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Overview of Vietnamese investment in Cuba
Monday, 27/09/2021 11:51
Overview of Vietnamese investment in Cuba

Vietnam and Cuba have had a close friendship and partnership over the past 6 decades, developing bilateral cooperation in all areas, especially in investment cooperation. That Cuba is currently undergoing a strong economic transformation opens up many opportunities for Vietnamese businesses and investors, though they might still face many difficulties in the new Cuban market.

President Nguyen Xuan Phuc had officially visited Cuba from the 18th to 20th of September 2021. It is an important time to review Vietnam’s investment in Cuba.

Vietnam has 04 valid investment projects in Cuba with a total registered capital of USD 44.35 million, focusing mainly on Manufacturing and Processing as well as Industrial Park Infrastructure Construction. 03 of these projects has come into operation and 01 project is currently under development.

The construction of The Special Economic Development Zone Mariel (ZEDM or Mariel, in short) is the first step toward Cuba’s economic transformation and also the first special economic zone of Cuba that offers Vietnam enterprises an opportunities to penetrate Cuban market in particular and other Latin American markets in general.

ADVANTAGES AND DISADVANTAGES OF VIETNAMESE ENTERPRISES IN CUBA

            While investing in Cuba, Vietnamese enterprises enjoy a lot of incentives and advantages in terms of legal, market, labour and monetary aspects.

For legal advantages, Vietnamese enterprises are strongly supported by both Governments with investment procedures and licensing, especially through the one-stop-shop mechanism of ZEDM. In terms of access to prioritized market, manufacturers are required to purchase goods and material from Mariel - instead of imported from abroad - if prices are more competitive at Mariel. As for labor, by offering better wage and compensation polices than outside, ZEDM also attract more Cuban workers, who can be characterized as hospital, enthusiastic and easily trained. Monetary-wise, the single-currency policy adopted by Cuba in 2020 has greatly facilitated FDI enterprises.

Though these advantages are a premise for Vietnamese investors to consider opportunities in Cuba, the disadvantages in this new market need evaluating to ensure the most comprehensive strategy.

The first apparent difficulty in Cuba is the on-going complications of the Covid-19 pandemic, which has severly affected existing investment projects in the aspects of construction, financing and market access. For Vietnamese businesses in particular, infected employees have very limited access to vaccination.

Second, the US embargo against Cuba has jeopardized trade, imports and exports, etc., causing a shortage of raw materials, goods, machinery and equipment and enterprises’ inability to plan ahead. Machines, equipment, goods and materials used for construction and production are almost non-existent and have to be imported, leading to higher costs (2 to 3 times as high as those in Vietnam).

Inadequate legal frameworks on financing also prevent investment projects from being properly funded. Although the new Constitution of Cuba allows businesse to use on-land properties mortgages as collaterals for loans at financial institutions, a lack of leagl guidance makes it hard to borrow.

Additionally, labour costs are relatively high, making enterprises incapable of actively recruiting qualified workers and required to hire employees through specialized human resources agencies. Since residence areas are normally 45 - 50 km away from manufacturing facilities, taking workers from 1 to 1.5 hours to commute, businesses also have to invest in and organize transportation for their employees.

Finally, the procedures for investment licenses and sub-licenses often take very long (about 3-4 times as high as those in Vietnam) due to strictly-planned schedule and limited collaboration capabilities of Cuban counterparts, thus slowing down investment projects’ timelines.

VISION FOR FUTURE INVESTMENT COOPERATION

In the coming time, Vietnam enterprises need do additional market research and focus investing in areas that Cuba has potentials and incentives in, such as construction, energy, food production and processing, and tourism, oil and gas exploitation, telecommunications, IT, logistics services, infrastructure; biotechnology, sugar processing and sugarcane by-products, mining, insurance and so on.

Vietnam also need continue to promote its strong export products such as rice, coffee, chemical products, textiles, footwear, computers and components, construction materials, ceramics, machinery and equipment, etc.

Vietnamese investors also need be fully aware of their Cuban partners and market to assure success by working closely with Vietnam Representative Office in Cuba and the Foreign Investment Agency (Vietnam Ministry of Planning and Investment) to get a good business plan, partners and approaches to Cuba's culture.

Cuba is currently in many economic agreements in other Caribbean and Latin America countries, receiving a lot of incentives in these markets. Vietnamese enterprises should not be afraid to participate in the Cuban market because of the geographical distance and small market size and need to look further into larger markets that include the Caribbean and Latin America regions.
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