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Cuba Seeks Foreign Capital To Support Drinks Industry
Impact International / August 1, 1995

By Larry Luxner

Cuba's latest incursion into the world liquor market comes in the form of Ché Fruta -- a new lager beer hinting of natural fruit flavors and defiantly named after Cuban revolutionary Ché Guevarra.

The beer, launched last month [June] in selected London bars, is brewed in the United Kingdom but contains fruit flavors imported from Cuba. For that reason, it can't be sold in the United States -- a fact its bottlers, Corporación Cerveza Clara of Panama, hope will only add to its sex appeal.

"We think combining the fruitiness with a revolutionary figure like Ché gives the beer a seriousness," Joe Grahame, CCC's European director, recently told reporters. In fact, bottles of Ché Fruta sport a large Communist star and the warning: "Contains ingredients of Cuban origin -- not for sale in the U.S."

Washington's trade embargo notwithstanding, Cuban officials hope to boost foreign investment in their country's once-proud liquor industry, both in the form of marketing arrangements like Ché Fruta and through manufacturing joint ventures that take advantage of Cuba's idle plant capacity and increasingly unemployed labor pool.

At a June 15-16 conference in New York entitled "Preparing for Prosperity in the New Cuba," officials of the Communist-ruled island discussed a foreign-investment law now under consideration that would allow investors to own up to 100% of a joint venture, and could even let foreign companies choose their Cuban employees and pay them directly in U.S. dollars. The last provision, however, is subject to intense debate within Cuba because it would create a two-tier economy in which some Cubans working for foreign companies would earn dollar incomes worth far more than those of other Cubans working for state companies and earning pesos.

Currently, foreigners may own up to 49% of joint ventures, and must hire workers through state employment agencies. The companies pay their workers' salaries in dollars to the agencies, which pay the employees in pesos and pocket the difference. In the liquor industry, such joint ventures include France's Pernod Ricard Group, which teamed up with Cuba's Ron & Licores S.A. in November 1993 to market and distribute Cuban rum worldwide. Another deal involves Canada's Labatt Breweries International, which sells Hatuey beer at Cuban resorts and is negotiating with the Castro government to take over distilleries owned by Bacardi before the 1959 revolution.

"Under the new law, the foreign partner could have 100%, and companies would be able to hire employees directly, without going through Cubalse or any government agency. But we have to avoid creating social problems," said Ismael Sene, a top official of Cuba's Ministry of Foreign Investment, interviewed during the New York conference.

In the past 13 months, said Sene, his office has received visits from 212 U.S. companies interested in making investments in Cuba -- including eight of the top 15 Fortune 500 firms. But he refused to identify the companies for fear of causing friction between them and the Miami-based Cuban exile community, which strongly opposes any foreign investment in Cuba until the Castro regime is overthrown.

Nevertheless, global interest in the Cuban liquor industry seems to be on the rise. Besides Pernod Ricard and Labatt, other companies reported to be exploring commercial activities there include Ecuadorean rum distiller Caney Corp., Mexico's Grupo Domecq and Corporación Internacional Comercial, Spanish wine importer Vegas de la Reina and Venezuela's Cervecería Nacional Covencaucho. In addition, Spain's Miguel Torres S.A. is studying the possibility of a major investment in Cuba, most probably in wine distribution and vineyards.

Cuba itself is actively promoting foreign investment in the liquor industry. José M. de la Osa, director of the government's Unión de Bebidas y Licores -- a state enterprise within the Ministry of Food Industry -- says Cuba's breweries have the production potential to satisfy demand. He says the Mayabe brewery in Holguín province has had such an arrangement since 1993, producing beer in aluminum cans.

"At this moment, we are also negotiating the capacity of other installations and expect to wind up these talks successfully this year, which will allow us to revitalize the industry and to begin to export Cuban beer," he told the magazine Business Tips on Cuba, published in Havana by the Cuban government. "The most important asset the beer industry offers foreign capital is our tradition and experience of more than a century in this sector. The industry needs investments, but the infrastructure with good sources of water is already here. From the foreign partner, we need financing, technology and markets, since the domestic circulation of foreign currency is too limited to guarantee adequate capital recuperation."

De la Osa said Cuba's beer industry currently consists of seven factories and four bottling plants that produce around 6 million hectoliters annually -- about 25% of capacity. In wines, he said, Cuba has installed capacity for approximately 16 million liters in 10 factories that produce dry, semi-dry and sweet wines from tropical fruits and imported raisins. De la Osa said that Cuban wines are not marketed internationally, but that a joint enterprise has been set up that should begin to export mineral water later this year. He added that agreements for the export of wines and soft drinks "have been negotiated and are now in the process of approval."

All this investment, of course, comes as no surprise to the Bacardi empire, which was born in Cuba in 1862 and was forced to leave the island in 1960 when Castro expropriated the company's distilleries in Havana, Santiago de Cuba and elsewhere.

In fact, Bacardi is among several companies which have recently formed the U.S.-Cuba Business Council, a Washington lobby that supports a tightening of the trade embargo enacted by President Kennedy in 1962.

New York attorney Michael Krinsky said that if a bill sponsored by Sen. Jesse Helms (R-North Carolina) becomes law -- as many Cuba-watchers expect it to in one form or another -- it would pose a "substantial obstacle" to normalization of relations between the United States and Cuba.

"It's a wide-ranging bill that attempts to hurt Cuba and internationalize the embargo," said Krinsky, speaking at the New York conference. "At its core is the expropriation of property owned by Cubans in the early days of the revolution. For those people, the Helms bill would establish the possibility of bringing lawsuits in U.S. courts against any person who trafficks in their expropriated property. This would include investing in a business, buying the property or buying or selling in goods produced in expropriated factories."

That means Bacardi could, for instance, use the U.S. court system to sue Labatt or any other company that invests in a distillery once owned by Bacardi. By the same token, Lone Star Cement of Connecticut would be within its rights to sue the Mexican conglomerate Cemex -- which recently bought a controlling interest in a Lone Star cement factory that was confiscated by the Cuban government in 1960.

Krinsky said that even if the Clinton administration drops the embargo -- and even if Fidel Castro were overthrown tomorrow -- normal relations following passage of the Helms bill would still be impossible until all claims between former Cuban citizens and the Cuban government were settled. That would essentially involve "a reversal of the revolution and a return to the state of affairs in 1958, something the Cuban government is not prepared to do."

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