Informacion economica sobre Cuba

Foreign business in Cuba: Beware the dangerous embrace

Havana is at the same time attracting and terrifying entrepreneurs

by Nancy Macdonald and Gabriela Perdomo on Wednesday, August 8, 2012 10:16am

Until this spring, Stephen Purvis had it all. The British architect,

who'd helped launch the Saratoga, Cuba's poshest hotel, was one of the

more prominent figures in Havana's business community. As chief

operating officer of Coral Capital, one of Cuba's biggest private

investors, he was overseeing a planned $500-million resort in the

sleepy fishing village of Guanabo. The Bellomonte resort, which would

allow foreigners to buy Cuban property for the first time, was part of

Havana's ambitious, multi-billion-dollar plan to attract high-end

tourists and badly needed foreign exchange. Everything he touched

seemed to turn to gold. The musical Purvis produced in his spare time,

Havana Rakatan, had a run at the Sydney Opera House last year before

moving on to London's West End. But in April, the 51-year-old was

arrested on suspicion of corruption as he prepared to walk his kids to

school in Havana.

Purvis's arrest could have been anticipated. Coral Capital's

British-born CEO, Amado Fakhre, has been held without charges ever

since his arrest in a dawn raid last fall. The investment firm is

being liquidated, and both men have faced questioning at Villa

Marista, Cuba's notorious counter-intelligence headquarters. They are

not alone. Since last summer, dozens of senior Cuban managers and

foreign executives, including two Canadians, have been jailed in an

investigation that has shocked and terrified foreigners who do

business in the country.

Since replacing his brother Fidel as president in 2008, Raúl Castro

has painted himself as a reformer, and Cuba as a place where foreign

businesses can thrive. Over the last year, he has relaxed property

rights, expanded land leases and licensed a broad, if random, list of

businesses—everything from pizza joints to private gyms. And he's

endorsed joint venture golf courses, marinas and new manufacturing

projects. Canadians are chief among those heeding Raúl's call to do

business with Havana. Hundreds have expressed interest in the Cuban

market in the last year alone, according to Canada's Trade

Commissioner Service. Flattering reports in Canadian media have

praised Raúl's efforts. Yet they seem to overlook troubling signs that

Cuba appears to be moving backwards.

Raúl's sweeping changes were meant to pave the way for massive foreign

investment in Cuba. The country, which was forced to lay off 20 per

cent of its public workforce last year, is barely as developed as

Haiti, and will need an influx of foreign cash to stay afloat. There

is urgency to the project. Time is running out for Venezuelan

President Hugo Chávez, Cuba's benefactor, who funds the country to the

tune of $10 billion a year, says José Azel, a University of Miami

research associate. At home, Chávez, who is sick with cancer, is also

fighting off a tough challenge from Henrique Capriles in presidential

elections slated for October. His successor will almost certainly cut

Cuba's generous aid package to deal with Venezuela's own needs.

So a strange incongruity exists in Cuba today: Havana is bending over

backwards to attract foreign currency at the same time it is

imprisoning some of its biggest Western investors. For all Cuba's

reforms, this Castro appears to be as intent on maintaining an iron

grip on the country as the last one.

Few are more keenly aware of the pitfalls of doing business in the new

Cuba as a pair of Canadians sitting in jail in Havana. It has been

more than a year since Sarkis Yacoubian, the president of Tri-Star

Caribbean, a trading ?rm with headquarters in Nova Scotia, was

detained in the Cuban capital. And September will be the one-year

anniversary of the arrest of Cy Tokmakjian, the president of a trading

company based in Concord, Ont. He and Yacoubian have both been

imprisoned without charges. Their assets now belong to Cuba. No trial

date has been announced.

Both Yacoubian and Tokmakjian ran well-established businesses in Cuba,

had years of experience in the country, and multi-million-dollar

contracts with several government ministries. Yacoubian imported the

presidential fleet of BMWs. Tokmakjian, who'd been in Cuba for more

than 20 years and did $80 million in annual business there, had the

rights to Hyundai and Suzuki, which are used by the country's police.

So far, Raúl has scared off more joint ventures than he has attracted,

jeopardizing the investment Cuba needs to succeed. Spanish oil giant

Repsol quit the country in May. Canada's Pizza Nova, which had six

Cuban locations, packed its bags, as did Telecom Italia. The country's

biggest citrus exporter, BM Group, backed by Israeli investors, is

gone. A Chilean who set up one of Cuba's first joint enterprises, a

fruit juice company, fled after being charged with corruption last

year. He was convicted in absentia. Shipping investors are pulling

out, even as Cuba prepares to open a new terminal on the island's

north coast.

Experts say Raúl's crackdown is an attempt to reassert control. By

targeting the biggest names in the business community, he's sending a

message, says Azel. "Raúl doesn't want to be Gorbachev," the Soviet

statesman who brought down Communism in the former Soviet Union. "He

wants to be the guy who makes socialism work."

Yet as detentions pile up it remains unclear what exactly the jailed

Canadians and Britons have done, or what the regime means by clamping

down on corruption. "Cuba's version of what is legal and proper is

different from the rest of the world," says Ted Henken, president of

the Washington-based Association for the Study of the Cuban Economy.

Even sales commissions are viewed as corrupt, says Yoani Sánchez, a

Havana-based journalist. Foreign companies can't pay their Cuban

employees any more than the standard wage, about $20 a month, says

Sánchez—barely enough for two weeks' living in poor conditions with a

poor diet. Many foreign bosses routinely top up pay with bonuses and

commissions, which Havana considers bribery. For years, says Henken,

corruption was the grease that made wheels turns. "You got what you

needed to live from what was thrown off the back of the truck."

It is not clear whether the detained Canadians are facing charges for

salary top-ups, for example, or for legitimate corruption allegations.

Canada's Foreign Affairs department would only confirm that "consular

services are being provided to two Canadian citizens detained in

Cuba." Executives at Tri-Star Caribbean and members of the Tokmakjian

family declined comment, citing the "extremely sensitive" nature of

the situation.

Azel's advice to potential Canadian investors? Stay away. "You're

defenceless. There's no independent judiciary to adjudicate any kind

of claim," he says. "Doing business with Cuba is a very risky


So then why all the new resorts and planned golf courses? Why do so

many Brits and Canadians take the personal and business risk? Because

it's widely believed that the days are numbered for the U.S. travel

ban on Cuba, which has barred Americans from visiting the island for

almost three decades. Predictions for tourism growth are off the

charts—up to six million annual visitors, from two million today, says

Gregory Biniowsky, a Canadian consultant who's lived in Cuba for two

decades. Cuba's boosters believe the country, with its vast,

undeveloped white sand beaches, just 45 minutes by plane from Florida,

could come to rival Jamaica or the Dominican Republic as a tourist

draw. "It's just a matter of time before things boom here," says

Biniowsky. Five billion barrels of oil lie under Cuba's waters,

according to the U.S. Geological Survey. To some, getting in on the

ground floor is worth the risk. But foreign investors who lose sight

of the dangers could find themselves in serious trouble.

Related Articles:

Print Friendly, PDF & Email

Leave a Reply

Your email address will not be published. Required fields are marked *

August 2012
« Jul   Sep »
Please help us to to pay for more powerful servers. Thank you.
Peso Convertible notes
Peso Convertible