Workers landscape the area near a new port under construction in Mariel, Cuba, on Nov. 6, 2013. / Franklin Reyes, AP
MIAMI - A new law approved by the Cuban National Assembly on Saturday designed to lure more foreign investment to the island nation has many wondering what it will mean.
The new law has Cuba observers wondering whether it will energize the country's struggling economy, whether it represents a step from the county's centrally planned economy to a more capitalist one, and whether the success of foreign companies there will prompt American businesses to push for a change in the U.S embargo on the Communist country.
For some, the question is far simpler.
"Would you put your money in Cuba?" says Jaime Suchlicki, director of the Institute for Cuban and Cuban-American Studies at the University of Miami. "It's a system that's not transparent, there's no legal system that protects foreign investment."
"They can change the law," he adds, "but they have to change the system for people to jump in and invest."
That skepticism is exactly what government officials are trying to change in Cuba, which has a complicated history with foreign investment.
While Cuba has allowed foreign investors from across the globe to participate in selective, carefully monitored enterprises, its government has permitted those companies to maintain only 49% ownership of their operations.
Under the new law - endorsed by President Raúl Castro and approved Saturday by the Cuban parliament - foreign companies will be able to hold a 100% ownership in ventures. For companies that engage in joint ventures, the profits tax will be cut from 30% to 15%, and most investors would be exempt from paying that tax for at least eight years. The law also would allow the free transfer of profits and dividends off the island without additional tax and ensure legal protections for companies engaged in disputes.
The law follows a series of economic reforms that have been instituted since Raúl Castro assumed power over his ailing brother, Fidel, six years ago. Cubans can now buy and sell their homes and cars, and the government cut more than a half-million workers from the state payroll and has encouraged more private operation and ownership of small businesses.
"They've made a bunch of positive changes, but so far they have not seen the growth and the job creation and the foreign exchange earnings that they need," says Phil Peters, president of the Virginia-based Cuba Research Center. "They've made progress, but the economy needs a bigger lift and foreign capital can do that."
Carmelo Mesa-Lago, a Cuba native who has studied the country's economy as a professor at the University of Pittsburgh, says the lower taxes, higher ownership stakes in investments and streamlined process to open a business in Cuba are all things that any company would look for.
"I know companies who negotiated for over a year and then get denied," he says. "The law limits the process for that to two months. That's very fast."
While the country's biggest economic lures - tourism and mining for natural resources - are already being handled by foreign companies, some see openings in the lagging agricultural industry and emerging sectors, like biotechnology and pharmaceutical production.
But as with most things related to Cuba, there's a catch. Cuba passed another foreign investment law in 1995 that allowed for such things as 100% ownership by foreign companies. But Mesa-Lago says the legions of government functionaries never permitted that to be carried out.
"There is little confidence investing in Cuba," he says. "The question is, how is this new law going to change that mentality? This is going to depend on how they implement this new law in reality."
The new law does not change the fact that foreign companies must still go through a government-run workforce agency, meaning the government will still oversee the hiring and firing of all employees. The new law also prohibits Cubans on the island from investing in any new companies or joint ventures, meaning residents of Cuba can still only own small-scale businesses like restaurants and barber shops.
And despite the welcoming tone, every decision is still made by a government that, as one of its first acts in power more than 50 years ago, nationalized foreign companies.
"If you were a businessman in France and you want to invest in the Caribbean, you wouldn't go to Cuba," Suchlicki says. "You'd go to Mexico or the Dominican Republic or, if you want to sell in the United States, you got Puerto Rico. Why would you go to Cuba?"
If enough companies invest in Cuba and they prove successful, that could reignite a debate in the U.S. over the embargo on the island.
"American companies are interested," says Yosbel Ibarra, a Miami-based corporate attorney at Greenberg Traurig who co-chairs the firm's Latin American and Iberian practice. "I think that there is some nostalgia for the possibility of being one of the first American companies in Cuba."
That could prompt business leaders to press Congress for a change in U.S. policy toward Cuba.
"Certainly what we're going to see in the coming months is that new investment opportunities are going to open up in Cuba and everyone but the United States is going to seize them," Peters says. "If that prompts efforts to change U.S. law, then that would be a good thing."
Rep. Ileana Ros-Lehtinen, R-Fla., dismisses any talk of weakening the embargo and says the idea of a bright, new day for investment in Cuba is naive.
"This is the latest desperate effort to maintain its brutal totalitarian control over the Cuban people," she says. "It's just an old regime ploy to hide its failed policies that have shown that Cuba is not open for business because the Castro regime continues to owe billions of dollars to foreign entities."
Still, some say it's impossible to simply dismiss what has now been six years of economic changes in Cuba.
"When an adversary adopts a position you suggested, let them. Celebrate it," says Rep. Joe Garcia, D-Fla. "Yes, it's a step for them to continue to survive. But it's a step in the direction that all of us want, which is the further liberalization of the Cuban economy."
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