Cuba reins in its investors
Capitalists permitted, but red tape, taxes restrictive
Associated Press. July 30, 2001
HAVANA - At a busy Havana taxi rank, amid a rusty sea of tired old American
iron, Javi Rodriguez's baby-blue '59 Buick Electra - its chrome-tipped tail fins
glinting in the evening sun - stands out from the crowd.
The car, which cost $2,000 to buy and another $2,000 to restore, is also a
symbol of what private business could - but increasingly can't - do in Cuba.
"People prefer to ride in my cab because it's smart and well cared-for,"
said the 34-year-old former naval technician. "It looks good."
The car catches the eye of two women hauling heavy grocery bags. But they
grimace in disappointment when they see Rodriguez talking to a gringo, and end
up settling for a battered Chevy that coughed thick black smoke.
Not that Rodriguez can offer rides to gringos. Under a rule change for
private taxis last year, he is only allowed to transport Cubans who normally pay
no more than $1 a trip. Wealthier foreigners use state-owned taxis with meters.
"When we could pick up foreigners, it was quite a good business,"
Rodriguez lamented.
Cuba's Communist government first began tolerating private enterprise when
its economy went into a tailspin in the early 1990s after the collapse of the
Soviet Union, its main benefactor.
With fistfuls of greenbacks sent by relatives abroad and helped by a boom in
tourism, Cubans were open for business. By 1997, about 210,000 "cuenta
propistas," as the self-employed are called, were working across the
island.
Today that figure is down to 160,000, largely because of rising taxes,
tighter government controls and new red tape that many entrepreneurs complain
are designed to prevent an excess of success.
Jose opened a 12-seat restaurant not far from Havana's seafront in 1995 and,
when business was good, could make a monthly profit of about $1,250. But over
the years taxes rose from $150 a month to $850, and this year he had to close.
"I was one of the more optimistic, but not any more," said Jose,
who wouldn't provide his full name for fear of reprisal against his new business
- renting rooms to tourists, one of the few private sectors still growing.
"It's practically impossible run a private business here," he
said. "The bottom line is there's no bottom line."
Every visit from hygiene, labor, infrastructure or tax inspectors would cost
him $100 in bribes, he said. The alternative? Fines of up to $1,500.
When he tried to cut costs by setting up a self-service buffet, inspectors
said clients could not help themselves for sanitary reasons.
Cuba's political ideology continues to grapple with how to handle those in
business for themselves.
"It is not our policy to eliminate self-employed work," Economy
Minister Jose Luis Rodriguez told reporters recently. "But we do not
encourage it."
Those in the self-employed sector, which makes up only about 1 percent of
the economy, can make in a day what some state employees make in a month. Cuban
leader Fidel Castro once complained that the salaries of some self-employed
could cover the wage bill for his entire ministerial staff, said to earn $50
each per month.
Many Cubans are still doing business illegally to get by.
In a tiny house near Havana airport, Ramon and Flora live with their two
sons, their daughter, her husband and their two children.
To supplement their official monthly income of about $30, Ramon, a night
watchman at a building supplies depot, sells paint, while Flora rents video
cassettes secretly recorded at a neighbor's house, its satellite dish hidden in
a rooftop water tank.
Out back, in a rickety workshop hidden in closely planted banana trees, son
Eduardo makes counterfeit cigarettes with tobacco, paper and boxes that have "disappeared"
from a factory where his "partner" works.
"We don't make a fortune, we're never going to be rich," said
Flora. "We're just doing what we have to do to get by."
Foreigners help open Cuban economy
Associated Press. Florida
Today, July 29, 2001.
SAN CRISTOBAL, Cuba - Outside it's as hot and sticky as a Turkish bath, so
Mariaelena Fantinel uncorks a slightly chilled bottle of Merlot, just as she
would at home on her family's vineyards in northern Italy.
But, unlike at home, she decants the ruby-colored liquid under the vigilant
eye of Fidel Castro: At Vinos Fantinel S.A. - as in all offices in Cuba - an
official portrait of "El Comandante" hangs on the wall.
Vinos Fantinel is one of nearly 400 partly foreign owned companies that have
helped drag Communist-run Cuba back from the brink of economic collapse
following the 1990s demise of the Soviet Union, its once-powerful patron.
Profit motive is changing the way the island views business and does
business: Cuba now welcomes capitalist companies and is even pushing its own
state-run firms to imitate some private-sector management practices.
But there are few signs that free-market economics will be allowed to spread
unchecked. The government holds a monopoly in all sectors and the official line
is still, "Socialism rules, O.K.?"
Vinos Fantinel is aiming its sales at Cuba's booming number of tourists -
some 2 million visitors are expected this year. From 300,000 bottles when the
firm started in 1998, sales rose to 800,000 bottles last year.
"It's a big market, a virgin market, and they're still building four to
five hotels a year," said Fantinel, 27, adding that the company planned to
develop the business into a regional supply hub for the Caribbean.
That must be music to the ears of Carlos Lage, Cuba's vice president and the
island economy's general manager.
He says Cuba needs foreign investment not only in the tourism sector, but
also to modernize Cuban industry and boost exports. The country needs to shore
up a trade deficit estimated at $3.2 billion last year.
Other industries, many of which used obsolete, Soviet-era equipment, are
courting foreign capital, too.
Canada's Sherritt Mining group has overhauled the vital nickel industry.
Spain's Repsol is starting to prospect for deep-sea oil off Cuba's western
coast. And Italian telecom company Stet bought into Cuba's state phone carrier
and is revamping its network.
Foreign companies invested $3 billion in Cuba last year, double the figure
for 1995, when the country was plagued by food shortages, energy cuts and other
belt-tightening measures, according to Lage.
U.S. companies are not among those investors - a 42-year-long U.S. trade
embargo keeps American firms out of Cuba.
Increasing on average 14 percent a year, foreign investment has helped
Cuba's economy grow by 4.7 percent a year since 1995, well above Latin America's
3 percent average.
At Fantinel, most grapes are still shipped in from Italy, but the company
has planted special, humidity-resistant vines on about 15 acres, and another 60
acres are to be planted by year-end.
Working flat out, the San Cristobal plant, 50 miles west of Havana,
high-tech Italian machinery can fill up to 4,000 bottles an hour.
"What interests Cuba is foreign companies bringing in the technology,
the financing and the possibility of increasing their exports," said
Fernando Teixeira, a Brazilian who heads Brascuba, a joint venture between
Brazil's tobacco giant Souza Cruz S.A. and Cuba's state tobacco company.
By attracting foreign capital, Cuba has "managed in 10 years to recoup
nearly all (it) lost from when there was a total dependence on the Soviets,"
he said.
"But don't think that means that socialism is dead in Cuba," he
added. "The government is still the market."
Lage insists planned economies are superior to market economies, and says
many formerly Communist East European countries "headed for capitalism, but
lost their economic order on the way and fell into deep crises."
He acknowledged, however, that capitalist management techniques were rubbing
off on the state-run economy.
"Previously, a factory would receive (state) resources and deliver its
production," said Lage. "Now it must manage its own resources, produce
and reinvest to guarantee further production."
Brascuba last year produced 2 billion cigarettes, worth $20 million. It
exported a third of that output to Latin America, the Caribbean and Europe.
"In this age of globalization, the Cubans realized that either you join
up with a big economic group or you simply don't break into markets," said
Teixeira.
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