Cuba libre: Could port herald new economic age for communist island?
By Eoghan Macguire, for CNN
A sign bearing the image of Fidel Castro is seen behind a truck in Mariel, Cuba. The coastal town, situated just 30 miles from Havana, will soon play host to a giant new port and free-trade zone. A sign bearing the image of Fidel Castro is seen behind a truck in Mariel, Cuba. The coastal town, situated just 30 miles from Havana, will soon play host to a giant new port and free-trade zone.
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(CNN) — In the sleepy seaside town of Mariel, northwest Cuba, a hulking monument to the communist islands’ evolving economy is rapidly taking shape.
It is here, under the intense glare of the Caribbean sun, that a giant free-trade zone (FTZ) and container port are in the latter stages of construction.
The deep-water facility will have an annual capacity of up to one million containers when finished (three times that of Havana’s existing port roughly 30 miles away) and 700 meters of berth that it is hoped will host some of the world’s largest cargo ships.
Partially financed by loans from Brazil and built by Brazilian construction firm, Odebrecht, the port will be operated by Singapore’s PSA. The FTZ, meanwhile, aims to attract international companies to Cuba by offering them a low-tax, low-regulation environment in which to manufacture goods.
“What the zone is intended for is to create a special climate where foreign capital is going to have better conditions than in the rest of the country,” said Cuba’s foreign trade and investment minister, Rodrigo Malmierca, during a September visit to Beijing.
The $900 million project mirrors similar developments and FTZs that have sprung up in fast-growing communist nations such as China and Vietnam in recent decades — although experts doubt whether Cuba will follow the same path as the “Asian Tigers.”
While the ruling Communist Party maintains that state control will take precedence, the ambitious development is the latest in a series of controlled reforms that have been made since Raul Castro came to power in 2008. The government has already relaxed its control over many sectors, encouraging ordinary Cubans to fill the void with their own private enterprises.
PHOTO: A sign at the entrance to the town of Mariel, Cuba (Credit: Derek R. Kolb)
“Cuba is shedding its old skin and it’s becoming something else which is like a hybrid of models,” explained senior Latin America fellow at the Council on Foreign Relations and author of the book “Cuba: What Everyone Needs to Know,” Julia Sweig.
“This will (likely consist) of a much larger private sector, a much smaller social sector with the basics of social protection left in place, a lot more personal autonomy and economic freedom for Cuban people without necessarily moving beyond the single party system,” she added.
Regional developments
This new economic direction — which the administration refers to as an “update” of the socialist economic system — and in particular the Mariel development have been brought about by a number of specific challenges and opportunities for Cuba, Sweig explained.
The widening of the Panama Canal (which is due to be completed in 2015) means more of the world’s largest ships will soon be passing through the Caribbean, providing Cuba with the chance to benefit as a transhipment hub thanks to its strategically favorable location.
Cuba is shedding its old skin and it’s becoming something else which is like a hybrid of models Julia Sweig, Council on Foreign Relations
Fast-growing economies in the region, such as Brazil, Mexico and Chile, meanwhile, provide fresh possibilities for foreign investment and trade tie-ups. Nurturing new relationships has been made all the more important given the volatile political climate in Venezuela, whose leftist government currently sells subsidized oil and trades with Cuba on conditions that are highly favorable to the island country.
A vitally important cog in this wide-ranging strategy is Mariel. According to Carmelo Mesa, professor of economics and Latin American Studies at the University of Pittsburgh and author of the book “Cuba under Raul Castro: Assessing the Reforms,” the port and FTZ are by far the most important development project on the island.
“The objective for Mariel and the free zone is to expand infrastructure, increase exports, reduce imports and develop high-tech projects that will create jobs,” Mesa said. “This is important as the Cuban government has indicated that anywhere from 1.3 million to 1.8 million workers in the state sector are unneeded and must be dismissed.
“Cuban exports are generally raw materials, except for pharmaceutical products and biotechnology products but this is only about 8% (of exports). So they want to have value added goods such as computers, appliances and expand biotechnology,” he added.
Breaking with the past
Whether the wider economic plan and investment in Mariel will achieve these aims, however, remains far from certain.
The 51-year-old U.S. trade embargo still restricts Cuba’s ability to trade freely with its international partners. Any ship that docks in Cuba cannot enter the United States for six months. If the embargo was ever lifted, however, the FTZ would be favorably located (only 120 miles from Florida) to serve as a low-cost site for companies looking to manufacture and ship their products into the U.S. market.
As it stands, international investors will have to be persuaded to choose Cuba over nearby competitors. The likes of Panama, Jamaica and the Dominican Republic already have established FTZs in their territories.
A panoramic view of Mariel, Cuba (Credit: Wikimedia Commons)
Mesa also points to economic development zones introduced under Fidel Castro in the 1990s and early 2000s which expanded very quickly before “there was a re-centralization of the economy” leading many foreign firms to pull out of Cuba.
According to Diego Moya-Ocampos, a Cuba specialist at IHS Global Insight, many investors still see Cuba as a “hostile business environment” and will treat any opening of the economy with a high degree of skepticism.
“This opening is going to be taken with a pinch of salt … it’s still to be assessed what the tax and regulatory benefits of the (FTZ) will be,” he said.
The end of communism?
Despite these significant challenges, Cuba still has much to offer international companies, not least a well-educated labor force — Cuba has one of the highest literacy rates of any country, according to data compiled by the CIA World Factbook.
Mesa however identifies laws that restrict foreign companies hiring Cubans directly as a potential disincentive to FTZ investors. Instead, workers are employed via a government agency that makes all decisions on the wages they receive often driving up the price of labor — although new laws on foreign investment are expected.
Sweig meanwhile points to the lifting of travel restrictions between the U.S. and Cuba in recent years and a gradual shift in rhetoric in Washington policy circles that indicates a softening on the issue of the embargo.
All concur however that, despite the tentative adoption of market principles and the loosening of central economic control, this is far from the beginning of the end of communism in Cuba.
“(The Cubans) know they need to create these types of clusters where they can operate more aggressive free trade economic policies without necessarily affecting the economic dynamics of ordinary Cubans,” Moya-Ocampo said.
“It’s pragmatism,” he added. “Cuba is trying to update its structures to meet the new realities of Latin America.”
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Cuba builds communism-free zone to woo capitalist businesses
By Nick Miroff, Global Post From Free Public
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.”
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As Communist Cuba reforms, Capitalism slowly takes hold of its real estate market
By Girish Gupta Follow @TIMEWorld
PHOTO: Old Havana Joakim Eskildsen for TIME
Ray leads his clients through the crumbling, faded streets of central Havana, just off the city’s Malecón where you can taste salt in the air coming off the Florida Straits. The 65-year-old walks with purpose, though he asks foreigners to keep a few paces behind him and talk among themselves lest police hassle him. “This next one is lovely,” he says slyly turning to his clients. “It has a view of the sea from the balcony and you have all the shops nearby.” In the three-bedroom, third-floor apartment, Ray shows off a “big bathroom” which has barely enough space to walk around. Typical of many Cuban homes, its furniture and electrical equipment — such as a large transistor radio — would fit nicely into a museum. The entire place will cost $30,000, though, Ray advises, it “needs work.”
Ray’s spiel is as practiced as estate agents the world over. But in Cuba, there’s one difference: his work is illegal. For it, he will receive 10 percent of the sale price and perhaps a tip from the buyers, he suggests with a smile in the living room he is showing off.
In November 2011, the buying and selling of property on this Communist island became legal, in one of many cautious reforms enacted by the government of President Raúl Castro to open up the country’s economy. Ray’s commission makes him a broker and puts him on the wrong side of the law. “I do this because I make money,” says Ray. Just as in nearby Venezuela, capitalism is at its most naked in countries governed by hard-left economies. Ray, like many Cubans, has found a way around the average wage of some $20 a month here. “Cubans are nothing but resilient and will always find a way to monetize things,” says Ann Louise Bardach, a long-time Cuba analyst and author of Without Fidel: A Death Foretold in Miami, Havana and Washington.
Since his takeover of the presidency in 2006 from 86-year-old brother Fidel, Raúl Castro, himself 82, has cautiously attempted to grow Cuba’s fledgling private sector. Yet, as with all the reforms in Cuba, the property laws are progressing “poco a poco” (little by little) offering time for the government to gauge progress and calculate its next move, “without haste,” Raúl told reporters in January 2012, “so that we don’t make new mistakes.” Some are not impressed. “They could be done much quicker,” said Cuban economist Oscar Espinosa Chepe, sitting in his small living room in Havana surrounded by books. “This government is trying to give the impression that it is changing but the country is on the edge of a cliff.” Cuba’s economy relies heavily on oil-rich Venezuela, which provides Havana some $10 billion annually — a significant chunk of the island’s $61 billion GDP.
Ray advertises his services on Paseo del Prado, a major thoroughfare in the east of Havana. Colleagues congregate holding hand-written signs advertising homes for sale or rent. Anyone expressing interest is sneakily handed small-typed scraps of paper offering more details, a rough location for a property, the number of bedrooms and a price. Before November 2011, Cubans were legally allowed only to swap homes—however, payments were sometimes made under the table. There was of course no legal recourse should agreements go awry.
Not everyone involved in the nascent real estate industry is as rudimentary in their methods as Ray. Yosuán Crespo runs EspacioCuba from an office in Havana’s more upmarket western district of Vedado. Up some stairs in his grand building are laminated signs printed just as at any other estate agent in the world, with pictures, details of the property and of course an asking price. Prices vary between around $20,000 and $250,000.
Crespo insists that his business, which opened three months after the law came into effect, is not a brokerage and says he does not receive commission. Rather, he charges clients for photographing their properties as well as preparing and publishing the adverts both at the office and online. His published fees are just a few dollars. “It’s not legal to work as a broker in Cuba,” says the 28-year-old. “We are not brokers and we not willing to be brokers. We don’t get commission.”
Supply of properties far outstrips demand. “Many of the houses we are selling right now are to people who have money from other parts of the world,” says Crespo. Often the money changes hands in foreign bank accounts. Adding to excess supply is a migratory law enacted in January which allowed Cubans to obtain passports and leave the country with fewer restrictions. Meanwhile, Cuba’s comparatively low average wage means that many simply do not have access to the sums of money required to purchase properties.
However, that supply and demand balance is likely to slide as foreigners realize what a huge investment opportunity Cuba represents. With prices relatively low, many imagine the price of Cuban real estate will rocket in the coming years as the island inevitably opens up to foreigners. Those who do not hold permanent Cuban residence—a requirement to purchase property—must use a Cuban spouse, friend or some other proxy as a front. This carries inherent risk but investors may see it as a worthwhile gamble.
In the meantime, the ability to buy and sell property is being exploited by some Cubans who have long been crammed into houses they do not want. Around 45,000 homes changed hands in the first eight months of last year, according to the government’s latest figures. “The new law was very favorable for us,” says Juan Carlos, 26, as he waits his turn at EspacioCuba looking for a place for himself, his brother and their parents.
In the crumbling apartment, Ray offers a potential customer assurances that it will be easy to renovate: “You can have anything you want in Cuba if you have money.”
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