Foreign investment in Cuba: 'Food is high on the government's priority list'

Cuba is the largest island in the Caribbean and, historically, has been one of its wealthiest with an important agri-food industry, producing sugar cane, rum, citrus fruit, and livestock.

Cuban goods were exported around the world, with the Soviet Union a particularly important trade partner until its collapse in the 1990s, which promped the island to seek new trade partners.

For the past five years, however, the government has been on a renewed drive to increase the attractiveness of Cuba’s manufacturing sector and bring in foreign investment.

“There has been an about-turn in thinking,” said Chris Bennett, managing director of the London-headquartered Caribbean Council. “The Cuban government really wants to drive foreign investment.”

The Foreign Investment Act

In 2014, the government passed the Foreign Investment Act (law No. 118), introducing a number of measures to create a favorable business climate.

Before, businesses had to provide a full feasibility study, a costly process without any guarantee the Cuban government would approve the venture, but this is no longer the case.

Foreign companies previously had to enter into a joint venture with a Cuban partner that held a 51% share of the business but they can now be wholly foreign-owned.

The Cuban government created the Mariel Special Development Zone (ZED Mariel), a business area with its own regulatory framework and tax incentives. It also offers a ‘one-stop-shop’ for red tape, sorting out permits and licenses for foreign companies, which eases the administrative burden of doing business in a state-run economy.

Potential projects worth nearly US$12 billion

A recent government report, Portfolio of Opportunities for Foreign Investment 2018-2019, published at the Havana International Fair (FIHAV) last year lists 525 potential projects for which the state is hoping to secure investment.

Together the projects are valued at over US$11.6 billion and cover sectors from telecommunications to tourism, agri-food to mining. (A link to the report in three parts can be found here.)

According to the report, 36 new businesses were approved in 2017, of which 11 were in ZED Mariel, while ‘international economic partnerships’ generated sales of over US$4 billion.

'Food is high on the priority list'

Cuba’s agriculture sector employs over 13% of the working population, and its top agri-food products are tobacco, citrus fruits and fruit pulp, coffee, and cocoa.

However, the government is keen to develop and modernize its processing and manufacturing capabilities. In addition to the needs of its own population, the country’s burgeoning tourism sector is increasing demand for food.

The Portfolio of Opportunities highlights business prospects for soy, cocoa, coffee, meat, dairy and alcohol but also more specialized products such as spirulina and soy sauce.

Packaging solutions to improve shelf life are also needed as the country lacks uninterrupted cold storage supply chain, said Bennett.

“Food is high on the investment priority list,” he added.

“There are three core things the Cuban state is trying to achieve: reduce imports; improve the quality of products for the domestic market; and find new sources of revenue by increasing exports.”

Last month, at a meeting with the Ministry of the Food Industry (MINAL), Cuban president Miguel Diaz-Canel Bermúdez called on the Cuban food industry to increase both the quality and quantity of its output, and stressed the need for more foreign investment.

Playing by the rules

The prospect of setting up shop in a communist country may be daunting for some businesses.

Companies from liberal economies need to recognize they will be operating a state-run economy and this is unfamiliar, said Bennett. However, he believes they can get to grips with how the Cuban system works “fairly quickly”.

“There are different rules, you just need to play by them,” he said.

Meanwhile, decision-making is still slow but the state is taking concrete steps – ZED Mariel and the 2014 legislation, for instance – to speed up the process.

“There are opportunities in Cuba and the opportunity is potentially very significant because there are a very limited number of other foreign companies and no US companies,” Bennett told FoodNavigator-LATAM. “Challenges [can come from] working through new projects that have never been done before in that economy and dealing with the US embargo.”

Larger companies may have concerns about the US attitude to Cuba and whether links to the communist country exposes them to problems regarding finance and banking, Bennett said.

Italian company Farma Venda, for instance, has been in Cuba for over 40 years, supporting food and pharma factories including Prodal's sausage plant and Labiofam yogurt plant. Its managing director told Prensa Latina last year it was forced to change some of its suppliers to companies with no commercial interests in the US. Despite such difficulties, doing business in the Caribbean country has been a positive experience overall, she said.

Recent investments

There are already international food and drink companies in Cuba.

Pernod Ricard, Spain's Profood Service, and Mexico's Richmeat have a presence there while Unilever manufactures cleaning products in ZED Mariel.

This month, Slovakian financial group Proxenta announced a 25-year joint venture with Confitería Caibarién to produce sweets, biscuits and other baked goods in Cuba and renovate an existing factory. Once in operation, the 8,620m² plant will produce around 10,000 tons of sweets, replacing 83% of the country's imports.

In 2017, Nestlé announced a US $55 million investment to build a new factory in ZED Mariel to make Nescafé, cereals, Nesquik and Maggi products. The Swiss processed food giant operates in Cuba under the company Nescor, a joint venture with Corporación Alimentaria (COLRASA).

Created in 1995 specifically to be a shareholder in foreign food companies, CORALSA has experience manufacturing products such as meat, ice cream, flour, beer, soft drinks, and chocolate.

From Cuba with love

Balancing its trade deficit is a priority for Cuba, which has been affected by the economic collapse of Venezuela, its long-term strategic partner.

Cuba also has a significant food import bill.

Despite the longstanding embargo, it is dependent on the US for many goods. US farmers lobbied hard for the inclusion of a special provision (TSRA) which, since 2000, has allowed them to sell agricultural goods in Cuba while continuing to block Cuban goods coming into the US.

Bennett describes it as “a very lucrative market” for US farmers – since 2000 they have exported nearly US$5 billion worth of goods to Cuba, according to the United States’ Department of Agriculture (USDA) – and “a peculiar […] and uncomfortable position” for Cubans. The Cuban government is keen to reduce this reliance.

An end to the US embargo in the near future is unlikely, according to Bennett, but Cuba would find “a natural export market” in the rest of Latin America.