Volume 46, Number 182, July-September 2015


EDITORIAL
FROM EMBARGO TO LIBERALIZATION:
INVESTMENTS AND COMMODITIES IN CUBA

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In the wake of negotiations to reopen bilateral relations between the United States and Cuba, China, Russia, and France have all turned a political and economic eye towards the island nation, set to enact substantial reforms that will give foreign investors reason to closely follow how its current regulations evolve. The economic and political stability of Cuba in the aftermath of the collapse of the Soviet Union and into the present day has attracted foreign investors, although financiers from the United States have been largely sidelined, thanks to their country’s trade, economic, and financial embargo against Cuba.

As the nation opens up to foreign investment, and also thanks to the wealth of its extractive industry, as well as the oil, gas, and infrastructure development sectors, Cuba will surely continue to be a magnet for major investors, who will have to jockey with those already in position, including corporations from Canada, Spain, China, Brazil, Mexico, and Venezuela. Despite the fact that international commodities prices are falling, nickel, one of Cuba's principal export products, alongside other minerals, will attract foreign investors to the sector.

As the economic and trade embargo of the United States against Cuba draws to a close, it is worthwhile to note that Cuba is home to 34.4% of global nickel reserves, and also has a vast endowment of cobalt and copper, to name a few of its resources. China is the destination for over 30.30% of Cuba's total nickel exports, while another 10.94% go to Spain and Brazil, and another 5.0% and 5.1% end up in Belgium and Luxembourg, respectively. Cuban imports mainly come from China, at 18%; Spain, 16%; Brazil, 9.4%; the United States, 7.6%; and Mexico, 5.5%.



What is Going on Behind the Geostrategic Economic
and Political Relationships in Cuba?

Despite the economic embargo imposed by the United States, Cuba has historically maintained trade ties with more than 170 countries.i The challenge resides in diversifying a market characterized primarily by the commercialization of sugar, rum, tobacco, and nickel. Its principal trading partners are found throughout Latin America, a region to which Cuba exported 60% of its 2013 production.ii Venezuela is its top trading partner, receiving 30% of Cuba's exports and supplying one-third of its imports, making Cuba rather dependent on the former nation's economic cycle.

In 2006,iii the companies Petróleos de Venezuela (PDVSA) and the Unión Cubana de Petróleo (CUPET) merged to create the mixed enterprise PDV CUPET, which is operated out of the Camilo Cienfuegos refinery. In 2013, the Chinese subsidiary Haunqiu Contracting and Engineering Corp. signed an agreement with PDV CUPET to increase its refining capacity. The Chinese market became increasingly important in 2013 and, together with the United Kingdom and Belgium, was the destination for 73.3% of all Cuban mining exports.

Cuba is a state-controlled economy, where the government owns the means of production and employs the majority of the workforce. It is a country that depends in large part on tourism, which accounted for 25% of the Gross Domestic Product (GDP) in 2013. That same year, the entire tertiary sector contributed 76% of the GDP. One especially attractive field to develop is the mining sector; Cuba is ranked seventh on the global list of cobalt and nickel reserves and also has a copper and zinc supply, although exploitation of mines and quarries only contributed 0.6% of the GDP in 2013. The current trade liberalization could be an answer to the deterioration of the domestic economy. One example of this is the sugar industry, which is emblematic of the country, but has greatly declined over the past 20 years; in 1990, Cuba produced 8.4 million tons of sugar, a figure that fell to 1.6 million in 2014.

Of the multinational companies present in Cuba, the Canadian Sherritt International stands out. Its profit on nickel extraction represents 75% of the total and, according to Bloomberg, the mining company Sherritt, together with the Cuban company Moa, formed a joint venture in 1994. Last year, they produced 16,445 tons of nickel and 1,605 tons of cobalt. The merger of the Canadian and Cuban companies created a vertically integrated company, able to handle extraction, processing, and refining through subsidiaries, such as the Cuban company Sherritt y Compañía General de Níquel, S.A. Moa Nickel S.A.

The company Sherritt's Oil and Gas, established in 1992, has demonstrated its capacity to develop and produce oil and gas in an extremely complex environment. The corporation has signed an agreement with the Cuban government to exploit Puerto Escondido/Yumuri for ten years. Sherritt has also been sanctioned by the United States for failing to comply with agreements in place with Cuba. However, the firm's relationship with Fidel Castro during his years as president were always spoken of with pride by both parts. Another key player is MEO Australia Limited, which signed an agreement with the state enterprise CUPET to carry out deepwater exploration starting in 2013. The corporation has also entered into a contract with the state-owned enterprise Rosneft from Russia and the Chinese National Petroleum Company/CNPC), who have agreed to aid the Cuban government in extracting oil. The government has a rather optimistic outlook for the prospects of finding enormous quantities of oil, in spite of the dissatisfactory results of efforts made by Repsol (Spain), PDVSA (Venezuela), PC Gulf (Malaysia), and Gazpromneft (Russia). Cuba is promoting the exclusive Economic Zone of the Gulf of Mexico, with the potential for 22 billion barrels. In the financial sector, the Bank of Nova Scotia, the third-largest bank in terms of assets in Canada, is also present in Cuba and its principal interest lies in financial exchange to support trade, as well as agricultural and medical products.

In part due to the embargo, Cuba's path of economic development in the years following the Revolution looks quite different from that of the rest of Latin American countries. According to the Economic Commission for Latin America and the Caribbean (ECLAC), Cuba allocates a massive percentage of its public spending to its young population: the total amounted to 76.8% in 2008-2009; 70% in 2010; and 66.7% in 2011. More than 15% was allotted for social spending; investment in youth as a percentage of social spending reached 26% and as a percentage of GDP, 9.7%; youth constitute 20.4% of the total population. Public spending on education per student as a percentage of GDP per capita ballooned from 82.3% in 2000 to 103.7% in 2012. It is striking that according to ECLAC data, 100% of children and adolescents are enrolled in school.

Cuba surpasses Argentina, Brazil and Mexico in its assignation of funds for public and social spending on health and education. The island enjoys the demographic advantage of a young and skilled population. Its human capital, inequalities, and inequities among the population are quite different from those of the other Latin American countries.

On a different note, the articles in this issue grapple with a wide range of problems related to economic development in the Latin American region. "Why did Mexico-United States Migration Begin to Fall Starting in 2008?" is the titular question of Elaine Levine's article to explain the role of Mexican immigrants in the United States labor market, and how the changing demand for immigrant labor, according to the author, has been the principal driver behind the dynamics of immigration flows over the past decades.

In the article "Economic and Social Policy in Mexico: Disparities and Consequences,” Felipe Torres and Agustín Rojas analyze the cost of Social Policy for the welfare of open economies. It is a fact that the Economic Policy has become subordinated to the interests of global economic dynamics, and as a result, Social Policy has been streamlined towards certain specific sectors of society, and no longer plays its role as a distributive, market-regulatory policy. Starting in the 1990s, the austerity requirements imposed forced the structural adjustment Economic Policy to face off with the Social Policy. The impact has produced a series of macroeconomic and multi-dimensional imbalances characterized by low economic growth and a significant increase in the number of people living in poverty of all types: food poverty, capacity poverty, and income poverty.

The paper by Alejandro Gaggero, Jorge Gaggero, and Magdalena Rúa, entitled, "The Principal Characteristics and Macroeconomic Impact of Capital Flight in Argentina,” offers a brief review of the episode of capital flight that marked the end of the convertibility regime and describes the principal macroeconomic changes that took place following the 2002 devaluation. The text analyzes the capital exits that struck again in 2007 and 2011, and the effects of these events on the macroeconomy and foreign exchange policy. The conclusions revisit some of the central features of the phenomenon over the past decade and analyze them in light of the previous “spikes” in capital flight. The economic policy in Argentina, starting in 2001, took a sharply heterodox turn.

In the article, “The Regional Problem: Regional and Sectoral Disengagement in Argentine Development," José Ignacio Vigil and Arturo Magri highlight the regional and sectoral policies that govern the production of agricultural machinery, primarily in the regions of Córdoba, Santa Fe, Entre Ríos, and Buenos Aires. The authors critique the transformations that the agricultural sector has undergone thanks to efforts to strengthen reindustrialization by boosting SMEs, as well as commodities.

Domingo Rodríguez Benavides, Miguel Ángel Mendoza, and Ignacio Perrotini are the authors of the article, “Non-Linear Analysis of Regional Convergence in Latin America, 1950-2010: a Panel Data TAR Model." Using panel data non-linear stationarity and/or unit root hypothesis tests, it presents the econometric methodology for the economic changes that have supposedly taken place in Latin America and which would have prompted processes of convergence or divergence. In other words, it first identifies some historical moments in the process of convergence, and then, on the other, divergence, sidestepping the possibility of explaining convergence and divergence with a single non-linear model.

The paper entitled, “Latin America in the Mirror of South Korean and Chinese Development,” written by Jaime Osorio, delves deep into a comparison of Latin American countries and the economic development of nations such as South Korea and China. The ways in which Asian countries have integrated their production processes into the global economy have been entirely different from how Latin American countries have done so. The dominant hegemonies of the bourgeoisie, along with the State, in Latin America, have created a situation in which Latin America is highly dependent on foreign capital. On the contrary, South Korea and China joined the global economy at different times. South Korea, in the midst of the Cold War, while China enacted a structural economic reform that permitted foreign investment to take advantage of its labor, achieved high productivity in strategic sectors, and maintained an undervalued exchange rate that encouraged many sectors of the global economy to move production to China.

In the article, “The Global Value Chain: Considerations from the Capital Cycle,” Seyka Sandoval proposes that innovation is the material cause of the process of valorization and interdependency among capitals. In this methodology, it is important to highlight the process of internationalization, a situation in which the capitals involved in competition, according to the author, display unequal profit rates. Despite the fact that the lead capital has the best conditions of ownership and innovation, the idea is that in the long term, as a result of competition, profit rates will become equalized. She draws on theoretical contributions from Marx and Schumpeter to explain the importance of value chains on the international scale.

The review section recommends four books: The Basic Food Basket and Food Quality in Mexico, by Felipe Torres, reviewed by Alonso Aguilar; The Current Links between Geography and Economics. An Anthology Commenting on the Contemporary Debate, by Marcos Valdivia and Javier Delgadillo (coords.), reviewed by Francisco González; The Local Agrifood System of Rice in the State of Morelos. Development and Territorial Governance, by Jessica Tolentino and María del Carmen Valle, reviewed by Alejandro Ramos; and, last but not least, María de Jesus López Amador reviews the book, Cross Border Business Experience: Migration, Crisis and Financing, coordinated by Alicia Girón and Eugenia Correa.

Alicia Girón
Journal Editor
unam, June 2015

i Cuba industry: http://www.cubaindustria.cu/index.php/comercio-exterior/estructura-del-comercio-exterior>

ii 2013 Statistics Yearbook of Cuba:

iii U.S. Department of the Interior and U.S. Geological Survey, Recent Trends in Cuba’s Mining and Petroleum Industries, 2015.

Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 48, Number 191, October-December 2017 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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