Brazilian development bank BNDES has financed a new special economic trading zone, with an expansion built by the Brazilian construction company “Odebrecht SA”. Cuba has put a lot of effort and prestige into their “Mariel Special Development Zone” (ZEDM) outside Havana. It has a 700-meter dock for boats longer than 40 feet to access, and a terminal with annual capacity of between 850,000 and 1 million containers. ZEDM is so far the most advanced project in the Cuban economy, and is a would-be capitalist enclave in what is a staunchly socialist country.194 However, Mariel will have to compete with ports such as those in Panama and Kingston, and transshipment is a price-sensitive business. A further
complication is that the embargo forbids ships entering U.S waters if they have berthed in Cuba over the past six months. The special development and economic zones are defined as:
“...demarcated geographic areas contained within a country´s national boundaries where the rules of business are different from those that prevail in the national territory. These differential rules principally deal with investment conditions, international trade and customs, taxation, and the
regulatory environment; whereby the zone is given a business environment that is intended to be more liberal from a policy perspective and more effective from an administrative perspective than that of
the national territory.”195
With ZEDM, Cuba let market mechanisms work for them to attract investors and capital to update and finance the Cuban Socialism. The investment guide, which I further elaborate in section 5.2.2, is organized by sectors in the economy. Because of ZEDM´s importance and priority, the first section in the investment guide is dedicated entirely to project proposals for the ZEDM. It encompasses 32 of the 95 projects presented in the guide. Five of projects were in agriculture and the food sector, fifteen in
biotechnology/pharmaceutical sector, ten in the industrial sector and one solar panel farm to
193 Ibid.
194 Marc Frank, "Cuba´S Free Trade Zone: A Would-Be Capitalist Enclave," Financial Times (2015).
195 Gokhan Akinci Thomas Farole, "Special Economic Zones: Progress, Emerging Challenges, and Future
85 generate electricity for consumption in the ZEDM, and one to provide ancillary services for the biotechnology/pharmaceutical industries.196
The promotion of ZEDM is a favorable change, as it should present opportunities for domestic and foreign companies in an environment of low cost and simplification of
administrative and customs formalities. The concept diverges from the old and non-
productive commercial free zones, as it aims to develop high- tech projects that contribute to increasing sources of employment, exports and import substitution. The hope with the special development an economic zones, is to attract foreign capital not supported in tariff and tax exemptions, but in providing competitive infrastructure and logistics.197 Still, the labor regime and the lack of dynamism in the laws would give the impression of a Cuba not interested in more than the direct effect, which is capital, rather than the indirect effect of FDI through spillovers.
Even though many firms stand ready to invest in the Port of Mariel free zone project, the process is taking time. During the “XXXII Feria International de la Habana”, the Cuban government presented law 118´s “investors guide” to the island. The guide included material, characteristics and possibilities in the Mariel terminal, and in which sectors investment is desired.198 Still, investment in the establishment of an industrial park takes several years to provide a return on the investment: in good conditions, around 7-12 years. This means investors often want to locate to free zones where everything is in place. In a historically volatile region like Central America, foreign investors also want to see that domestic
companies take risks and show commitment by investing in bricks and mortar. Investment by domestic entrepreneurs signals to foreign investors that returns are possible.199 The Cuban “free zone” is not for Cubans, which makes it difficult to achieve such a commitment from domestic actors, and if returns take 7-12 years, it would demand a further dedication to Cuba´s more pragmatic political cycles to eventually be able to harvest any gains from the project. The free-zone initiative is a positive measure, but it does look like an enclave economy where the capitalist project of market dynamics and functions are to work in its basic forms, while the regular Cuban is standing on the outside looking over the fence without the possibility to participate.
196 Rafael J. Betancourt, "Analysis of the Portfolio of Opportunities
for Foreign Investment in Cuba." P. 4
197
Pavel Vidal Alejandro and Pérez, "La Inversión Extranjera Y De La Unión Europea En Cuba." P .35
198 Cubadebate, "Compañías De 36 Países Han Presentado Propuestas Para La Zona Del Mariel,"
http://www.cubadebate.cu/noticias/2014/11/05/companias-de-36-paises-han-presentado-propuestas-para-la- zona-del-mariel/#.VSQWNaM4Xcs.
199
86
For investors, Cuban bureaucracy still creates obstacles for an effective introduction of FDI. Still, by June 2015, eighteen months after it opened, just six projects have been approved and authorized by the Council of Ministers. All projects but one, involves just a few million dollars, employing only dozens of workers. This is because of the lengthy process of
developing a joint plan with one or more ministers, which can take months or even years.200 Formally, the zone has a 60-day approval timeframe, but it takes much longer to treat an application for investment into the economy (free-zone or not), and the process of permission can still last up to a year, without any promises of being granted. Foreign investors also complain about the strict labor system, where they have to hire workforce through the state- run labor company which pays the workforce low, causing the investors to having to stimulate workers “under the table” to create motivation. The strict supervision, the conflict resolution through Cuban entities, and having to be insured through Cuban state companies are all elements which make the free zone just as unattractive as the former investment environment on the island.
The potential investors visiting have still left little or nothing in the Port. Some are looking to set up shop in the next few years, but most await further evidence of a new Cuban attitude, and that the change in U.S. policy will lead to more progress in the contentious relationship. The Port is ready to boom if the U.S. embargo is lifted. It anchors the zone, with a competitive tax and customs regime. Still, it lacks infrastructure, development and a
competitive edge in terms of property ownership, labor policy and the legal environment. As noted earlier, investors must go through a governmental hiring hall for labor, designed to “protect” Cubans from capitalist labor practices. 201