[Shef2venez] Investors shown the door after Cuban U-turn

[John Smith]

Investors shown the door after Cuban U-turn
By Marc Frank 
FT: June 6 2005  HYPERLINK "http://news.ft.com/c.gif"

It has been more than a decade since Cuba, suffering from a post-Soviet
economic collapse and jitters about the US, opened its door to foreign
businesses.


Now many investors--mainly Europeanc who took the plunge--are being asked to
leave.

Only half the homes rented to expatriates by the state's real estate
monopoly are now occupied and at the Havana International School
matriculation is down about a third from two years ago and falling.

On average, one joint venture and two smaller co-operative production
ventures have closed each week since 2002, when there were 700 in the
country.

Joint ventures are with state partners, who usually hold 50 per cent or more
shares. Co-operative production agreements involve a foreign investor who
supplies machinery, credits and supplies in exchange for a share of profit
or product, mainly in labour-intensive sectors such as light industry, the
mechanical industry and food processing.

“I would not be surprised if in the end there are only around 50 joint
ventures in the country and just a handful of co-operative production
agreements,” says an employee at the Foreign Investment and Economic
Co-operation Ministry.

Relations with the European Union and other western nations remain tense
because of President Fidel Castro's repression of dissent, and Cuba is
increasingly turning toward countries such as China and Venezuela, which it
sees as being less influenced by the US. 

Yet the purge appears to be related less to these factors than to
recentralising finance and trade and eliminating the partial autonomy that
state concerns were granted in the 1990s. “Changes over the last two years
are introducing significant corrections in the Cuban economy, considerably
limiting the action of market mechanisms,” Jose Luis Rodriguez, economy and
planning minister, told local economists last month. 

Cuba is now interested in partnering only with well-known companies in
strategic sectors of the economy, says Marta Lomas, foreign investment and
economic co-operation minister.

Big concerns, at times operating through subsidiaries, are holding their own
and include Nestlé (bottled water and other consumer goods) the
Spanish-French tobacco company Altaldis (cigars), Pernod Ricard (rum) and
Bouygues (construction) of France, Telecom Italia (telecommunications), NV
Interbrew of Belgium (beer), Sherritt International of Canada (nickel, oil,
gas and power), British-American Tobacco (cigarettes), and Sol Melia
(tourism).

European investors whose joint ventures are liquidating complain of endless
haggling with state companies and ministry officials over how and when their
share of investments will be paid, and the often millions of dollars they
are owed for financing operating costs.

“If they want me to leave, OK, I'm a guest in their house. But what I can't
accept is simply being booted out of here with no solid guarantee I will
ever get my money back,” says a Spanish businessman operating in Cuba since
the early 1990s who is negotiating what he calls “the best possible bad
bargain”.

Another company representative in a similar situation terms his Cuban
partner's behaviour “outrageous”.

“I have gone through endless meetings for more than a year with no result in
terms of recovering our investment. They are trying to wear me down,” he
says, like others asking to remain anonymous for fear of making matters
worse.

European diplomats say the Cubans are usually within their rights in ending
business relationships, but often do so with little explanation and with
only the dubious promise that they will some day pay money owed foreign
partners.

“What you have here is re-nationalisation without compensation,” one
European commercial representative says.

Some companies are fighting in domestic courts, while others are considering
international arbitration, though they are pessimistic about being paid if
they win.

Cuban officials did not respond to requests for interviews. Mr Castro has
criticised investors several times this year for arranging exclusive supply
contracts for their own ventures and charging exorbitant interest to finance
the imports. He has also said foreign traders enjoy margins of up to 40 per
cent. 

One joint venture established a decade ago is being liquidated in spite of a
20-year contract. 

It has always operated at a loss, though the foreign investor made a profit
by selling materials to the company from abroad and Cuba, he claims, saved
45 per cent on imports and made money by charging high prices for labour,
utilities and other services.

“I do not understand their problem. The Cubans seem not to fathom win-win
situations. For them it is a zero-sum game. They think anything you make
should be theirs,” the investor said.

The companies have little choice but to take a loss in equipment, warehoused
products, personnel training and other costs built up over the years. Cuban
law states they must sell what they have back to the government, which pays
little, or to other foreigners, of whom there are fewer and fewer, or take
what they have with them on their way out of town.

 

Bush calls on Latin America to promote democracy
By Caroline Daniel in Washington 
FT: June 6 2005 
 HYPERLINK "http://news.ft.com/c.gif"

Latin American countries had an “obligation to promote and defend” democracy
in the region, US President George W. Bush said on Monday, in an effort to
build momentum for US demands to toughen the Inter-American Charter.

Mr Bush's comments to the 35th general assembly of the Organisation of
American States in Miami--the first time the annual event has been held in
the US since 1974-- come amid resurgent anti-Americanism in the region,
especially in Venezuela. 

In an echo of a speech he gave in April 2001 to the OAS, he spoke of the
benefits of open trade, and called on Congress to pass the Central American
and Dominican Republic Free Trade agreement. “It offers an historic
opportunity to bring prosperity to citizens of our hemisphere who have not
known it. . . [We have] a goal of the Americas where the opportunities in
San José, Costa Rica, are as real as they are in San Jose, California.” 

At the weekend Condoleezza Rice, secretary of state, faced resistance when
she called for the Democratic Charter, a pledge signed four years ago, to
become “the core of a principled, effective multilateralism for the
Americas”. 

She admonished OAS members for not taking enough action to enforce it. In a
clear nod at tensions in Venezuela, she said: “There are clearly some
troubled democracies in Latin America. Governments that fail to meet this
crucial standard must be accountable to the OAS. We must replace excessive
talk with focused action.” 

Ms Rice's remarks prompted a strong reaction at the weekend from Venezuela's
President Hugo Chávez. “The times in which the OAS was an instrument of the
government in Washington are gone. Are they going to try, through the OAS,
to monitor the Venezuelan government?” 

Several other countries, including Chile, have also expressed concerns.
Scott McClellan, White House spokesman, said: “I don't know that I would
say, ‘not embracing' [the idea]. There are discussions that are ongoing, and
it's important that we have discussions through the OAS about how to
strengthen democracy.” 

Mexico also expressed reservations on Monday: “In principle, we are not in
agreement with any tutelage from anybody,” Ruben Aguilar, presidential
spokesman, said. 

Julia Sweig, a Latin America specialist at the New York-based Council on
Foreign Relations, said the change of attitude in the region reflected wider
disenchantment with the US, fuelled in part by its failure to condemn the
April 2002 coup in Venezuela.

“That damaged US credibility [over its ability] to deliver on their
strongest suit, democracy. Chile, Brazil and others all have an interest in
stable, democratic governance, but the issue is one of constraining
America's ability to throw its weight around.” 


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