Foreign direct investment (FDI) in Cuba

FDI in Figures

Contrary to the declarations of the Cuban Government, the island continues to rank among the last countries in the world in terms of the volume of FDI inflows. The US embargo, unlikely to be lifted soon, will continue to put legal obstacles for American and other foreign companies. The Government favours investments that provide advanced technology and contribute to the infrastructure. In 2015, Cuba passed a new law on foreign investment, which introduced tax incentives for foreign investors, and created a special economic zone with tax and customs breaks, with the hope of attracting more foreign capital to boost its state-dominated economy. However, the latter cannot directly recruit employees. The new legislation opens most of the economy to FDI, except in the following strategic areas: health, education, media and the military. It also facilitates the repatriation of funds held by Cuban immigrants. Cuba has 334 businesses with foreign direct investment, of which 56 have 100% foreign capital, according to the Ministry of Foreign Trade. During 2023, 30 new foreign capital projects were approved—eight fewer than in 2018, the year with the highest number of foreign investments—and tourism is the main sector where foreign entrepreneurs have chosen to invest. The main investors in Cuba, generally via joint venture with Cuban state enterprises, are Spain, Canada, Venezuela, Italy and France. Venezuela has made a number of strategic investments in the field of exploration and exploitation of hydrocarbons in the form of joint ventures and mutual investments. China, with its petrochemical projects and substantial financial support, has become a very important partner for Cuba. In addition, Russia intends to invest in the Cuban energy and health care sectors. Cuba achieved its highest foreign investment figure in a year in 2023 with 52 new businesses, as announced by the Government in the National Assembly. Of these businesses, 52 were located in the Mariel Special Development Zone, an economic enclave situated on the edge of a deep-water bay, approximately 45 kilometers west of Havana.

The Cuban Ministry of Foreign Trade and Investment's latest “Portfolio of Opportunities for Foreign Investment” includes 703 business opportunities in the country, with the highest number being in food production (195), followed by energy (128), and tourism (120). Other sectors of interest include biotechnology, logistics, food, construction, pharmaceuticals, transport, and real estate. Thanks to improvements in the legislative framework for foreign investors, FDI has been increasing in recent years, particularly in the tourism sector. In order to facilitate investment, the government has been implementing market-oriented reforms, such as eliminating of the country’s dual currency system and allowing foreign investors hold majority ownership of businesses. The State has also promoted FDI intended for the Special Economic Development Zone of Mariel through its own regulatory framework and tax incentives that make up a more attractive scenario for investors. Foreign investment in Cuba continues to be essential to the country's economic development and the president has been ramping up efforts to further attract FDI. ProCuba is the national investment promotion agency for Cuba, which offers information about the laws and regulations to invest in the country, provides investors with a step-by-step guide to invest in Cuba, and overall advice for foreign investors. Some of the attractiveness of investing in Cuba include the country's high potential in tourism, qualified and inexpensive labour, and its geographical location. However, the Cuban economy is vulnerable to external factors, such as climate, and commodity prices. Also, poor infrastructure, bureaucracy, Cuba’s Soviet-style economy, the country's dual currency system, and tighter US restrictions, still hamper foreign investors. Cuba ranks 76th among the 180 economies on the 2023 Corruption Perception Index and 175th out of 184 countries on the latest Index of Economic Freedom as Cuba's state-run economy operates inefficiently, performing well below global averages in numerous categories. The lack of an independent and fair judiciary undermines the rule of law. Furthermore, tight state control has historically constrained the private sector, with poor regulatory efficiency and limited opportunities for private entrepreneurship.

What to consider if you invest in Cuba

Strong Points

Cuba strong points in terms of attracting FDI are :

- High potential in tourism and mining sectors (nickel, cobalt) and in agriculture (sugar, tobacco);
- Opening to the private and cooperative private sector of agriculture, commerce, catering and construction (more than 200 trades);
- Qualified and inexpensive labor;
- Quality medical and educational sectors;
- Relatively good social indicators;
- Low crime and active fight against corruption.

Weak Points

The Cuban economy's weak points in terms of attracting FDI are:

- External vulnerabilities (climate, commodity prices, Venezuelan aid);
- Low productivity of the public sector and agriculture;
- Low investment and poor infrastructure;
- Very heavy administrative procedures and very recent commercial regulations;
- State's control over wholesale trade, credit, foreign trade and foreign investment;
- Reduced access to external funding;
- Distance between the conversion rate and the economic reality, which maintains the dualism of the economy, the black market, the economy of rationing and the informal sector;
- Lack of statistical transparency.

Government Measures to Motivate or Restrict FDI

The thaw in diplomatic relations between the U.S. and Cuba was expected to favour a more liberal economy on the communist island, but President Trump reversed the step forward made by Obama, leaving Cuba in a an unsafe economic position, since it cannot rely on the help of the struggling Venezuela anymore.

Therefore, Cuba is trying hard to attract foreign investment and has put in place since 2011 an ambitious reform programme. Free industrial trade zones have been established in order to attract foreign investors (for example: Havana in Bond, the Wajav zone and the port zone of Mariel). They are exempt of income tax on profits, labour tax, customs duties and any additional duties on merchandise introduced in the free zone. The tax exemption is valid for 12 years. The following five years, the company is taxed only at 50% of the regular rate. For commercial activities and services, the exemption period is extended to five years. The Mariel port area also offers a special salary scheme.

Cuba's Ministry of Foreign Trade and Investment released in 2018 its newly expanded annual FDI opportunities portfolio which details 456 economic development projects worth over $9.5 billion open to foreign investment.

Nevertheless, Cuba has a centralised communist economy, which obliges each company willing to do business on its territory to consider the State as a necessary business partner. Also, Cuba runs a complex currency and domestic exchange rate regime.There are currently two currencies in use: The Cuban Peso (peso cubano or moneda nacional, CUP) used for a majority of domestic transactions and the Cuban Convertible Peso (peso convertible, CUC). The  latter  (CUC)  is  pegged  to  the  US  dollar  and used  by tourists and for domestic transactions. For the domestic consumer market, the exchange rate between both currencies is of 1 CUC for 24 CUP. However, several parallel exchange rates coexist for other segments of the economy. The exchange rates differ, most industries having a different rate. For example, Cuban state-owned firms use 1:1 exchange rate for their bookkeeping and the remuneration of Cuban employees by foreign firms in Mariel is calculated in the basis of a 1:10 exchange rate.

Bilateral investment conventions signed by Cuba

The list of countries with whom Cuba has signed a bilateral convention regarding FDI can be found here.