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German firms explore investment in Cuba

German firms explore investment in Cuba
The Cuban government has unveiled a raft of investment projects in hopes
to attract foreign capital. But German firms criticize the lack of
support from their government, DW’s Andreas Knobloch writes from Havana.

Now that Cuba’s economy has made steps to open up to foreign capital,
the island’s communist government hopes to lure potential investors with
numerous incentives. But doing business in Cuba requires a different
approach.
“The Cuban market has many special features,” said Stephan Gruber, one
of the directors of Casa Alemania, a German umbrella organization for
German companies wanting to do business in Cuba. “The short term does
not work in Cuba.”
Gruber said Casa Alemania, which means Germany House, has built up
experience in dealing with Cuban businesses through years of
discussions, earning what he described as “acceptance through continuity.”

No room at the German pavilion

This experience includes a stand at the 32nd Havana International Trade
Fair (FIHAV 2014), which has just come to a close. Some 2,000 companies
from 60 countries took part in the week-long show that covered over
18,000 square meters. Thirty-seven exhibitors traveled from Germany –
most of them technology and engineering companies, including
heavyweights such as Bosch, MAN and ThyssenKrupp. For the third year in
a row, the German pavilion was fully booked.
It’s no secret that Cuba is now in transition. For several years, the
country has been undertaking a cautious economic realignment. Under the
motto of “updating the socialist model” Raul Castro’s government has
lifted restrictions on private sales of cars and real estate, allowed
more free-market initiatives and set up a Brazilian-funded special
economic zone around the port of Mariel, 45 kilometers west of Havana.
The centerpiece of this new openness is a new law on foreign investment
that took effect in June. It allows foreign companies to invest in all
sectors of the Cuban economy for the first time.
‘Trial balloon for the free market’

The trade fair in Havana and the new law are part of a push that the
government hopes will bring much-needed capital into the country.
Foreign investors will be offered tax benefits and investment protection.
“It’s a trial balloon for the free market,” Tobias Schwab, another of
Casa Alemania’s directors, called it.
The investment law means Cuba “for the first time can form deeper and
more complex economic interrelationships,” said Klaus Hartmann, a former
East German ambassador to Cuba who now works as a consultant on Latin
America.
Expectations are high on all sides. “Cuba has invested heavily to reap
the benefits associated with foreign investment,” Foreign Trade Minister
Rodrigo Malmierca Diaz said as he unveiled the government’s
8.7-billion-dollar spending program at the fair. It includes 246
projects – from chicken farming to manufacturing vaccines to
constructing wind farms – across the whole island.
Rebuilding power networks
“What’s positive about this program is that concrete projects are
finally being presented in detail. Not many investors know much about
Cuba,” said Udo Volz, an economics specialist at the German embassy in
Havana. “But it can only be a first step.”
Cuba, he said, would need to get the word out about its investment law,
not least because it is competing with other investment-hungry nations
on the world market.
The Caribbean island needs about 2 billion dollars of foreign direct
investment every year to increase its overall economic growth to 5
percent from its current 1 percent, Malmierca said. “Governments can do
much to create a business environment, but in the end, it’s companies
that must make something of it.”
And the once-secretive state has changed its approach to foreign
business. “The communication from the Cuban side has changed,” Volz
said, describing a new “openness.”
Whereas the government in Havana once understood foreign capital to be
“complementary,” it is now expected to play a “fundamental” role in some
sectors, especially food production, agriculture, tourism, construction
and energy. In the latter case, Cuba wants to move from fossil fuels to
renewable energies and cannot do so without foreign expertise.
Germany could be a valuable partner, especially in this field,
Ambassador Peter Scholz said during his visit to the trade fair.
Renewable energies are also a priority for Casa Alemania. It held
initial talks with the Cuban government on wind power in 2004, its
director Mathias Schultze said.
“But in the years that followed, German policymakers scaled back their
commitment to Cuba.”
‘Germany is holding back’

Today, Schwab said, Chinese companies were taking the lion’s share of
Cuban foreign trade, not least because of aggressive state-backed
Chinese financing.
“In contrast, German companies have to fend for themselves in Cuba.”
Schwab said the German government needed to offer more support to its
companies, because there was clear rethinking on the part of the Cubans.
Quality and sustainability now played a greater role and German
engineering still enjoyed an impeccable reputation, he said.
But, he said, any financing schemes would require stronger backing from
Germany, especially in light of the US economic boycott of the island:
“German policy is too focused on the United States.” Investment in Cuba
was overshadowed by this political and cultural agenda, he said.
And while countries such as Spain and Canada have shown it is possible
to follow a different course, Schwab said, “There’s no political desire
for that in Germany.” Even the German embassy in Havana had done little
to encourage economic cooperation, he said.
This is a criticism that Volz is unwilling to accept. He said efforts
were being made to support German companies with consulting advice. But
he also acknowledged that Cuba is not a priority as a business partner.
“Cuba is not just on the agenda.”
This is made clear by the fact that Cuba lacks an independent German
chamber of commerce – the German Chamber of Commerce in Guatemala is
responsible for Cuba – or even a German trade office.
“Other countries have done much more,” Schultze said. “Britain, Portugal
and Italy sent ministers to the fair.” Germany, however, didn’t even
send an undersecretary.

Source: German firms explore investment in Cuba | Business | DW.DE |
10.11.2014 –
http://www.dw.de/german-firms-explore-investment-in-cuba/a-18053755

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