To me Cuba is a mysterious place. I have heard a lot about the island, but at the same time I do not know much about it. Do you have the same feeling? All that has changed for me after attending the special TBOWIT luncheon with José María Viñals, Partner and Director of International Operations at Lupicinio International Law Firm, Head of Cuban Desk and his presentation Cuba Today: Current U.S. Regulations and how they align against the reality of law and business climate in Cuba
If you want to know what you can and what you cannot do in Cuba – he is your man! Since Mr. Viñals, has worked with companies doing business in Cuba for 20 years, he has boots on the ground knowledge of what companies face doing business in Cuba.
Did you know that Cuba imports 98% of their food and even though Cuba is famous for their rum and cigars, they have to import the rum bottles and cigar boxes? For every dollar exported, Cuba imports 3 dollars – a huge problem! For example, they import steel and all farm machinery. Also, they import about 100k barrels of oil per day from Venezuela. On top of that, 43% of the Cuban economy is tourism.
This is interesting – an investor can own 100% of his/her company in the special economic zone, Mariel. One catch, is that the Cuban government is trying to rebuild industry so, your business has to be a priority to the government. To encourage growth, a company is tax exempt for the first 8 years and after 8 years, the company pays 15% of profits. In Mariel, a company is tax exempt for the first 10 years and then the company pays 12% of profits. The client base is pretty stable in that the company derives its approval to exist from the Cuban government and the client is also the Cuban government. The country has a large, well-educated and qualified workforce. Cuba is considered to be a secure legal country after enacting a 1996 investment law which tied legal certainty to attracting FDI. A company is protected from direct and indirect meddling and Cuba is obliged to follow foreign arbitration. Cuba has signed onto 62 international treaties and follows the dictates of arbitration courts in Paris and Stockholm.
What are the cons? Why are companies afraid of Cuba?
According to Mr. Viñals, a company cannot just go there and do anything. The business has to be aligned with the priorities established with the Cuban government. If you change your board, the company needs prior approval. To hire an employee, a company has to go to a Cuban agency which selects 3 to 4 candidates. The US sanctions are the biggest hindrance. The sanctions affect investment power as well as technology since your product cannot have or use more than 10% US technology.
Here is another interesting facet, all of Cuba’s expenses and income are rounded into one global government account. Therefore, another hindrance to doing business in Cuba is the need for the company to have large amounts of solvency. Mr. Viñals gave the following example. There was a Russian company who hadn’t been paid for a while. The company met with Cuban officials who explained that they would be paid, but for the moment money had been diverted to help restore the island after a hurricane and the Russian company would just have to wait. The Russian company was eventually paid.
Another deterrent is the currency situation. There are two currencies - a local peso and a convertible peso and the country has 5 official exchange rates! It’s rather confusing so imagine if you were the accountant because the government wants each company to show its profits in both currencies! The government also wants a 5 year forecast!
This is just a small sampling of what Mr. Viñals had to offer in his presentation. There was so much offered. If we could have sat there all afternoon, we would have.
Mr. Viñals ended by saying the following –
What can you do in Cuba right now?
1) Protect your brands and copyrights – register them with the government
2) Do some market research – get to know Cuban values
3) Get your foot in the door with some type of business even if it’s not your core business
4) Opportunity, Opportunity, Opportunity.