Foreign business in Cuba: Beware the dangerous embrace

Havana is at the same time attracting and terrifying entrepreneurs

Cuba risky business

Tomas van Houtryve/VII

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 firm 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 proposition.”

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.




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Foreign business in Cuba: Beware the dangerous embrace

  1. Cuba’s Economic ‘Reforms’: Waiting for Fidel on the
    Eve of the Twenty-First Century.- Roger R. Betancourt* Department of Economics
    U. of Maryland – August 1999

    In this paper we provide a brief summary and evaluation of the main
    economic changes or
    ‘reforms’ undertaken by the Cuban government during the
    1990′s. The thrust of our argument is that the regime does not seem to be
    interested in reforms that lead to a transition to a market economy or even in
    the more limited goal of introducing widespread market mechanisms subservient to
    the needs of the communist party as in China. Instead, their policies seem
    directed at generating mechanisms for the appropriation of foreign exchange by
    members of the nomenclature while keeping most citizens deprived of independent
    access to wealth creation activities. We develop our argument by looking
    separately at ‘reforms’ in two type of markets: those in which transactions are
    self-enforcing and those which depend on the contract enforcement mechanisms or
    services usually associated with market augmenting government to enforce
    transactions.

    http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=11&ved=0CCgQFjAAOAo&url=http%3A%2F%2Fciteseerx.ist.psu.edu%2Fviewdoc%2Fdownload%3Fdoi%3D10.1.1.203.6096%26rep%3Drep1%26type%3Dpdf&ei=rbjTTrzFEqOLsALi2PTsDg&usg=AFQjCNGxl2CI9-OmB_lGSPM8Wf1z_BEnBw&sig2=UfpPs6aTjsRLqPukxhSJxg

  2. UNIVERSITY OF PENNSYLVANIA WHARTON SCHOOL REPORT
    :Can Raul Castro’s Reforms Create a New Cuba?
    -November 22,
    2011
    At first glance, say experts, Raul Castro seems to modeling his
    country’s future after China and Vietnam, whose one-party, nominally communist
    governments have managed to maintain power for decades while also emerging as
    globally competitive exporters of industrial and agricultural goods. Look
    deeper, however, and it is apparent that Raul’s approach won’t turn Cuba into a
    miniature of those two much larger Asian communist countries, experts say. The
    key problem for Cuba is that Raul’s reforms are not nearly as deep or thorough
    as those enacted by communist governments in China and Vietnam. In Cuba, “they
    are going in the right direction, but the issue is whether the reforms are
    profound enough or fast enough to meet the difficult crisis,” says Carmelo Mesa
    Lago, emeritus professor of economics at the University of Pittsburgh, whose new
    book on the Cuban economy is scheduled to be published in Spain and the U.S. in
    2012.
    Mesa Lago notes that in China and Vietnam, local farmers have been
    allowed to lease from the government the land that they work on for an
    indefinite time period; Chinese and Vietnamese farmers have been encouraged to
    care for that land as if it were their own. In Cuba, contracts to lease plots of
    land are valid for only 25 years. “After 25 years, that contract may or may not
    be renewed by the government, and the land may be seized by the Cuban state for
    social needs,” Mesa Lago notes. That’s particularly troubling because “a lot of
    land in Cuba has been taken over by the notorious marabou plant,” says
    Adrian
    E. Tschoegl, a management lecturer and senior fellow at
    Wharton. It often takes two years just to clear marabou-infested land, Tschoegl
    adds, so a 25-year lease is effectively cut.
    CLICK LINK FOR ENTIRE REPORT!
    http://knowledge.wharton.upenn.edu/arabic/article.cfm?articleid=2744&language_id=1

  3. I have visited Cuba on reseach 75 times since 1993 and there has been massive changes since Raul Castro took over the Presidents job. I have two Cuban – Canadian children which I choose to raise in Cuba. Michel Robinson is 11 and wants to be a Dr. of International Law and then on to be the President of Cuba. Angelica Robinson is nine and wants to be a surgeon. I feel both have greater opportunities in Cuba rather than in Canada.
    China is now restructuring the Cuban economy with major loans and investment.
    Gordon ” Cubaking ” Robinson
    Havanaclubsi@yahoo.ca

    • You are a commie moron, i do hope that your children dont come to regreat your s2pidity.

    • I am 21 I am doing the same budd.got a kid on the way. The kid will be raised in Cuba and so will I .so long Canada. I am afghan/Canadian

  4. …”it remains unclear”… “It is not clear whether”…

  5. Raúl Castro no quiere que la economía cubana mantenga el sesgo que tenía en la época de su hermano, Fidel. Los operadores extranjeros son otros, más ligados a su familia y amigos. Por ejemplo, BM, grupo israelí manejado por el ex director de la MOSSAD, Rafi Eitán, fue hasta hace poco un emblema de los negocios off shore, ya que invirtió cuantiosas sumas de dinero en la empresa Cítricos de Girón, en la provincia de Matanzas, y especialmente, en la realización del principal (y único) centro de negocios que existe en Cuba: Monte Barreto, hoy asociado con Caribbean Properties. Algún día deberán examinar la ruta de dinero, proveniente de paraísos fiscales, ya que la Isla, como muchas otras locaciones caribeñas, tienen predilección por las inversiones extranjeras sin importarles el origen.

  6. A correction on this article – Cuba will host nearly 3 million visitors in 2012. Canadians will account for close to 1 million tourists and the U.S. should put in 400 thousand visitors with most having a Cuban Background.
    All Cubans will tell you that President Raul Castro is a politician of action and a man of his word. He recently stated ” Two plus two always equals four – not five. ”
    Most of my Cuban friends are very concerned about the changes in the Cuban economy as they are not familiar with change. With restructuring help from china the Cuban economy is on the verge of a positive expansion.
    Cuban Americans are now allowed to send unlimited funds to their Cuban families which is resulting in a major building boom. Material and labour for a new house in Cuba is U.S. $ 6500.00. The largest building supply retailer in Brazil – TrendTudo is opening retail outlets through out Cuba starting in 2013.
    In Canada and Europe most pension plan are in need of restructuring which will result in in reduced pensions. I strongly believe that shortly ‘ retirement of Canadians and Europeons will be a huge industry for the people and their government. Cuba is four times
    greater in size than Vancouver Island and a population of 12 million people who are highly educated and look forward to working in a market economy.

    • Still spouting the same old nonsense, eh “Cubaking”. Your self-dramatizing “research” (sic) trips are nothing more than visits to shack up with your Cuban “wife” LOL!!!!

    • Cuba is a prison island in which everything depends on the will of ONE man… Not different that a feudal outfit. There is no hope for that country until theybrid of both Castro brothers.

  7. Anyone with access to Google and Spanish capability can access more detailed information than this article provides on the allegations of corruption against the various businesspeople noted here. The article boils down to this: Cuba is taking action against foreign capitalists who think they can walk in, throw money around, and behave according to their own sense of entitlement.

    The only foreigners who do business in Cuba that are ‘shocked and terrified’ are those who have attempted to bribe their way to a favourable business position. A government attempting to crack down on corruption is treated as a Good Thing in every other country, but when it’s Cuba getting in the way of greedy investors, well, that just can’t be right!

    Such hypocrisy on display here…

    • THE CUBAN “GOVERNMENT” IS REALLY A FASCIST OLIGARCHY MAFIA RUN BY THE CASTRO BROTHERS AND THEIR CLAN. MOST OF THE FAMILY MEBERS ARE IN HIGH POSITIONS & RUN THE MAYOR “GOVERNMENT” COMPANIES! THESE “TIMBIRICHE (kiosk)” BUSINESSESS WILL NOT GET THE CUBAN ECONOMY GOING OR HELP TO PAY THE COUNTRY’S HUGE DEBT!
      REUTERS : Exclusive – Paris Club invites Cuba to resume debt talks- by Marc Frank – Nov 7, 2011

      Cuba’s wealthiest creditors have decided to test President Raul Castro’s pledge to improve the island’s financial credibility by inviting his government to talks with the Paris Club about settling billions of dollars of outstanding debt, according to Western diplomats.
      The Paris Club reported that Cuba owed its members $30.5 billion (19.0 billion pounds) at the close of 2010, but more than $20 billion of the debt was in old transferable Soviet rubles that Russia now claims but Cuba does not recognise.
      The Bank for International Settlements reported banks in 43 countries held $5.76 billion in Cuban deposits as of March of this year, compared with $4.285 billion at the close of 2009 and $2.849 billion at the close of 2008.
      Cuba last reported its foreign debt in 2007 at $17.8 billion, but most analysts agree it now exceeds $21 billion, or close to 50 percent of gross domestic product and 30 percent more than annual foreign exchange revenues.
      CLICK LINK FOR ENTIRE ARTICLE!
      http://uk.reuters.com/article/2011/11/07/uk-cuba-debt-idUKTRE7A64AS20111107

  8. The per capita government , private and corporate debt in Cuba is only $ 1800.00. In the U.S. it is over $ 500,000.00 for each American !!!

  9. When the new Panama Canal is completed in 2014 the Asian mega container freighters will off load in Marial ‘ Cuba. smaller freighters will reload for delivery to other Atlantic ports. the Marial port will be a hub for ocean freighters connecting Asia to many ports in the Atlantic and vice versa.

    • That will help the economy to a degree, always keeping in mind that the U.S. embargo still forbids any ship that docks in Cuba from docking at a U.S. port for a period of six months (one of the reason that Cuba’s cost of shipping goods is so high – container ships can’t make Cuba one of their stops en route to the USA – they have to charter boats that will never enter US waters).

    • Mariel, not Marial…

  10. Why China is investing in Cuba :::
    1. Location – location – location
    2. Tonnes of farm land
    3. Lots of undeveloped water front property.
    4. Largest nickel / cobalt deposist in the world.
    5. Well educated population.
    6. Good medical system in place.
    7. Free education at all levels.
    8. Little serious crime / drug use.
    9. Law and order country.
    10. Close to the USA.
    11. Little debt at all levels.
    12. Decent roads and power system.
    Gordon ” CubaKing ” Robinson
    Port Alberni B.C. Canada
    I will do my 76th research trip to Cuba next month – Si !!!

    • China is going to take over Cuba for the money they invest. Look on the market in Europe and North America, for years almost everything is made in China.
      They sell cheap, but a lot and they are the richest in the world.
      Nickel and cobalt; Cuba is going to be a grave yard if they start to take it out. China, it self is so polluted, so they are not going to spend money to protect the environment in Cuba. To start they make a very good offer until they put there foot in the country and after………… Probably is nothing to fool such a small country.
      The history proofed that small investors is the safe way to go, in which case the control and integrity can be kept.
      I do not have any relations with Cuba, but I wish GOD TO SAVE THEM
      and same for entire WORLD

  11. The first men who’s been in jaill, and this for the next 15 years is French. He was, also, at the head of an Investment fund.
    No corrupcy or other… Just thefact that a National Cuban Bank has not the capacity, the knowledge or power to complete “due diligences” on a transaction… and you’ll be guilty of money laundering, ect ect….
    Soviet trial has followed…
    All assets, accounts have been stolen by the Cuban government…
    The second one was the best Shared-economy firm between Cuab and Chile… Just look after what happened to the firm… The local representative… and you’ll see how far Cuba can go!
    This country lets the investor coming in, develop projects, spends money, make a living there… upon one level and Cuba show you the Bill!! “dar la cuenta come ellos dicen”.
    As of today Cuba’s got in jail half a dozen of Foreign investor, who have family inside the country and abroad… Just wait, and the list wil be getting longer and longer over time.

  12. No surprise here for Memphistos….. Do business with goons at your own peril? I hope that those morons are sent to the same jail as all other Cubans…. They are in for a experience of a life time.

  13. The whole Castro family are living of bribes, gifts, and special privileges ! Honest businessmen are forced to find ways to make the broken economy work, and these Cuban idiots throw them in jail. It’s worse than Iran or any other dictatorship around the world. It’s time the Castro disappear! !!!

  14. what a terrible piece on cuba, did either one of these ‘journalists’ ever visit the country? to suggest Yoani Sanchez is a journalist is an insult to real ones. to compare teh development of Haiti with Cuba is a joke. there’s nothing easier to spread propaganda about what’s really happening in cuba, and this piece of garbage would be proudly read in Miami. you should be ashamed of yourself to print this. and getting those comments from Azel without explaining his anti Cuba bent, what a sorry indictment against what passes as journalism. nice hatchet job. thank goodness people who do business in cuba from around the world, including canada, know the truth.

  15. As far as I know the Chilean investor ripped the company off and stole money that is why he fled. You guys should do your home work before you report things.

  16. Latest facts on the Cody LeCompte car accident in Cuba coming out now …..

    Directly from the Cuban car rental representative in Camaguey
    province. The car was rented to one of Cody’s relatives and Cody was not
    listed on the rental agreement as a driver, therefore it was illegal
    for Cody to be driving the car. There was alcohol involved in this
    accident but the driver was not totally impaired. The driver drove
    through a stop sign at a major intersection and was broadsided by a dump
    truck.

  17. Cuban are living more freely than us in a non-hypocritical way. The ocidental democracy turned into a bad scenarios shapped from some big brothers since the 60′s. I Got some aware friends from usa that are looking into the Canadian or european media when they want to get the right information. Comparing Cuba to Haiti is a shame really. I would be so glad for Cuba if they can get on track without the helps of those financial sharks. No need big research, if you spend some time in Cuba, it is obvious that the help of China is keeping the biggest economy of the country (tourism) in a functional way. Like ”disgusted redaer” says : ” this piece of garbage would be proudly read in Miami. you should be ashamed of yourself to print this”. As american, you should go out and experiment by yourself and see by your own eyes what you want to discuss because it became clear in time that american universities are founded for decades by some big finance players and what you know is what you have to know and have nothing to do with what Knowledge is in his proper term.

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