EXCHANGE RATES REMAIN STABLE- Domestic exchange rates were unchanged for a third week as Republic of Cuba government-operated Cajas de Cambio S.A. (CADECA) sold the Convertible Peso, equal to one U.S. Dollar, for 23 Pesos and purchased the U.S. Dollar for 23 Pesos. CADECA began 1997 exchanging the U.S. Dollar for 19 Pesos (buy) and 20 Pesos (sell) in the city of Havana and in the tourism resort area of Varadero; and for 20 Pesos (buy) and 21 Pesos (sell) in the provinces. The official international exchange rate of one Peso to one U.S. Dollar, in effect for more than thirty years, remained unchanged. The government maintains a fixed exchange rate for its international dealings and a more flexible exchange rate for domestic use. The Peso and the U.S. Dollar circulate freely in the Republic of Cuba.
FOREIGN INVESTMENT HISTORY- The National Assembly of the Republic of Cuba approved Decree Law No. 50 in 1982 which authorized Republic of Cuba government-operated companies to establish ventures with a foreign company. Although Decree Law No. 50 did authorize a foreign company to have a majority interest in a venture, the government did not encourage such ownership, and, thus, none was permitted. In 1988, the first joint venture was established to construct a hotel in the resort area of Varadero, 140 kilometers east of the city of Havana. In October 1991, the government authorized the expansion of foreign investment from the tourism sector to other sectors of the economy. In 1992, the National Assembly of the Republic of Cuba amended the Constitution to authorize foreign parties to own property.
THE 1995 FOREIGN INVESTMENT LAW- The National Assembly of the Republic of Cuba approved a new foreign investment law in September 1995. The law authorized up to 100% foreign ownership (which had also been authorized under Decree Law No. 50, but not permitted) in all sectors of the economy except those pertaining to national defense, national security, education, and health care. The law authorized the creation of free trade zones and industrial parks, and various forms of ownership including stocks and bonds, and real estate investment and development. The law authorized foreign companies to hire Republic of Cuba nationals directly, but continued to require that foreign companies contract for the Republic of Cuba nationals through government-operated agencies. The foreign company would pay the government-operated agency a monthly per employee salary in U.S. Dollars, while the government-operated agency would, in turn, make a payment to the Republic of Cuba national in Pesos. For example, if a foreign company paid the government-operated agency US$300.00, the Republic of Cuba national would receive 300 Pesos. The law did not change existing taxes and fees. Foreign investors normally pay a 30% tax on profits, a 25% payroll tax, and various duties and license fees. There are no taxes on property, repatriation of profits, and salaries, although there are substantial tax benefits to be gained by the reinvestment of profits and by having a Republic of Cuba government-operated entity as a shareholder in a venture. Taxes and fees can be reduced and/or waived on a case-by-case basis.
PENDING LEGISLATION- The government of the Republic of Cuba is currently developing two pieces of legislation that will impact investment. The first piece of legislation will define and regulate general business practices within the country. The second piece of legislation will focus upon the expansion of the real estate sector.
INVESTMENT PROMOTION AND PROTECTION AGREEMENTS, AND TAX TREATIES- The Republic of Cuba has signed Investment Protection and Promotion Agreements with the following countries: Italy (May 1993), Russia (July 1993), Spain (May 1994), Colombia (July 1994), United Kingdom (January 1995), China (April 1995), Ukraine (May 1995), Bolivia (May 1995), Vietnam (October 1995), Lebanon (October 1995) Argentina (November 1995), South Africa (December 1995), Chile (January 1996), Romania (January 1996), Barbados (February 1996), Germany (May 1996), Switzerland (June 1996), Greece (June 1996), Venezuela (December 1996), Hungary (January 1997), France (April 1997), Laos (April 1997), Ecuador (May 1997), Cape Verde (May 1997), Jamaica (June 1997), and Brazil (June 1997). The Republic of Cuba has begun to negotiate treaties in order that companies are protected from double taxation.
FREE TRADE ZONES- In June 1996, H.E. Dr. Fidel Castro Ruz, President of the Republic of Cuba, enacted Decree Law No. 165 which established free trade zones. Products and materials entering and leaving the zones are free of duty. Companies producing a product(s) do not pay profit and payroll taxes for twelve years and are 50% tax exempt for an additional five years. Service-oriented companies are tax exempt for five years and 50% tax exempt for an additional three years. Companies producing within the free trade zones can send 25% of their products to the domestic market free of duty, though the amount is negotiable. All products with 50% or more valued-added in the free trade zones can enter the domestic market free of duty. The government establishes a minimum wage for the zones. Workers are contracted through government-operated agencies. However, companies can, on a case-by-case basis, establish their own employment offices and provide contracted U.S. Dollar bonuses.
FOREIGN INVESTMENT UPDATE- The Republic of Cuba has, during the last nine years, developed an ever-expanding means of obtaining foreign capital, obtaining new technologies, and obtaining new markets. Joint ventures, economic associations, management contracts, production cooperation agreements, investment funds, and pre-financing agreements are some of the means currently in use, while others, including the issuing of stocks and bonds, are under intense discussion at the highest government levels. The Ministry for Foreign Investment and Economic Cooperation of the Republic of Cuba (MINBEC) reported that at the end of 1996, it had approved 260 joint ventures and economic associations, with committed capital of more than US$2.2 billion. As of August 1997, MINBEC reported that there were more than 260 joint ventures and economic associations and that an additional 140 proposals were being negotiated. There were reported to be joint ventures and economic associations in more than thirty-four sectors of the economy, led by industrial (85), tourism (45), mining and exploration (38), and oil exploration and extraction (30). The countries of Canada, Italy, Mexico, Spain, Holland, and France, were the primary sources of investment and financing capital. MINBEC reported joint ventures and economic associations were as follows: 1988- 2; 1990- 20; 1991- 50; 1992- 80; 1993- 112; 1994- 180; 1995- 212; 1996- 260; 1997- 260+. As compiled by the U.S.-Cuba Trade and Economic Council, the following figures represent amounts of announced, committed, and delivered investments since 1990 by private sector companies and government-controlled companies from various countries to enterprises within the Republic of Cuba as of 25 July 1997. Information, which may or may not be in the public domain, compiled through the media, other public sources, individual discussions with company representatives, non-Republic of Cuba government officials, and Republic of Cuba-based enterprise managers and government officials: Announced is US$5,401,000,000.00 and Committed/Delivered is US$1,246,900,000.00.
Canada- An increasing number of Canadian companies are developing an expanded presence in the Republic of Cuba. Sherritt International Corporation has raised more than US$600 million in special rights offerings targeted almost exclusively for investments in the Republic of Cuba. The company already has investments in nickel mining, oil and gas exploration and production, tourism, and agriculture. Wilton Properties Limited and Republic of Cuba government-operated Gran Caribe Hotels established VanCuba Holding S.A, a joint venture, on 1 July 1996, to construct US$400 million in tourism facilities. Journey's End established a joint venture with Republic of Cuba government-operated Horizontes Hotels to remodel and construct various hotels. Intelcan Techno Systems won substantial contracts to supervise and provide equipment for the expansion of several of the island's international airports.
Italy- Italy's Foreign Trade Institute reported that twenty Italian companies had invested in the Republic of Cuba. Among the companies: Fiat (automotive), Stet International (communications), Benetton (clothing), Costa Crociera (passenger ship port and passenger cruise operations), and San Pellegrino (beverages).
Tourism- The Ministry of Tourism of the Republic of Cuba reported that of 27,000 hotel rooms available, 2,500 were operated by joint ventures and 8,000 were operated under foreign management and marketing agreements.
Republic of Cuba government-operated Cubanacan Corporation announced that it would construct 3,000 hotel rooms, with more than 30% through joint venture agreements, on Cayo Coco and Cayo Guillermo before the year 2000. The two keys are located off the northern coast of Ciego de Avila Province, 400 kilometers to 450 kilometers east of Havana. The yacht Gitana, one of six vessels belonging to Italian entrepreneur Mr. Marcello Perrone, began its maiden voyage from Havana's Hemingway Marina. This is a joint venture with the Republic of Cuba government-operated Cubanacan Corporation's subsidiary, Marinas Marlin S.A. The yacht was constructed in 1938 for Hollywood singer Kathleen Baker. Other ocean-based joint ventures include the Costa Playa cruise ship in December 1995. This joint venture will cease to operate during the first quarter of 1998 as United States-based Carnival Cruise Lines has purchased the Italy-based Costa Crociera, the parent company of the Costa Playa. The Melia Don Juan cruise ship in November 1996, a joint venture with Sol Melia S.A. of Spain. The Hotel Tortuga, a floating 22-room hotel anchored near the Isla de la Juventud. This venture has Italy-based marketing.
The Tryp Club-Cayo Coco Hotel reported a 75% occupancy rate during its first six months of operation. The four-star, 514-room hotel, which opened for business on 20 December 1996, is the largest constructed on the island during the last thirty-eight years. This is a joint venture between Spain-based Hoteles Tryp and Republic of Cuba government-operated Cubanacan Corporation. Hoteles Tryp also manages and markets four other hotels on the island, including the Havana Libre (formally the Havana Hilton) and plans to construct an additional three hotels- one in Havana, one in the tourism resort area of Varadero, and a third in the central part of the island.
Mining- Ms. Nancy Garcia, President of the National Minerals Resource Center of the Republic of Cuba, reported that twelve companies, the majority from Canada, were exploring for gold, silver, copper, lead, zinc, and other minerals. Forty-two contracts had been signed since the sector became available to foreign investment in 1993. Thirty-seven blocks, covering 40,000 square kilometers, were being explored, representing 33% of the island's territory.
Energy- Two companies from France, Devexport and Babcock & Gemco, announced that they had each signed contracts in late 1996 to upgrade the Antonio Maceo power plant in the island's second-largest city, Santiago de Cuba, 850 kilometers east of Havana.
Sherritt International Corporation of Toronto, Ontario, Canada, established a joint venture with Republic of Cuba government-operated Cuba Petroleum and the National Electric Union to produce electricity from natural gas. The venture, ENERGAS S.A., will construct a US$26 million (approximate value) plant in the tourism resort area of Varadero.
Electronics- SERVITEC, the Republic of Cuba's leading software producer and computer service company, established a joint venture with Argentina's CODEMAR S.A. H.E. Ricardo Campero, former Minister of Foreign Trade of Argentina and current President of Integra Consult, the company that brought the joint venture parties together, said that the new company, TESYS, would produce computer equipment and software and would provide design and other services to computer users.
Cigars- Mr. Cesar Alierta, President of Spain's government-controlled Tabacalera S.A., signed an agreement renewing financing to the Tobacco Union of the Republic of Cuba. Sources reported that Tabacalera would provide 29 million German Marks annually for three years. Tabacalera and France's Sieta S.A. provide the majority of annual financing for the tobacco crop, estimated to be US$60 million from combined Republic of Cuba and non-Republic of Cuba sources.
Investment Funds- Cuba Growth Fund, Limited, a Bahamas-based investment fund, announced that it would raise up to US$365 million (approximate) for investments, mainly in small-sized and medium-sized publicly listed Canadian companies that have commercial relations with entities within the Republic of Cuba. Mr. Charles Villeneuve, President of Ecomatrix, S.A., the fund's manager, said that it had obtained US$36 million (approximate) in commitments from Canadian pension funds and other institutional investors in one week.
The British Commonwealth Development Corporation (CDC) and Republic of Cuba government-operated New Bank Group, established Caribbean Finance Investment, Limited, the island's first joint venture, with capital of US$5 million, 60% provided by the CDC and 40% provided by the New Bank Group, Limited. The CDC also granted the new joint venture a US$15 million medium-term rotating line of credit.
Communications- Stet International, a Netherlands-based subsidiary of the Italian government-controlled Stet, announced that it had increased its position in ETECSA, the Republic of Cuba government-controlled joint venture telephone company. Stet International increased its direct share holding to 29.29% from a previous 12.25% indirect share holding (Stet International had owned approximately 20% of Mexico-based Grupo Domos' previous 49% share in ETECSA).
Fuels- ELF Aquitaine, the France-based oil and chemical conglomerate, and Republic of Cuba government-operated Cuba Petroleum, announced plans to supply 100,000 eastern Republic of Cuba homes with gas stoves and cooking gas by the year 2002. The gas, which will eventually amount to 40,000 tons annually, will initially be imported and then bottled on the island.
Agriculture- The Mexican company, Agroingenieria S.A., and the Republic of Cuba government-operated Cuban Agriculture Equipment Research Institute, will produce in Mexico plowing equipment designed in the Republic of Cuba. The equipment will be sold in Mexico, Cuba, Latin American countries and Caribbean Sea-area countries.
Investment Funds- Mr. Walter Beutelmann, President of Germany-based, Eurowings LTDA, announced that his company was negotiating in the Republic of Cuba a series of investments and trade agreements for the European and Latin American companies it represents.
Mr. Peter Scott, Chairman of Havana Asset Management Limited, the first foreign investment fund to operate in the Republic of Cuba, said that of an initial CHF 40 million raised, 47% had been invested, in finance (16%), real estate (10%), biotechnology (11%), mining (6%), and debt (4%). Mr. Scott reported that his investment company, a subsidiary of United Kingdom-based Beta Fund Limited, was considering investments in mining, tourism, oil, industrials, and agriculture.
Pharmaceuticals- H.E. Kaire Mbuende, Executive Director of the Southern African Development Organization, reported that negotiations were being completed to establish a joint venture with the Republic of Cuba government-operated Finlay Institute to produce and package vaccines and other pharmaceuticals in the African country of Namibia.
Industry- The Republic of Cuba's first galvanized tube factory will begin production within a few months. The US$4 million facility, located in Ciego de Avila, will produce 15,000 tons of water and gas tubing per year, thus expected to eliminate the need for imports, valued at US$7 million in 1996. The plant is an economic association with the Spanish companies D'avila S.A. and Melca S.A.
Real Estate- The joint venture company, Inmobiliaria Monte Barreto S.A., announced that it would develop into a business and trade center a five-block area in the exclusive Miramar district of Havana. Mr. Lazaro Mendez, Deputy Director of the joint venture, said that the 180,000 square meter area would include 18 office and commercial buildings of no more than six floors each, with monthly rents of US$20.00 to US$30.00 per square meter. Mr. Mendez said that the development would include a 2,000-vehicle underground garage. Inmobiliaria Monte Barreto S.A. is a joint venture between the Israel-based BM Investment Group and Republic of Cuba government-operated Cubalse, the exclusive rental agent to foreign businesses and foreign residents in the Republic of Cuba.
Medical- The Canadian company, York Medical, Inc., began to market Republic of Cuba-produced Diremic brand diagnostic machines, which analyze bacteria samples and recommends proper treatment more quickly, according to the company, than existing machines. York Medical has established a series of joint ventures and economic associations with various Republic of Cuba government-operated companies and research centers to market Republic of Cuba-produced medical products to Canada, and countries in Europe and in Asia. York Medical raised US$8.5 million (approximate) from Canadian and European investors to finance the registration of various Republic of Cuba-produced pharmaceutical products.
Food- FranCuba, a venture between French investors and Republic of Cuba government-operated Cubanacan Corporation, began operations in Havana, where it plans to establish twelve bakeries before the end of 1997. The company's main factory can produce 7,000 tons to 8,000 tons of products daily. Bread and pastries range in price from US$.30 to US$2.50 or more.
Tourism- FEAL International, S.A., the real estate subsidiary of the France-based holding company, General Desau, plans to invest US$26 million to restore the 144-room Gran Hotel in the old section of the city of Havana.
The German cruise ship MV Berlin docked in the city of Havana on Easter Sunday. The four-star, 400-passenger MV Berlin had previously visited the island in 1992. The cruise ship will make Havana and the island's second-largest city, Santiago de Cuba, regular destinations on its Caribbean Sea-area itinerary which also includes Jamaica, Bahamas, Mexico, and countries within Central America.
Mining- H.E. Krysztof Szamalek, Minister of the Environment and Mining of Poland, said that the Inter-Ocean Joint Metal Organization would process metallic nodules in the Republic of Cuba. "We are planning to mine mineral resources from the ocean floor of the Clarion-Clipperton zone, in the northeast Pacific Ocean, and to process them in Cuba to obtain nickel, cobalt, gold, and other minerals," he said.
Cobra-Mantura, a joint venture between Canadian investors and Republic of Cuba government-operated GeoMinera, began construction of a gold and cooper mine and processing plant in the Pinar del Rio Province. The company reported that it would, for two years, mine gold, which lies above a large copper deposit, and then mine copper for ten additional years.
Pesticides- A Republic of Cuba government-operated company and a Vietnamese government-operated company, agreed to establish Bio Viet Nam Limited which will produce and distribute the Republic of Cuba-produced organic pesticide, BIORAT, in Vietnam and other Asian countries.
Railways- H.E. Manfred Stolpe, Minister-President of the German State of Brandenburg, said that a US$1 billion-valued proposal by German companies to reconstruct the Republic of Cuba's railways was well received by H.E. Dr. Fidel Castro Ruz, President of the Republic of Cuba.
Tourism- Marlin Marina Hemingway S.A., a subsidiary of the Republic of Cuba government-operated Cubanacan Corporation, and the Canadian company, Tropicats, launched the three-deck, 150-passenger Jean Cabot cruise ship which will make four daily trips along Havana's coast featuring a sunset dinner and late-night dancing.
Club Mediterranean (Club Med) announced that its property at the tourism resort area of Varadero would welcome its first guests in May 1997. The property has 266 rooms, three restaurants, three bars, a pool, and various entertainment areas.
Energy- Mr. Jean Pierre Desgeorges, Vice President of the National Business Council of France, said that negotiations were in their advanced stages to modernize the control panels for all of the Republic of Cuba's U.S.S.R.-designed and U.S.S.R.-constructed power plants. Mr. Desgeorges said that French companies had also signed agreements to undertake a US$17 million modernization of the Antonio Maceo power plant in Santiago de Cuba, the island's second-largest city, and were negotiating a similar agreement for the Santa Cruz del Norte power plant in Havana Province.
Fishing- Spain's Pescafina, which obtained the exclusive right to distribute Republic of Cuba-caught fish in countries throughout Europe, reported that sales increased 37% from US$169 million in 1995 to US$276 million in 1996. The company announced it would sell 7,500 tons of frozen fish products in 1997, mostly lobster and shrimp, valued at more than US$100 million.
Free Trade Zones- The Republic of Cuba's first two free trade zones were inaugurated on 5 May 1997 and 7 May 1997. H.E. Ibrahim Ferradaz, Minister for Foreign Investment and Economic Cooperation of the Republic of Cuba, said that four additional free trade zones would be operational within the next twelve months.
Sugar- Vietnamese companies, the Spain-based Bilbao Viscaya Bank, and Republic of Cuba government-operated Tecnozucar signed an agreement to construct a sugar mill in Vietnam's Nge An Province.
Tourism- The Chinese government-operated Xintian Corporation and Republic of Cuba government-operated (military-controlled) Gaviota Corporation signed a letter of intent to construct a hotel in the tourism resort area of Varadero and to jointly operate a Chinese-cuisine restaurant.
The Italy-based company, San Marco, announced that it will manufacture on the island cabins for the Republic of Cuba tourism industry. The San Pellegrino Group, which has produced bottled water and soft drinks through a Republic of Cuba-based joint venture for the last three years, announced that it would invest an additional US$12 million to establish a second joint venture to expand its presence in the domestic bottled water market.
Agriculture- H.E. Alfredo Gutierrez, Vice Minister of Agriculture of the Republic of Cuba, said that more than 50 joint ventures had been established in the sector during the last four years ranging from the production of sunflower oil, pickles, fruit juice, herbal medicines, tools, and equipment, to the cultivation of flowers, fruits, and vegetables for the tourism industry and for export.
Music- The Canary Islands-based Eurotropical music label, a subsidiary of Manzana Records, which maintains offices in New York City and in Miami, announced that it had signed recording contracts with twelve Republic of Cuba-based musicians and groups. The company reported that it averaged 100,000 sales per compact disc produced.
Industrial- The Israel-based company, Pejames Uri Kaplan, established a US$1 million joint venture within the Republic of Cuba to produce metal, plastic, and cardboard containers for chemical products.
Real Estate- Lares Real Estate S.A., a subsidiary of Republic of Cuba government-operated Cubalse, and Spain's Miramar Residential S.A., established a US$15 million joint venture, Costa Habana, to construct Miramar Gardens, a 175-unit duplex apartment complex in the exclusive Miramar district of Havana.
Livestock- H.E. Ricardo Cabrisas, Minister of Foreign Trade of the Republic of Cuba, attended the inauguration of a US$8.5 million joint venture livestock and meat processing venture in Vietnam.
Tourism- The Civil Aeronautics Institute of the Republic of Cuba (IACC) reported that it expected forty foreign airlines to be providing services to the island by the end of 1997, compared to thirty-two at present: Fifteen are Europe-based, sixteen are based in Latin American countries, and one is based in Africa. The IACC reported that more of the airlines were increasing the frequency of their service and were beginning to use larger aircraft.
Food- Palmares, S.A., a subsidiary of Republic of Cuba government-operated Cubanacan Corporation, established an economic association with the Italy-based company, Monteblanco, to construct and manage soda fountains in various areas of the island.
The Republic of Cuba's first winery will be operational by the end of 1997, reported the joint venture partner, Italy-based company, Fantinel S.A. The winery is located in San Cristobal, on the border of Havana Province and western Pinar del Rio Province.
Nickel- The Canadian company, KWG Resources, Inc., a subsidiary of St. Genevieve Resources, Inc., and Republic of Cuba government-operated Commercial Caribbean Nickel S.A., established a joint venture to complete the construction of, and then to operate, the Cupey nickel processing plant in Camarioca, Holguin Province, 1,000 kilometers east of Havana, and to construct a jointly-owned refinery in Canada. The agreement includes the rights to a minimum 107 million tons of nickel plus cobalt-bearing reserves that are, reportedly, easily accessible through surface mining. The value of the plant is estimated at US$600 million, and the estimated costs of completion, construction of the refinery, and start-up costs are US$300 million, for which KWG Resources is beginning to solicit investors.
Light Industry- The Chinese company, Ultramar, and the Republic of Cuba Union of Shoe and Leather Companies, established a joint venture to produce beach sandals for the domestic U.S. Dollar market and for export.
Caribbean- Mr. Carlos Martinez, President of the Chamber of Commerce of the Republic of Cuba, reported that seventeen letters of intent were signed during the annual Caribbean Trade Fair in Santiago de Cuba, the island's second-largest city. Three of the agreements were for joint ventures and the remainder included various forms of economic associations.
Tuesday, 30 September 1997, 12:00 p.m., Location To Be Announced
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