Spanish Firms Eye Cuba’s Untapped Market

Spanish Firms Eye Cuba's Untapped Market

Spanish Firms Eye Cuba’s Untapped Market

The historic restoration of diplomatic relations between the United States and Cuba on July 20, 2015 since broken in 1961 is a symbolic and powerful development in the rapprochement between Cuba and the US. The continuous softening of the Cuba-US relationship will not only benefit American companies, but also European firms, particularly Spanish corporations interested in investing in a largely untapped market.

For Spain, like neighbouring Latin AmericaCuba is a natural destination for investment given the historic and cultural ties between both countries. Referent Spanish companies, mainly in the tourism sector, Meliá Hotels, Iberostar Hotels and NH Hotels, pioneered entering the Cuban market in the mid-1990s when the Cuban government stimulated the growth of the tourism sector. Since then Meliá Hotels have consolidated their presence and today the hotel chain operates 27 hotels in Cuba. The announcement broadcasted on December 17, 2014 that Cuba and the US would normalize relationship caused that Meliá rose 9 percent on the IBEX 35, the Spanish stock market.

Other Spanish companies present include tobacco company Altadis – owned by Imperial Tobacco –, airliners Air Europa and Iberia and Bankia, a Spanish bank, whilst others such as Banco Popular, Llorente & Cuenca and Baleària cruise liner have recently announced plans to conduct and establish business in Cuba.  In total there is an estimated 252 Spanish companies operating in Cuba. As such, with a genuine interest and a proven presence by Spanish companies. Spain is in a position to grow its footprint in Cuba.

Since the historic December 17, 2014 announcement to normalize relations between Cuba and the US, Spanish authorities have demonstrated Spanish interest on incrementing the Spanish corporate footprint on the island through numerous high-profile visits seeking to promote and increase commercial exchange and investment between Cuba and Spain. Last April Secretary of Commerce Jaime Garcia-Legaz chaperoned a 45-member trade mission that was followed by another trade visit led by Jose Manuel Soria, Minister of Industry and Tourism, and composed of over 90 business participants. Lastly, earlier this month Jesús Posada, President of the Spanish Congress, led an institutional visit to further promote the relationship between Spain and Cuba.

SPAIN GOVERNMENT BACKS INVESTMENT

In addition to the high-profile visits to Cuba by Spanish officials, the Spanish government has adopted concrete measures to support Spanish companies seeking to invest in Cuba.

COFIDES S.A., a majority state owned financial development institution, announced last June the creation of a 40 million euro credit line called Cuba Credit Line (Línea de Financiación Cuba, in Spanish) to support Spanish companies that want to invest in Cuba’s Mariel Special Development Zone and outside of the Zone.  Furthermore, state participated Insurance Company of Export Credit (CESCE, it’s a Spanish acronym) has made available a 24 million euro worth credit line to Spanish companies for trade financing.

Also, the Spanish government approved the removal by the Bank of Spain of extraordinary provisions that lenders had to undertake when lending funds to Spanish companies wanting to invest in Cuba. This measure will facilitate lenders providing further credits to Spanish companies.

CUBA: AN INVESTMENT OPPORTUNITY

With an estimated need of 2,000 to 2,500 million dollars of foreign direct investment annually, a privileged geographical location and a market of 11 million people, Cuba presents a fertile investment ground in coming years.

The Cuban administration passed a new foreign investment law in March 2014, in force since June and additionally has published a “Portfolio of Investment Opportunities” outlining the projects that need foreign investment.

Cuba is offering numerous incentives including steep tax cuts amongst other. The Cuban government foresees three different types of investment:

  • Totally foreign-owned companies
    • Branch of the foreign company
    • Cuban subsidiary
  • Joint ventures
  • International economic association contracts

In sum, Cuba has formally opened itself to foreign investment in an effort to refloat its economy. It has taken numerous and significant steps through the enactment of a new foreign investment bill, the Mariel Special Development Zone, re-established diplomatic relations with the US and engaging the international investment community. Whilst the US trade embargo is still in place, there is and will be ample opportunities to revamp weak infrastructure to handle trade, transportation and digital commerce as well as in the tourism, renewable energy, agro-industrial, distribution and other industries.

Spain and Cuba have a deep and long-standing relationship. Spanish companies have been at the forefront bringing both countries together through investment and commerce, including during times of difficult commercial and financial environment due to US led economic sanctions. Now more than ever Spanish companies and the Spanish government must continue to facilitate trade and investment by Spanish companies into Cuba.

For information on investment in Spain, please contact corporate law firm Argali Abogados.

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