Academic journal article The George Washington International Law Review

Foreign Investment in Cuba: Prospects and Perils

Academic journal article The George Washington International Law Review

Foreign Investment in Cuba: Prospects and Perils

Article excerpt


One of the few sources of foreign capital currently available to Cuba is direct foreign investment. Cuba receives virtually no aid from foreign governments or international organizations.1 Cuba is also unable to borrow from multinational lending institutions because of its history of defaults on foreign loans and other factors.2 The loans that Cuba is able to obtain are in the nature of pre-financing of crops (mainly sugar and tobacco), are secured by the crops, and are granted for short periods of time and at very high rates of interest.3 Cuba derives significant amounts of foreign currency by way of remittances from individuals abroad to persons in Cuba.4 Remittances, however, do not provide the benefits in employment, training, asset development, transfer of technology, and know-how derived from foreign investment.5

The most important means within the control of the Cuban government to obtain foreign capital is foreign direct investment (FDI)6. Even though firmly adhering to a socialist political and economic framework, Cuba has taken a series of measures to promote FDI in the country. Representatives of the Cuban government express frequently the national interest in attracting foreign capital to boost the economy and to continue coping with the economic crisis that has afflicted the country since the disappearance of the Socialist bloc.7

Cuba's efforts to attract foreign investment have resulted in the inflow of substantial amounts of foreign capital by way of FDI. As will be discussed below, however, foreign investment has been affected by the country's political and economic program, which serves as a constant brake to capital influx.


A. Before the Revolution

A significant amount of foreign investment, largely by U.S. nationals, was in place in Cuba at the time of the triumph of the Cuban Revolution in 1959. Based on the expropriation claims certified by an agency of the U.S. government in the late 1960s and early 1970s, the total amount of foreign investment in Cuba exceeded $2 billion dollars in I960.8 That amount, taking into account inflation, was essentially an order of magnitude greater than the current level of foreign investment in the country. The amount of foreign investment in Cuba at the onset of the Revolution suggests that Cuba has a high capacity to absorb foreign investment assuming a favorable investment climate.9

Using the U.S. investments as a norm, foreign investment in Cuba broke down in 1960 as follows: infrastructure, thirty-three percent; manufacturing, twelve percent; energy, fifteen percent; trade and commerce, five percent; and agriculture, mining and other activities thirty-five percent.10 This breakdown, if extrapolated to current conditions, suggests that Cuba could have the capacity to absorb several billion dollars of foreign investment in the infrastructure sector alone.

B. Foreign Investment Under Law 50

After the expropriations of the early years of the Revolution, foreign investment disappeared from Cuba for three decades. In 1982, the Cuban government issued its first legislation on foreign investment, Decree-Law 50 of February 15, 1982 (Law 50).11 This law authorized the formation of economic associations between foreign investors and state-owned enterprises.12 Law 50, however, imposed a number of restrictions on investment, and thus proved an ineffective tool in the promotion of FDI.13 It was not until 1990 that the first project developed with foreign investment was completed, almost a decade after the promulgation of Law 50.14

Foreign investment grew slowly between 1990 and 1992. A few (approximately sixty) new foreign ventures were initiated during those years, most of which were small ventures in the tourism sector.15 In 1992, with an economic crisis in full swing, Cuba shifted strategy towards the pursuit of larger, longer lasting foreign investments. …

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