Cuba: the investment policy, between growth and development (I)

barco-bandera

By José Luis Rodríguez*

The recent adoption of the new law on foreign investment brought up the subject of investment policy in Cuba, subject of crucial importance for the development of the country. Precisely, in the discussion of the law by the National Assembly has emphasized the need to differentiate between growth and development, taking into account the importance that is for the design of the investor of the country. At this point should be noted that it is possible for a nation to grow without developing, if that growth does not involve change in its productive structure, which makes it stable and sustainable, and is decisive for this the amount and direction that take the investment process. In this regard, it is not possible to ignore that the Cuban economy during the past 20 years, and from a production structure that had not reached yet the proper in 1994, design has had to deal the intense recapitalization, which meant the special period, and that has been estimated in the annual loss of 1.6% of the value of the assets during this stage. The first thing that jumps out is that, in terms of volume, the gross formation of fixed Capital, which had reached 26.3% of GDP at current prices in 1989, fell abruptly to only 5.2 percent in 1994, regaining top up 14.4% only in the year 2001. Subsequently, these investments returned to again be reduced to a minimum of 8.3% in 2011.

The figures reflecting this indicator expresses that what has been invested in that period has failed to cover even the replacement of assets that depreciated or became technologically obsolete, resulting in the aforementioned recapitalization. This is not due to a neglect by policy makers, but it was the combined product of the impact of the crisis in those years and the lack of financial resources, coupled with the need to prioritize branches of high recovery in the short term -as the tourism- and also do not postpone the recapitalization of the health sector and education as basic services for the population.

In the current situation arises the option to decide whether the investment should go to the recapitalization of the existing structure, or if -on the contrary- the efforts must focus on new alternatives that are in line with the economic structure that should aim the country for medium and long terms. A decision in this regard is not easy, since it must take into account the factor time in speed of the transformations, the productivity of labor in each branch, employment and qualification, the impact on the balance of payments as well as achieved competitiveness, among the most significant factors.

The New Foreign Investment Law in the definition of policy for a group of sectors targets the necessary combination of these elements. The case of the priority that must be given to the agricultural sector, where can be combined objectives of export, import substitution and increased satisfaction of food needs of the population.

This sector -that came to cover 22.3 per cent of the total investment in 1989- reduced their participation to 6.7% in 2012. In this sector the absence of hydraulic investments had an incidence in the years 90´, when 191,873 hectares of irrigated land were lost between 1991 and 1996 alone. The recapitalization of them -according to FAO- estimated would cost the country between 67 and 441 million dollars, according to the technology to be used. On the other hand, the lack of water was a factor that strongly focused on crops such as rice, which yields per hectare fell by 19.4% period of 1985-2011, driving -as a result- its import.

These data refer only to a crop. If one takes into account that in the years 90´ irrigation fell to 19.5% of the arable area, and whereas 65% of soils in Cuba are classified as very little productive and unproductive, the urgency of large investments in the water infrastructure of the country is inferred to develop agriculture.

In general, the lack of new technologies and equipment, together with the reduction of capital in the agricultural sector, led to that of labor productivity – measured in terms new value created by the worker happened 2,237 pesos in 1990 to 1,924 pesos in 2012, a reduction of 14%. In this way, the possibility of increasing agricultural production demand significant investments that can not only financed with own resources, but require a remarkable participation of foreign capital, where demand has been located between 2,000 and 2,500 billion dollars annually. (To be continued).

* The author is an advisor of the Centro de Investigaciones de la Economía Mundial (center of research of the global economy, CIEM, Havana).
– See more at: http://www.cubacontemporanea.com/en/news/cuba-investment-policy-between-growth-and-development-i#sthash.VNMuYFDe.dpuf

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