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Cuba Foreign Investment in the New Millennium the New Millennium Grupo 3 Foreign Investment in the New Millennium the New Millennium Grupo 3.

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Presentation on theme: "Cuba Foreign Investment in the New Millennium the New Millennium Grupo 3 Foreign Investment in the New Millennium the New Millennium Grupo 3."— Presentation transcript:

1 Cuba Foreign Investment in the New Millennium the New Millennium Grupo 3 Foreign Investment in the New Millennium the New Millennium Grupo 3

2 FDI in Cuba-Grupo 32 Cuba

3 FDI in Cuba-Grupo 33 Historical Perspective Columbus landed in 1492 Settled th Century Exporter of Sugar and Tobacco 19th Century most mechanized Sugar Exporter Slavery and Wealth Disparity War torn years of latter 19th century 1895 War for Independence from Spain US intervention and the Platt amendment Dependency on US Sugar Exports to 1960

4 FDI in Cuba-Grupo 34 Cuban Revolution Fidel Castro & Che Guevera Lead Revolution v. Batista regime Property Nationalization - US Retaliation and Escalation lead Cuba into Soviet Arms US Embargo

5 FDI in Cuba-Grupo 35 Cuba Today Fall of the Soviet Bloc - Cuba loses equivalent of 22% income subsidy Massive contraction of Cuban economy 1996 Helms-Burton act continues and expands the US embargo Cuba productivity enters downward spiral

6 FDI in Cuba-Grupo 36 Macroeconomic Overview 1998 Figures GDP: $20.3 Billion National Debt: $12.5 Billion Balance of Payments –Current account: -$0.4 Billion Historical Inflation: 2.9% Currency Trends:Not Traded –Officially 1:1 –Reality - 95:1 down to 22:1 Pesos/Dollar

7 FDI in Cuba-Grupo 37 Why Cuba? Human Capital Natural Resources Government Incentives

8 FDI in Cuba-Grupo 38 Human Capital Development Education & Literacy –Free and Compulsory to Age 12 –45% complete High School –4% complete University degree –96% Literacy Rate

9 FDI in Cuba-Grupo 39 Human Capital Development Health Care –Publicly Available Preventative Health Care –Life Expectancy at Birth of 74.8 yrs (1998) Employment –Unemployment 6.6% (1998) –Underemployment (Incl. Unemployment) 34% (1996-ECLAC)

10 FDI in Cuba-Grupo 310 Natural Resources “Geographical pearl” Dominant nickel and cobalt deposits Sugar and Tobacco

11 FDI in Cuba-Grupo 311 Government Incentives Foreign Investment Act Seeking Hard Currency Apertura: Opening of the markets –Privatization efforts –Joint Ventures

12 FDI in Cuba-Grupo 312 Why Not Cuba? Island economy Low purchasing power JV partner is usually the Government Government Bureaucracy Import restrictions on Foreign entities

13 FDI in Cuba-Grupo 313 Why Not Cuba? Highly regulated environment Weak transportation system Insufficient Power and Telecom Infrastructure Teledensity 4.3% “Complex” banking system

14 FDI in Cuba-Grupo 314 Current FDI Climate 1995 Law on Foreign Investment. As of February 2000, FDI in Cuba totals US$2 billion. Another US$2 billion committed through signing of JV agreements. JVs total 360. Telecom leads at $650 million, followed by mining at $350 million and tourism at $200 million. Biggest investors are Canada at $600 million, Mexico at $450 million and Italy at $387 million.

15 FDI in Cuba-Grupo 315 Cuba’s FDI Opportunities: Tourism The Opportunity –Location, Location, Location –Lure of an untouched island getaway –Enormous foreign demand –Government’s commitment to infrastructure The Reality –Sol Melia of Spain with 12 hotels –Jamaica’s Superclub chain with 10 hotels by end of Y2K –US citizens’ property claims under H-B Act

16 FDI in Cuba-Grupo 316 Cuba’s FDI Opportunities: Telecom The Opportunity –Potential for huge growth in Cuba –No monopoly on cellular service The Reality –Empresa de Telecomunicaciones (Etecsa) has monopoly –Etecsa 51% owned by government, 29% owned by Telecom Italia –$940 million investment program to upgrade network –Full employment issue

17 FDI in Cuba-Grupo 317 Cuba’s FDI Opportunities: Power, Oil & Mining The Opportunity –Aggressive opening to FDI –Huge nickel & cobalt reserves The Reality –First 100% foreign-owned deal with Genpower Cuba SA of Panama for construction of power station –JVs account for 30% of oil exploration and production –Canadian Sherritt International Corp. planned to invest $475 million in mining and other sectors - pulling back due to human rights abuses

18 FDI in Cuba-Grupo 318 Current Strategies for U.S. Corporations 1994 Ruling by U.S. Treasury Dept’s Office of Foreign Assets Control. –Ford via Volvo U.S. companies signing letters of intent to enter Cuba when embargo ends U.S. Chamber of Commerce & Congressional efforts Agricultural and Medical “Humanitarian” Opportunities Cultural Exchanges –Baseball –Musica

19 FDI in Cuba-Grupo 319 Opportunities for U.S. FDI to Cuba: Biotech The Opportunity –Cuba’s “well kept secret” –25 state-sponsored research centers –Potential for ‘cheap’ manufacturing base –Global interest in Cuban research and products –Open to foreign & U.S. participation The Reality –SKB US testing & manufacturing Cuban meningitis vaccine in U.S. –Genesis Medical Technologies of CO testing needleless injector in Cuba

20 FDI in Cuba-Grupo 320 Opportunities for U.S. FDI to Cuba: Financial Services The Opportunity –Investment in Cuba via international subsidiaries –Third party processing activities –Archaic banking system requires reform The Reality –Charles Schwab & Merrill Lynch have bought Canadian firms –Citibank profits from processing charges on credit cards issued by its foreign subsidiaries

21 FDI in Cuba-Grupo 321 Post-Embargo Opportunities Autos & Heavy Machinery –Spare parts needed –Vintage 1950s used autos Entertainment –Cable, TV, Radio –Related electronics

22 FDI in Cuba-Grupo 322 Post-Embargo Opportunities Needs outweigh purchasing power –Concentrate on basic supplies first Privatization opportunities - Infrastructure Banking and Finance Manufacturing base Tobacco - Cigars Mining and related equipment

23 FDI in Cuba-Grupo 323 Conclusions for the Future Uncertainty is high for US Corporations Cuban market is opening, but slowly US is missing an opportunity in Cuba Companies need to have scenarios in place to take advantage

24 FDI in Cuba-Grupo 324 Questions? Ross Dolgoff Fernando Aguirre Sue Mundell Kirk Gilpin Linda Naranjo Greg Londres


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