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Investing In Paradise with Cameron Young

Investing in Paradise Long a forbidden fruit for businessmen, Cuba offers opportunity as well as peril
Sebastiaan A.C. Berger
From the Print Edition:
The Cuba Issue, May/Jun 01

The timing could not have been worse. At the end of 1995, a decision was made by the European law firm for which I worked to send me to Cuba to assist some clients and to investigate the possibility of establishing an office there. I arrived in March 1996, shortly after the shooting incident involving two planes flown by members of the American anti-Castro organization Brothers to the Rescue and the adoption of the Helms-Burton Act. Havana was pitch black when I arrived.

Meanwhile, my future partner, a Canadian lawyer, was working at the office of Baker & McKenzie in Budapest, Hungary, on privatization and finance transactions. We met in 1998, joined forces, and established Berger, Young & Associates in Cuba to provide investment and transaction-advisory services to foreign investors and to support the development of the Cuban free-trade zone of Mariel.

Today, the economic situation in Cuba has changed. New apartment buildings, office buildings, hotels and factories have appeared, or are under construction. An increasing number of new European and Asian cars have joined the Russian Ladas and American old-timers that dominated the streets of Havana in 1996, confirming that Cuba is in business. The growth in transactions and the presence of a wide variety of foreign investors in Cuba have fundamentally changed the way that business is transacted in Cuba, and have resulted in higher standards of professionalism, although the investment process at times remains difficult and time-consuming.

My partner, Cameron Young, and I intend what follows as a short overview of the foreign investment process in Cuba as it has developed over the last five years, what has happened, and what is happening.

Basic Framework

In 1980, some 10 years before the collapse of the Soviet Union, Cuba adopted its first Foreign Investment Act and gradually began diversifying its trading partners and introducing the first signs of economic reform. More important reforms were made in 1995 and 1996 when a new Foreign Investment Act and an Act on Free-Trade Zones and Industrial Parks were introduced. Most recently, in the second half of 2000, Cuba announced the establishment of a streamlined administrative process for foreign investments (the so-called ventanilla única, or single window), which is expected to diminish bureaucratic burdens and facilitate the timely execution of approved investments.

Together, these steps have resulted in the execution of a significant number of foreign investment transactions, notably in the sectors of tourism, telecommunications, electricity, mining, biotechnology, light industry, finance and tobacco. In addition, pre- and postexport finance has become available for main export commodities such as sugar, nickel, citrus and seafood. Nonexport finance is also available, backed by offshore tourism, aviation and shipping cash flows.

In addition, free-trade zones have been established to the east and to the south of Havana (in Berroa and Wajay) and in Mariel, located some 30 miles west of Havana. The free-trade zone of Mariel in particular, which has much space, a natural harbor and an airstrip, has great potential to play an important role in Cuba's future economy, especially when trade with the United States is liberalized.

Areas for Future Growth

The dearth of economic data and the absence of international publications dealing with Cuban economic issues have resulted in a number of important misconceptions regarding the Cuban economy. Although Cuba continues to experience difficulties in many areas, certain sectors present significant future opportunities for foreign investment.

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