Cuba’s Zeal for Tight Control Casts a Pall on New Markets
By DAMIEN CAVE
MARIEL, Cuba — When Raúl Castro officially opened the new container
terminal here on Cuba’s northern coast, he described the project and the
special business zone alongside it as “a transcendent project for the
Official documents promised big incentives for investors: Foreign
companies would be given greater control over setting wages at factories
inside the zone; proposals would be approved or rejected within 60 days.
A year later, the Cuban government has yet to announce a single foreign
investment. Officials insist that interest is high, but over the past
few years, more foreign investors have left Cuba than have arrived.
Analysts and some foreign businesspeople say they have been turned off
by a government determined to open its economy and political system no
more than a crack to keep free markets and broader freedoms in check.
“Fundamentally, it’s all about maintaining control,” said Ted Piccone, a
senior fellow at the Brookings Institution who studies the Cuban
economy. “It’s seeing what works best while still maintaining social and
Mr. Castro’s agreement last week with the United States to release
political prisoners and normalize relations appears to many experts to
be an economic decision at its core. It is driven both by the need for a
new source of growth and by a desire to put off, at least for now, more
fundamental questions about how deeply the government intends to push
The country clearly needs a stimulus: Economic growth is expected to be
just 1.3 percent this year, below the government’s target of 2.2
percent, despite more than five years of new policies that allow Cubans
to open small businesses, work abroad, and buy and sell property and cars.
Beyond that, some analysts say that Venezuela, Cuba’s main benefactor,
has no choice but to reduce its subsidized oil deliveries to the island
because it is teetering toward its own crisis caused by the global
plunge in oil prices. That could threaten to push Cuba back to the
blackouts and severe deprivation that followed the collapse of the
Yet according to many economists, President Obama’s plan to allow more
interaction between the two countries may not be the lifeline Cuba is
hoping for — unless Cuba overcomes its resistance to change as well.
“The United States cannot solve the problems of Cuba’s bureaucratic
thickets,” said Richard Feinberg, a professor of international political
economy at the University of California, San Diego.
To reap the benefits of what Mr. Obama is offering, from
telecommunications sales to credit cards, he added, Cuba needs to
transition from a country where “the safest bet is to do nothing” to one
where new ideas are embraced even if they threaten Communist control.
At least initially, Cuba may be able to put off the challenge. American
companies that provide educational tours to Cuba under current
regulations report that interest has skyrocketed since last week’s
announcement. At insightCuba, a travel provider in New Rochelle, N.Y.,
calls and online interest have tripled.
“People are excited about the news,” said Tom Popper, president of
insightCuba. “Guests are saying that they want to go now, before Cuba
About 400,000 Americans, most of them Cuban-Americans, currently travel
to Cuba every year. If that number doubles, and if each visitor spends a
typical sum of around $1,000, Cuba will earn an additional $400 million
from the United States.
Americans bringing back $400 worth of Cuban products (no more than $100
in tobacco and rum), as Mr. Obama’s new rules allow, could push that
But travelers, and the Cuban government, will still face other limits,
like capacity. The island’s hotels, especially in Havana, are already
full for most of the high season, so more Americans may simply mean
fewer Canadians, Europeans and others who have no limit on spending.
Cuba also failed to meet its goal of three million visitors in 2013,
according to official figures, in part for some of the same reasons that
there are no new companies in Mariel’s special development zone, which
as of this week was still being leveled by bulldozers. Many new hotel
developments have been only inching their way through the Cuban bureaucracy.
Foreign investment over all has contracted under the weight of Cuban
officialdom and “a general fear of capriciousness of policy toward
foreign businesses,” said Archibald Ritter, a professor at Carleton
University in Ottawa who studies the Cuban economy.
He cited, as an example, the case of a Canadian businessman who is
serving a 15-year prison sentence on charges of economic crimes against
the state after complaining about corruption among Cuban officials.
The country’s most recent appeal for foreign investment, made last
month, also clearly shows that officials are divided when it comes to
investment of all kinds. They appear to be convinced, despite the
evidence so far, that what they have to offer, restrictions included, is
more than enough to attract large interest.
In tourism, for example, Cuba is calling for investment in a number of
new areas, while stating that in Havana and Varadero, two especially
desirable locations, investor participation “will be the exception” as
state firms are favored.
The re-establishment of U.S. diplomatic ties with Cuba brought widely
different reactions in Miami, where first-generation exiles who remember
Fidel Castro’s brutality mix with millennials for whom Cuba is more a
In the energy sector, too, there are limits to protect the status quo:
The portfolio of potential investment is heavily focused on projects
that would increase the amount of electricity produced by renewable
sources, but these ventures would have to sell their output to the
government at prices fixed ahead of time.
Even in the industries that have seen the most change since Mr. Castro
became president in 2006, like agriculture, results have been tethered
by the state. Farmers have complained that laws adopted in 2008 and 2012
to encourage Cubans to develop idle land did not go far enough toward
ownership. Lease contracts must be reapproved every 10 years, limiting
Michael Mora, 32, a farmer harvesting blood-red beets from the dark soil
just outside Havana on Monday, identified another common problem:
transportation to bring products to market. “A lot of times, we use
bicycles,” he said.
The United States is prepared to help. Mr. Obama’s new policy falls
short of lifting the trade embargo. But his plan includes provisions
allowing Americans to export agricultural equipment for small Cuban
farmers, building materials for private residential construction, “goods
for use by private-sector Cuba entrepreneurs,” and telecommunications
equipment, including cellphones, and the infrastructure needed to expand
If the United States removes Cuba from the list of states that sponsor
terrorism, a prospect raised by Mr. Obama, Cuba could also apply for
financing from the International Monetary Fund or other global creditors
to help pay for things like tractors or trucks.
But with both the United States and the I.M.F., the details would have
to be negotiated, and it is not clear whether Cuba would accept the
American focus on independent businesses or the demands of global
financiers. In the past, Cuba has rejected the kind of transparency that
the fund requires, arguing that the United States would use the
information to undermine the government.
It also bars Cubans in the nascent private sector, most of them
self-employed people known as “cuentapropistas,” from importing supplies
for their businesses. Whether it is a car or a calculator, all purchases
must be made through the state, though the rules are often difficult to
enforce. And profits are limited. Small businesses can be started only
in certain sectors, and every entrepreneur faces large fees or taxes and
restrictions on how many employees can be hired.
“In Cuba, they are concerned about people becoming rich,” said Carmelo
Mesa-Lago, emeritus professor of economics and Latin America studies at
the University of Pittsburgh. As long as the interests of the state
supersede the desires of the Cuban people, he added, no shift in
American policy will be able to turn the country around.
“Cuba has to do a transformation of its economic system to be
self-sufficient,” Professor Mesa-Lago said. “That is the key to the
whole thing. Unless Cuba transforms its economic system to increase
production, even lifting the embargo won’t solve the problem.”
Elisabeth Malkin and Randal C. Archibold contributed reporting from
Mexico City, and Victoria Burnett from Havana.