy," said Richard Feinberg, a nonresident senior fellow of the Washington-based Brookings Institution and author of various studies on Cuban reforms.
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