Investing In Cuba: Five Things To Know

With U.S.-Cuban relations moving steadily toward normalization, Stikeman Elliott partner Erik Richer La Flèche shares some of his personal experiences as an advisor on investment into Cuba. While opportunities exist for those willing to navigate the country's complex bureaucracy, it is important to be cautious and realistic about the extent of the changes that may be coming.

Every decade or so the economic promise of Cuba appears on the radar screen of international investors.

With the disintegration of the Soviet Union in December of 1991, Cuba lost its main benefactor. Confronted with severe economic hardship - the years following the fall of the U.S.S.R. were euphemistically called the "Special Period" - Cuba began opening to foreign investment and in 1995 adopted Law 77 (Foreign Investment Act).

At first the initiative generated considerable enthusiasm, but concrete results ultimately fell far short of expectations. Foreign investors, primarily European, Canadian, Mexican and Australian, fully expected Cuba to follow Eastern Europe and transition to a mixed economy. To say that this did not happen is an understatement.

In 2008 Raul Castro took over from his brother and in early speeches acknowledged that improvement was required and instituted modest economic reforms. Again, interested investors, at first intrigued by the proposed changes, rapidly looked elsewhere for opportunities. The limited reforms ended up being geared towards domestic smaller enterprises and not the larger concerns likely to interest foreign investors.

A year after the death of Hugo Chavez - Cuba's new benefactor - Cuba published its new Foreign Investment Law (April 16, 2014). The law addresses some, but by no means all, of the shortcomings of Law 77.

In December 2014, the United States and Cuba, with assistance from the Vatican and to a much lesser extent Canada, stunned the world by agreeing partially to normalize relations. The announcement was the culmination of an 18-month process. This development has generated much curiosity, if not serious interest, in the United States.

From my dealings with Cuba since 1994, I have learned five lessons:

Necessity: Cuba's leaders give every appearance of liking their system (perhaps not unlike many other leaders) and are looking only to improve it, rather than to change it fundamentally. Economic liberalization is effected out of strict necessity and the default is always to revert to the status quo. This attitude...