Investing in Cuba is a Very Risky Business

Saturday, January 31, 2015
By Frank Calzon in The Miami Herald:

Investing in Cuba can be a risky business

The Greater Miami Chamber of Commerce holds its annual South Florida Economic Summit today. This is what businessmen should know about doing business with Cuba:

From a business perspective, commercially engaging with Havana is different than doing business in most countries. Until now the American companies that have exported hundreds of millions of dollars in products to the island have benefited from American restrictions that required a cash and carry basis for American exports to Cuba.

Those restrictions have saved U.S. taxpayers millions because Havana is well-known for not paying its bills.

In 1986, Cuba stopped paying principal and interest to the Paris Club, to whom it owed billions of dollars to governments, banks, and foreign companies. Since then, Havana has restructured some debt. Some creditors forgave part of it due to the regime’s near bankruptcy.

The Heritage Foundation 2015 Index of Economic Freedom ranks 178 countries according to freedom from corruption, the rule of law, labor and business freedoms. Only North Korea ranks worse in terms of business and investment environment than Cuba.

Corruption is endemic in Cuba, posing a great risk to anyone who disputes the authorities on a business matter.

In September of 2014, BBC News reported the sentencing of Cy Tokmakjian, 74, “the president of a Canadian transport company to 15 years in jail for bribery.” He had been detained since 2011 and denies the charges. Two other Canadians working for the Ontario-based company were sentenced to 8 and 12 years.

The Tokmakjian Group said the regime seized assets worth about $100 million, and a Canadian Member of Parliament, Peter Kent, told the Financial Post that, “the trial was, from almost any measure, extraordinarily unfair and rigged.” The company said that “lack of due process doesn’t begin to describe the travesty of justice that is being suffered by foreign businessmen in Cuba.”

There are other cases. According to The Economist, “On October 11, 2011, Amado Fakhre, a British citizen and the head of Coral Capital, an investment fund, was awakened at dawn and taken for questioning...His company owns Havana's poshest hotel in partnership with the government... His Havana office has been closed and declared a crime scene.”

El Pais, Madrid’s daily, reported in October 2009 that the Spanish foreign minister had visited Havana to intercede on behalf of Pedro Hermosilla, a Spanish businessman specializing in sales of medical equipment. He had been detained for over a month at Cuba’s political police headquarters. About 280 Spanish companies had about $300 million frozen by the government and were not permitted to send any profits home. “Diplomatic sources admitted that the measure was due to Cuba’s lack of hard currency and the serious economic situation.”

And there is more:

▪ Investing in Cuba requires a joint venture with the Castro government (the Castro family and the regime’s elite).

▪ Minimal requirements before risking shareholders’ capital should include the sanctity of contracts, the rule of law, and the ability to bring disputes before independent courts.

▪ Raúl Castro came to power in 2006. Despite what cheerleaders for his economic “reforms” say, they amount to a lot less than they claim. Many Cubans say they’re a sham. Oswaldo Payá, the leader of Cuba’s Christian Liberation Movement, denounced them as fraud. He was murdered when his car was run off the road by Cuban police. The government refuses to turn over the autopsy report to his family.

▪ The regime does not allow foreign companies to hire their workers; instead, they’re provided by the government. Investors pay thousands of dollars per worker to the government, which then pays the workers $30 or $40 a month, in violation of international labor agreements.

Obama's Cuban policy is based on the misconception that full diplomatic relations and American trade will bring about respect for human rights and an economic breakthrough. But in fact he will be implementing a policy that has failed as long as the embargo: the Europeans’ policy of engagement. That policy has had absolutely no beneficial impact on the rights of Cubans.

Their engagement with Cuba will benefit ordinary Cubans only when Europeans and Americans condition all of their actions benefiting the regime to specific Cuban government reforms.