Western businessmen bitter as Cuba closes doors

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Western businessmen bitter as Cuba closes doors
Tue May 31, 2005 03:23 PM ET

By Marc Frank
HAVANA (Reuters) - Western companies welcomed in Cuba as heroes a decade ago for bucking the U.S. embargo are packing up and leaving as the Communist government rolls back market reforms and squeezes out intermediaries.

Embittered by the change in attitude, small and medium-sized foreign businesses complained this week that they no longer feel welcome and worried they would not recover money owed to them by Cuban partners.

President Fidel Castro's government, bolstered by growing economic ties to Venezuela and China, is cutting back the autonomy granted to state-run companies to do business in the 1990s and restoring central control over trade and finance.

The Spanish dairy firm Penasanta SA announced this month that its $8.5 million milk venture had failed due to the economic climate in Cuba, a view expressed by many other businessmen.

"Fidel thinks he does not need small joint ventures anymore, so they are only keeping the big ones in strategic sectors such as telecommunications, cigar and rum exports, energy, nickel and hotels," said an investor who was forced to abandon a 12-year-old business in the machine-building sector.

During a recent speeches, Castro has reminisced about the 1980s, when the economy was 100 percent Cuban-owned. He said Cuba reluctantly opened up to foreign investment during the deep crisis that followed the collapse of the Soviet Union.

"I don't think they ever wanted us here," said the manager of a major European company that is pulling out after 10 years.

"They always tried to get the most money, machinery and knowledge they could out of us while giving little in return. They owe us millions, but we are leaving mainly because of their attitude, the way they treated us," he said.

Cuba's Foreign Investment and Economic Cooperation Ministry (MINVEC) recently said it was still interested in investment by major foreign investors in priority sectors such as energy, mining, biotechnology and tourism but made clear that small and medium-sized businesses need not apply.

NO COMPENSATION

Western embassies report increasing complaints from their nationals whose businesses were liquidated without any guarantee they would be compensated.

"Cuban partners say they will pay back investments and money owed for operating costs from future profits, but it is doubtful the companies will even exist in the future," said the commercial attache at a European embassy.

Cuban officials did not answer requests for interviews on the trend.

Companies have the option of going to arbitration, but many feel they would be wasting time and money because the government would ignore the rulings anyway. "Castro does not blink at bucking the United States and Europe, so what chance do I have?" said one investor, in town to negotiate a liquidation.

Cuba reported that the number of joint ventures had dwindled to 313 at the end of 2004, down from 412 in 2002. Another 67 will be closed this year, according to a MINVEC source.

Of the 313 cooperative production ventures operating in 2003, only 133 remained at the beginning of this year, and most of them would be closed, the source said.

The Cuban state usually retains more than 50 percent control over joint ventures. Cooperative production agreements generally involve a foreign investor supplying machinery, credits and supplies in exchange for a percentage of profit or product.

Castro has repeatedly blasted foreign traders of late for overcharging on imports and usurious financing, while inside the ruling Communist Party they are often blamed for corrupt practices such as paying commissions and kickbacks.

Cuba has scrapped its free-trade zones that boasted more than 400 companies a few years ago. Some traders outside the zones report their licenses have not been renewed as the state has sought to do business directly with foreign suppliers.

Cuban officials insist that joint-venture exports and sales increased last year, despite the drop in their numbers, evidence that the "house cleaning" is working, they tell diplomats.

Joint ventures accounted for more than half of Cuba's exports last year and a third of all hard-currency earnings, or $1.3 billion and $2.3 billion respectively.