Castro Seeks Foreign Investment Law as Cuba Economy Slows

Cuba plans to allow for full foreign ownership of companies and cut taxes for overseas investors in President Raul Castro’s latest bid to open up the communist island’s economy and bolster growth.

Cuba’s National Assembly will consider the legislation targeting development of non-renewable resources, construction, agriculture, hotels and services on March 29, state-run Juventud Rebelde reported yesterday on its website. The proposal traces its roots to a 1995 government-backed study on opening the economy, the newspaper said.

The move is another turnaround for Castro, whose brother Fidel ended his 1959 revolution against the Fulgencio Batista dictatorship by seizing control of the economy. Under the new plan, companies in joint ventures may be exempt from a profits tax for eight years while other taxes may be cut in half, the report said. Natural resource companies may still face taxes as high as 50 percent, the report added.

“The fact that they are passing the first reform of the foreign investment law since 1995 certainly shows they are trying to attract more foreign investment, but the devil will be in the details,” Tomas Bilbao, who heads the Cuba Study Group in Washington, said in a phone interview.

U.S. Embargo

Petroleo Brasileiro SA (PETR4) and Spain’s Sol Melia SA are among companies that have already invested in Cuba, gaining opportunities over U.S. competitors barred from doing business there because of a five-decade-old American trade embargo. Brazilian construction company Odebrecht SA is working on a $900 million effort to modernize Cuba’s Mariel port, while Toronto-based Sherritt International Corp. mines nickel and is the island’s biggest independent energy producer.

Although tax breaks may provide incentives for foreign investors, many will still be cautious about entering a market where they have no control over the hiring of personnel, said Christopher Sabatini, senior policy director at the Council of the Americas. Current legislation doesn’t allow companies to vet staff for their suitability or to reward good work, he said.

“Despite the clear flexibility on ownership and lowering of tax breaks, the ongoing requirement, even if made more flexible, of hiring through the state is still for many businesses a huge stumbling block,” Sabatini said.

‘Cuba’s Attitude’

Cuba is seeking outside support as authorities expect economic growth to slow to 2.2 percent this year from 2.7 percent in 2013. Investments in sugar, nickel mining and other industries rose 13 percent last year from 2012, according to Cuba’s statistics agency. The agency does not list investment by source.

While Castro’s government has loosened property laws and allowed Cubans to travel more freely, attempts to attract outside investment, whether for new golf courses or antiquated sugar mills, has faltered, said Philip Peters, an analyst at the Cuba Research Center in Alexandria, Virginia.

“The law is not the issue, the issue is Cuba’s attitude,” Peters said by phone. “The real answer will come in the months ahead when Cuba negotiates over this project or that project, and we start to get a sense of what they have in mind.”

To contact the reporters on this story: Eric Sabo in Panama City at esabo1@bloomberg.net; Charlie Devereux in Buenos Aires at cdevereux3@bloomberg.net

To contact the editors responsible for this story: Bill Faries at wfaries@bloomberg.net; Andre Soliani at asoliani@bloomberg.net Harry Maurer

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