Foreign investment
The overall climate for foreign investment in Cuba has improved during 2007, especially for larger investors. Marta Lomas (Minister for Foreign Investment – MINVEC) said in September 2007, that “Cuba is ready for a second phase of opening towards foreign investment, without repeating the errors of the 1990s.” While the number of economic associations has been further reduced to 237 (2006) from 403 (2002), overall Foreign Direct Investment (FDI) increased by 22% in 2006 to US$981 million (m). The current (MINVEC) priorities include the following:
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Hotel and resort construction along the northern coast of Cuba’s central provinces. The Santa Lucía and Paredón Grande, and the Sabinal, Romano, Coco and Guillermo keys “are in condition” to add 30,000 rooms. |
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Construction of golf courses, marinas, theme parks and aquatic parks. |
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Oil exploration, both onshore and offshore. |
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Prospecting and exploring for gold, silver, copper, lead, zinc and other metals in the central and eastern provinces |
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Biotechnology alliances for specific projects, as well as sharing of markets and patents, and access to new markets. |
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Port infrastructure. |
Service income & remittances
While statistics have been difficult to read in this area with a lack of timely comparable data, certain facts are reasonably assured:
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Cuba continues to earn very significant service income for doctors, educators, sportsmen and other people who perform work in Venezuela and other ALBA countries. |
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During 2007, Cuba announced that it would build 23 small hospitals in Bolivia this year, at a cost of US$ 500k each. They are also establishing a large eye clinic in Uruguay and building a hospital in Dukham in the Gulf State of Qatar. |
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Cuba also makes significant free donations to other countries including most recently sending medical brigades to Pakistan (following the earthquakes in 2005), to Guyana (following the floods in 2006) and Indonesia (following the tsunami in 2005). |
While anecdotal reports suggest that remittances may have fallen this is not born out by overall retail sales in the major Cuban chains. This may be at least partially due to reports that the US Treasury had relaxed rules allowing their residents in Cuba to withdraw money more easily from frozen accounts.
Banking & Finance
Ongoing concern about extra-territorial reach of the US embargo against Cuba (see article on Cuban debt) led certain international financial institutions to withdraw from Cuba during 2007. While this has reduced banking options, it is not yet considered to have caused real damage to the financial system. It has also been reported that liquidity had tightened as at the end of 2007.
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A US$ 6bn heavy strategic fund founded by Venezuela & China and announced by Hugo Chávez on October 22 in Caracas. This fund will be used for the “productive development of Venezuela and ALBA member countries in areas of crucial importance for the people.” |
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The creation of Banco de la Alternativa Bolivariana de la Américas (ALBA bank). |
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The opening on June 26, 2007 of the Banco del Sur—a hybrid central bank/development bank which has been capitalized by Venezuela with an initial US$ 7bn. |
Mining
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The largest foreign investment at present in Cuba involves the nickel expansion at Moa nickel (a JV involving Sherritt International Corp.). This is a US$500m project which will significantly increase the field’s productive capacity. Current plans to lift production to 76,000 tonnes (+3%) in 2007 (2006: 74,000 tonnes) was jeopardized by torrential rains in October.
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International nickel prices have been surging over the past three years, doubling and then doubling again which has provided windfall gains for Cuba. In the middle of 2007, prices experienced a sharp correction. It is understood that exposure is not hedged, which results in significant swings for Cuba’s overall balance of payments accounts.
A number of joint ventures in copper, lead sulphate, silver and zinc mines have been signed in 2006/7 or are in preliminary stages of discussion with a variety of foreign investors |
Telecommunications
During January 2007, Cuba and Venezuela established a new JV, Telecomunicaciones Gran Caribe (40% Cuban and 60% Venezuelan), which will install, operate and maintain an undersea cable between Venezuela and Cuba. Gran Caribe may be granted a US$ 70m loan from China for the project, which will run a cable from La Guaira, near Caracas, to Siboney, near Santiago de Cuba. This will hugely increase the capacity of Cuba’s fiber-optic system for international voice and data traffic. It remains to be seen how this affects prices, which are among the highest in the world.
Agriculture, sugar, rum& tobacco
It is estimated that rising world agricultural prices may increase Cuba’s agricultural imports in 2007 to US$ 2bn (2006: US$ 1.7bn). This has helped stimulate renewed efforts to increase Cuban food production. Reforms have included increasing the prices paid to farmers for beef and milk, an effort to meet outstanding arrears and further development of urban agriculture and “organoponicos” (intensively cultivated plots under shade). While agricultural output in 2007 is expected to record strong growth, it will take some time to make a real dent in the import bill.
The 2006/7 sugar harvest is estimated at 1.1m tonnes (similar to 2005/6), which is well below the forecast of 1.55m tonnes. Given domestic consumption of 700 thousand tonnes and commitments to China, this has resulted in a shortfall for other export commitments.
During 2007, British Imperial Tobacco PLC agreed to take over Altadis S.A., the 50% shareholder in Habanos S.A. which is responsible for the distribution of all hand-rolled Cuban cigars. It is not clear at present whether this will change the marketing strategy.
Pernod Ricard S.A., the Paris-based company that distributes Havana Club, said sales of Cuban-made rum rose 16% in the first nine months of 2006-7.
Biotechnology
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2007 saw a series of agreements signed with countries in the Middle East & Asia, which included a plan to develop a halal meningitis vaccine with a Malaysian partner. In Cuba, Labiofam S.A. announced it was building a plant for large-scale biopesticide production, one primary purpose of which is to control mosquito-borne dengue. Cuba’s National Scientific Research Center developed a biomaterial that is capable of reconstructing damaged bone tissue (Coralina Porosa HAP 200). |
Energy (including oil)
 Oil Production
Oil & gas production is projected to rise to 4m tonnes in 2007 from 3.9m in 2006 partially due to better results from existing wells which was anticipated to decline in 2008 and the use of gas which was previously flared.
New investments in (mostly) onshore development have been led by Sherritt and total an estimated US$ 300-400m. This is expected to increase production significantly by 2012 with output increased to 100,000 b/d by 2009. Annual consumption is around 180,000 b/d.
Oil exploration deep-sea blocks
Interest in Cuba’s off shore blocks continues although little concrete drilling was performed during 2007. Specifically:
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Norway’s SCAN Geophysical ASA completed two seismic 3D programs for Sherritt which expects to conclude seismic tests in its Cuban offshore block during 2008. |
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PDVSA signed exploration agreements for four of Cuba’s deep-sea blocks and one in shallow waters close to land. It also began some seismic tests. |
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Petrovietnam contracts for exploration, one of the deep sea blocks, three on shore. |
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India’s Oil & Natural Gas Company (ONGC) is currently conducting seismic surveys and plans to sink its first well in 2008/9 alongside Repsol YPF and Norsk Hydro. |
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Iran has expressed an interest in Cuba’s offshore blocks, as has Brazilian Petrobras, which recently bought rights to US$ 108.1m of blocks on the US side and which is being courted assiduously by Cuba. |
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British oil junior, Gold Oil Plc received a license from the Cuban National Office of Mineral Resources to explore for oil & gas, onshore and offshore up to a depth of 100 meters. |
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Refining capacity |
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Cuba has a shortage of refining capacity with reliance placed on the two main refineries in Havana (Ñico López 121,000 b/d) and Santiago de Cuba (Hermanos Díaz plant 101,000 b/d). During 2007, the first phase of the modernisation and upgrading of the Cienfuegos proceeded on schedule. This is a joint venture between CUPET and PDVSA and will initially provide capacity for 65,000 (b/d), rising to 108,000 b/d by 2009 and 120,000 b/d when the project is completed. |
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The Cienfuegos refinery is part of a proposed plan for a petrochemical cluster which also includes plans for a lubricant bottling plant, storage facility for residual fuels and a possible regassification plant (to be supplied by natural gas brought in on tankers by PDVSA).
Russia oil major, Lukoil and PDVSA were reported as considering building a joint refinery in Cuba.
Electricity generation
Cuba spent US$ 2bn on a network of local generators plus gas turbines during 2005-6. During 2007, a further US$ 260m was committed to the purchase of new distribution equipment. Together with two gas-fired 35-mw units by Energas (a JV with Sherritt); this has reduced the reliance on the 11 major thermoelectric plants from 90% in 2004 to 62% in 2006. The US$ 122m heavy-oil fueled power plant in Mariel has been proceeding slower than expected due to payment delays and lack of materials. MAN B&W Diesel AG has already delivered the plant’s seven generators.
The energy revolution has continued with further efforts made to reduce consumption through the replacement of older fridges & air conditioning units and the installation of more meters.
Renewable energy in Cuba is at an early stage with less than 10mw installed. Plans exist to increase wind energy to 12mw by 2008. The first wind farm came on line during the year in the Isle of Youth with six wind turbines producing 1.65-mw. Solar power produces a further 3mw. India signed an agreement during the year to provide some know-how in renewable energy. Ethanol is produced in 17 refineries (180m liters), although is only used at present for drinks (rum and other spirits) and medicines.
Tourism
An 8.9% decline in the first five months of the year is not expected to be reversed by the end of 2007 which will signal a second year of falling total arrivals with total arrivals struggling to regain the two million mark. Total nights stayed have fallen by a lower amount although price reductions are likely to have reduced overall revenues. The main reasons for the fall in tourism during 2007 include:
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Two Spanish operators: TTOO Iberojet & Pullmantur were taken over by American companies (and hence discontinued Cuba operations). |
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Cancun (and the rest of the Yucatan peninsula) heavily discounted packages in 2006/7 to encourage a rebound in visitors following hurricane Wilma. Prices in Cancun for the winter season 2007/8 have increased which should imply a rebound for Cuba. It was of note that Caribbean tourism as a whole was down during this period (Jamaica fell by 2.1%, Bahamas by 5%) according to Caribbean Tourism Organization (CTO). |
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Venezuelan health visitors fell to 7,700 from 24,900 due to a change in overall strategy. |
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2006/7 saw a relatively mild Canadian winter. |
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Uncertainty regarding the illness of Fidel Castro. |
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Ongoing problems with quality of service. |
This fall in tourism numbers has precipitated a number of measures by the Cuban authorities including a US$ 170m renovation program for 200 existing hotels, US$ 23m for a new chain of state owned boutique hotels, called Hotels “E” Encantos (the first phase will see 10 built), and funds for infrastructure, golf courses, marinas. The landing and fueling fees charged to airlines were also reduced. Certain additional flights have been added by Cubana to Chile and Dominican Republic and by TACA (to Costa Rica).
Other developments include the planned opening by NH Hotels of the NH Parque Central Torre expansion, scheduled for mid 2008, the anticipated groundbreaking by Leisure Canada Inc. of the Monte Barreto timeshare/hotel project in Havana, and the announcement by Quatar Tiar Investment Group of plans to develop a 200-room, US$ 75m resort in Cayo Largo del Sur.
Other
On June 5, 2007 NBC aired the first ever show of a US TV network from Havana, The Today Show hosted by Matt Lauer.
A new luxury property development, the Atlantic Building, was completed during 2007. This comprises 96 units in a 20 story high-rise with two swimming pools which will be for rental (and possibly sale) to foreigners. The building was constructed by Azul Inmobilaria S.A., a JV between Italy’s B&D International & Cimex Corporacion S.A.
Heavy industry & manufacturing
It is reported that growth in this sector accelerated in 2007 (2006: 1.8%). Total output is still at a relatively low base level and much of the growth relates to import substitution and construction materials associated with public investment. Going forward, several new agreements have been reached including investment (US$ 500k) in the largest steel mill in Cuba, Antillana de Acero; plans by Alcasa (Venezuelan aluminum company) to provide Cuba with assistance to develop a downstream aluminum industry; and a new cement factory (1 million ton/year) which will be supported by Iran.
Infrastructure
Airlines
Cuba recently bought three IL-96 and three TU-204 long-haul jets and will spend a further US$ 100m per year on civilian craft from Russia for the next five years. There is a co-operation plan between the two countries to make Havana airport into a hub for Russian-Latin American services. Cuba will also improve & expand four airports. Holguín airport recently completed a terminal expansion doubling passenger capacity.
Buses
China’s Yutong group recently delivered 200 articulated buses to be used in Rapid Bus Transit (BRT), representing the first batch valued at US$ 40m of an agreement signed in March 2007 to deliver 5,348 buses for US$ 370m through 2009. These were the first intercity buses after having supplied 1,200 inter-city buses. Discussions are ongoing to assemble future buses in Cuba.
Ports
In June 2007 a US$ 180m project was announced to renovate Cuban ports including a fourth dock at the Andrés González Lines terminal which would increase capacity from 640,000 to 1 million tonnes. In October 2007, Reuters reported that Dubai Ports World was studying a US$ 250m upgrade to the Mariel facilities. As part of work on refinery in Cienfuegos work has began there to improve the port facilities there.
Railways
In October 2007, a US$ 100m package from the Venezuelan state bank, Banco de Desarollo Económico y Social de Venezuela (Bandes), was announced to upgrade tracks, signals and communication.
Roads
An estimated US$ 900m is needed to fix the road network which has suffered from a severe lack of investment. US$ 40m was announced during 2007 to tackle urgent problems.
Water
A US$ 60m, 5-year water services improvement plan for the capital and four other main cities was announced; the plan will try to reduce water losses which are currently estimated at 40-55%.
Housing
The US$ 750m housing program has fallen behind schedule. By September 2007, only half of 70,000 new houses had been completed. These were hampered by heavy rains and logistical difficulties. The emphasis has now shifted to urgent repairs on unsafe houses. A smallish project in Las Villas, supported by Swiss and Canadian NGO’s, has received good reports. This involved more flexibility, local control and participation.
Other
Cuba & Venezuela have entered into numerous projects to build facilities in other Caribbean countries, including a new US$ 179m building airport in St. Vicente & Grenadines.
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