A "partner" to finance you? Cuba, MSMEs and foreign investment... three months on

In August, the Cuban government announced that it would allow foreign investors to participate in the island’s wholesale and retail trade for the first time in 60 years.

Until now, foreign investment was focused on goods and services, but as of the new regulations for foreign direct investment, aimed mainly at new economic actors, special attention will be directed at those investors engaged in the sale of raw materials, supplies, equipment “and other goods that contribute to boost the development of national production,” as explained on the website of the Cuban Ministry of Foreign Trade and Investment.

The “supply of foodstuffs, toiletries, economic products and for the installation of electricity generation systems with renewable energy sources, which have an immediate impact on the problems of shortages and contribute to improve the supply in the national market” will also be a priority.

Some three months have passed since the announcement of this measure, and the reality indicates that it is still too early to evaluate its impact on the national economy and on the more than 5,000 micro, small and medium-sized enterprises (MSMEs) that have been established in the country in the last year.

Perhaps one of the most complete studies on this subject was recently published by the consulting firm Auge, in its report “Las 100 mipymes de Auge,” where the firm analyzes the enterprises it has helped to set up in the last year.

Auge points out that in the last 12 months, the main results in terms of the foreign trade activities of non-state run businesses are the following:

+ 15,000 contracts signed

+ 290 MILLION USD in operations

+ 269 MILLION USD in imports

+ 22 MILLION USD in exports

45% of import contracts have been consignment purchases

In terms of financing, 342 CUP loans were granted to MSMEs, equivalent to more than 608 million pesos in local currency, while only a little more than a dozen hard currency loans were granted to MSMEs, for an amount of more than 600,000 USD.

An important fact to highlight was the existence of cases where Cubans living abroad participated in the creation of the new entities.

Sixteen percent of Auge’s private MSMEs have Cuban émigrés among their partners, but who maintain their permanent resident status in Cuba, and are mainly based in the United States and Panama.

“This small sample can be taken as qualitative evidence that part of Cuban emigration has also decided to take advantage of this opening in economic matters. In the current context, the pattern verified between the years 2014-2017 is repeated, when many emigrants made investments in the country under the modality of Self-Employment,” the report adds.

Less than a month ago, at the end of October, 25 representatives of U.S. companies arrived in Havana to participate in an informative business forum, accompanied by Focus, a U.S. consulting firm headed by Phil Peters and Paul Johnson, which seeks to promote commercial ties on the island.

Of the visitors, five were Cuban-American businesspeople, reported the organizers, who did not offer a list with the names of the firms but indicated that sectors such as transportation, agribusiness and technology are represented.

The businesspeople told the press that the new Cuban regulations approved in September 2021, which allow small and medium-sized enterprises to legally incorporate and take on foreign partners, represent “an opportunity.”

According to the Minister of Economy and Planning, Alejandro Gil, the aim of foreign investment is to “make use of the country’s existing infrastructure (warehouses, industries, factories), which is underutilized due to the lack of raw materials because of the scarcity of financing.”

In other words, the idea is that foreign investors place their intermediate goods and inputs in the national territory, taking advantage of their technology, experience and know-how, to supply directly to state and private actors, so that they do not depend on imports.

Attracting foreign investment is one of the current priorities of the Cuban government, in the midst of the severe economic crisis the country is experiencing, aggravated by the impact of the pandemic, U.S. sanctions, and internal difficulties and inefficiencies.

A good opportunity in this sense could come very soon, in the 38th edition of the Havana International Fair, scheduled for November 14-18 at the Expocuba exhibition center, when some 400 foreign companies from 60 nations and around 170 Cuban state and non-state entities, including MSMEs and non-agricultural cooperatives with an exporting character, will meet in Havana.

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