Foreign investments are beginning to make headway into long-isolated Cuba

November 25, 1994|By Knight-Ridder News Service

Israelis are growing grapefruit in Cuba, the Dutch are manufacturing laundry detergent, Canadians are prospecting for gold and oil, Mexicans are working on the phone system, and Spaniards are building seaside hotels.

After several years of merely nibbling, foreign investors are pumping money and technology into Cuba at a rate that could help rescue the island's battered economy if -- and it's a big if -- all the deals are completed.

Foreign investment "is surmounting obstacles that at times seemed insurmountable," Carlos Lage, an architect of Cuba's economic survival plan, boasted last month at a Havana trade fair.

Cuban officials say that between 1989 and the end of this year they will have signed contracts with foreign investors worth more than $1.5 billion -- a big part of it in the past year. That's a significant sum for an economy devastated by the 1989 collapse of communism and the ensuing halt of Soviet subsidies.

But commitments don't always turn into real investments, and Cuba's $1.5 billion doesn't compare to a country like the Czech Republic, the darling of foreign investors in post-communist Eastern Europe, which has attracted an estimated $2.6 billion in outside capital since 1990.

Though the Czech population is close to Cuba's 11.5 million people, Prague dumped communism in 1989 and warmly embraced political and domestic economic reforms. Cuba only recently and grudgingly began to make economic changes. And while Americans are among the major investors in Prague, Cuba is closed to U.S. investment because of the trade embargo.

"People are very cautious about putting money into Cuba. In general, the investment going in is not as significant as the Cuban government would like you to believe," said Alicia Diaz of Stratinfo, a Miami economic consulting firm.

Yet Cuban officials have expressed optimism about their relentless campaign to attract investors. Though Cuba has permitted foreign investment since 1982, Havana started to get serious about it only as Soviet-bloc communism crumbled.

"What has happened until now is modest, but it creates the basis to go forward," Ernesto Melendez, Cuba's minister for foreign investment and economic collaboration, said during a trip to Spain last week.

What's piquing foreign interest in country fraught with political and economic uncertainty?

Potential, say investors. Cuba needs virtually everything.

Investors also say they want to be ahead of the pack. There are only so many choice Havana hotel locations, prime areas to explore for oil, or potential resort archipelagos where keys stretch out like pearls.

And there aren't many markets where investors don't have to worry about U.S. competition.

"There's no question a lot of entrepreneurs see Cuba as a golden opportunity," a Canadian banker said. "Mexico and Spain now have a complete shoo-in, and in the past six months there are a lot more Canadian companies looking at Cuba. They're positioning themselves."

With Cuba's economy gasping for breath, the big question is how much foreign capital has actually flowed to the island to make up for the nearly 80 percent drop in imports it suffered after communism's fall. Imports plummeted from $8.12 billion in 1989 to $1.72 billion last year.

Some deals will take years to materialize. Mexico's Grupo

Domos, for example, announced plans this year to invest $740 million over seven years to buy into and upgrade Cuba's decrepit phone system. But there are reports of delays.

And while Spaniards usually are listed as heavy investors in Cuba, a recent Spanish government report on direct investments listed only $50 million since 1988. Investments of Spanish funds abroad -- say, in Swiss banks -- were not included. An additional $117 million is scheduled to be invested by Spaniards through the year 2000, under contracts already signed.

Some of the deals also involve debt-equity swaps, which typically do not involve actual flows of foreign cash into Cuba. Investors usually assume responsibility for part of Cuba's foreign debt -- at discounts as steep as 19 U.S. cents on the dollar -- and in exchange receive part ownership of assets such as hotels.

In addition, some of the investment agreements -- especially in the mining industries -- are highly speculative, offering the possibility of big money down the road but requiring little capital for exploration.

Cuban officials decline to say how much investment money has actually arrived.

What they will say is that Cuba now is host to 165 joint ventures involving capital from 35 countries. Cuba's main investors come from Mexico, Canada, France, Italy and Spain.

Thirty-seven hotel management contracts also have been signed with foreign firms; more than 200 other projects are being negotiated; and more than 400 foreign companies have opened offices in Cuba.

Also, 69 U.S. firms -- interested in doing business in Cuba when and if the embargo is lifted -- visited the island in the first half of the year, according to Cuban officials.

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