Germany in Cuba

Now that Cuba's economy has made steps to open up to foreign capital, the island's communist government hopes to lure potential investors with numerous incentives. But doing business in Cuba requires a different approach.

"The Cuban market has many special features," said Stephan Gruber, one of the directors of Casa Alemania, a German umbrella organization for German companies wanting to do business in Cuba. "The short term does not work in Cuba."

Gruber said Casa Alemania, which means Germany House, has built up experience in dealing with Cuban businesses through years of discussions, earning what he described as "acceptance through continuity."

No room at the German pavilion

This experience includes a stand at the 32nd Havana International Trade Fair (FIHAV 2014), which has just come to a close. Some 2,000 companies from 60 countries took part in the week-long show that covered over 18,000 square meters. Thirty-seven exhibitors traveled from Germany - most of them technology and engineering companies, including heavyweights such as Bosch, MAN and ThyssenKrupp. For the third year in a row, the German pavilion was fully booked.

It's no secret that Cuba is now in transition. For several years, the country has been undertaking a cautious economic realignment. Under the motto of "updating the socialist model" Raul Castro's government has lifted restrictions on private sales of cars and real estate, allowed more free-market initiatives and set up a Brazilian-funded special economic zone around the port of Mariel, 45 kilometers west of Havana.

The centerpiece of this new openness is a new law on foreign investment that took effect in June. It allows foreign companies to invest in all sectors of the Cuban economy for the first time.

'Trial balloon for the free market'

The trade fair in Havana and the new law are part of a push that the government hopes will bring much-needed capital into the country. Foreign investors will be offered tax benefits and investment protection.

"It's a trial balloon for the free market," Tobias Schwab, another of Casa Alemania's directors, called it.

The investment law means Cuba "for the first time can form deeper and more complex economic interrelationships," said Klaus Hartmann, a former East German ambassador to Cuba who now works as a consultant on Latin America.

Expectations are high on all sides. "Cuba has invested heavily to reap the benefits associated with foreign investment," Foreign Trade Minister Rodrigo Malmierca Diaz said as he unveiled the government's 8.7-billion-dollar spending program at the fair. It includes 246 projects - from chicken farming to manufacturing vaccines to constructing wind farms - across the whole island.

Rebuilding power networks

"What's positive about this program is that concrete projects are finally being presented in detail. Not many investors know much about Cuba," said Udo Volz, an economics specialist at the German embassy in Havana. "But it can only be a first step."

Cuba, he said, would need to get the word out about its investment law, not least because it is competing with other investment-hungry nations on the world market.

The Caribbean island needs about 2 billion dollars of foreign direct investment every year to increase its overall economic growth to 5 percent from its current 1 percent, Malmierca said. "Governments can do much to create a business environment, but in the end, it's companies that must make something of it."

And the once-secretive state has changed its approach to foreign business. "The communication from the Cuban side has changed," Volz said, describing a new "openness."

Whereas the government in Havana once understood foreign capital to be "complementary," it is now expected to play a "fundamental" role in some sectors, especially food production, agriculture, tourism, construction and energy. In the latter case, Cuba wants to move from fossil fuels to renewable energies and cannot do so without foreign expertise.

Germany could be a valuable partner, especially in this field, Ambassador Peter Scholz said during his visit to the trade fair. Renewable energies are also a priority for Casa Alemania. It held initial talks with the Cuban government on wind power in 2004, its director Mathias Schultze said.

"But in the years that followed, German policymakers scaled back their commitment to Cuba."

'Germany is holding back'

Today, Schwab said, Chinese companies were taking the lion's share of Cuban foreign trade, not least because of aggressive state-backed Chinese financing.

"In contrast, German companies have to fend for themselves in Cuba."

Schwab said the German government needed to offer more support to its companies, because there was clear rethinking on the part of the Cubans. Quality and sustainability now played a greater role and German engineering still enjoyed an impeccable reputation, he said.

But, he said, any financing schemes would require stronger backing from Germany, especially in light of the US economic boycott of the island: "German policy is too focused on the United States." Investment in Cuba was overshadowed by this political and cultural agenda, he said.

And while countries such as Spain and Canada have shown it is possible to follow a different course, Schwab said, "There's no political desire for that in Germany." Even the German embassy in Havana had done little to encourage economic cooperation, he said.

This is a criticism that Volz is unwilling to accept. He said efforts were being made to support German companies with consulting advice. But he also acknowledged that Cuba is not a priority as a business partner. "Cuba is not just on the agenda."

This is made clear by the fact that Cuba lacks an independent German chamber of commerce - the German Chamber of Commerce in Guatemala is responsible for Cuba - or even a German trade office.

"Other countries have done much more," Schultze said. "Britain, Portugal and Italy sent ministers to the fair." Germany, however, didn't even send an undersecretary.