The Economist: On Cuba's Foreign Investment Climate

The Economist

Event

Three Canadian businessmen working for the Tokmakjian Group (a Canada-based automotive and transport group) were sentenced to prison on September 28th on charges of bribery, fraud, tax evasion and falsifying bank documents. In addition to prison time for the businessmen, which includes the company's CEO, Cy Tokmakjian, the company had US$100m of its assets in Cuba seized by the government.

Analysis

The Tokmakjian Group sold transport, mining, and construction equipment in Cuba, and was the sole distributor of a South Korean automaker, Hyundai, in the country. Tokmakjian Group earned an estimated US$80m a year for the almost 20 years that it operated in the country. Mr Tokmakjian, as well as two Canadian aides and 14 Cubans, were arrested in September 2011 on corruption charges as part of an anti-corruption campaign carried out by the government. Although the prison sentences for the accused Cubans have not been made public, Mr Tokmakjian was sentenced to 15 years, and his two Canadian associates, Claudio Vetere and Marco Puche, received sentences of 12 and eight years respectively.
The case was criticised by the defence's lawyers and foreign governments, particularly that of Canada, for its speedy proceedings and lack of transparency. The case took place behind closed doors, and the government has made little public about the proceedings. Cuba has arrested or expelled several foreign executives from Canada, Europe, and South America on charges of corruption or bribery. Around a dozen foreign executives have been sentenced to prison, along with employees of state companies found to be on the receiving end. The targets of such corruption investigations often have their assets seized by the government.
The latest sentencing comes against the backdrop of a new foreign investment framework passed in March that aims to attract around US$2bn-US$2.5bn in foreign direct investment to the country each year, largely through tax incentives for working with the state. However, many foreign executives cite transparency and lack of rule of law as the main concerns for investing in the country. The sentencing will do little to ease these concerns.

Impact on the forecast

The event underlines our forecast scenario that concentration of power in the one-party system, which leads to unpredictable and sudden policy changes or decisions and to a de facto limited autonomy of the judiciary, will remain one of the major drawbacks in Cuba's business environment.