FOREIGN COMPANIES IN CUBA: THEIR ROLE IN THE CUBAN ECONOMY AND OBSTACLES TO THEIR FURTHER DEVELOPMENT

Multinational enterprises are a significant economic phenomenon. The scale and scope of their activities increased remarkably during the second half of the 20th century resulting in these entities playing an important role within the economies of most countries in the world. The capital, knowledge, and technology that these companies bring to host economies often have a positive effect on the productivity of those countries. However, the extent and character of the activities of internationally operating companies as well as the degree of their overall influence on the host economy is highly dependent on the quality of the investment environment in the given countries. The questions of the impact of the activities of foreign companies and the identification of the main factors determining their activities in host economies have been the subject of much research. However, little attention has been paid to their activities in Cuba, where these companies began to operate after 1990 when Cuba opened up to them to some extent after losing economic support from the Soviet Union. This dissertation, therefore, evaluates the activities of foreign companies in Cuba and describes the factors limiting their further development. Data from the Cuban Statistical Office and data obtained through own research, including a questionnaire survey and guided interviews with representatives of foreign companies operating in Cuba and with experts on the Cuban economy, were analyzed. It was found that Cuba is able to attract a certain amount of foreign direct investment (FDI) despite its very complicated investment environment. However, the annual inflow of FDI fluctuates considerably and has been in the range of 0-2% of GDP since the 1990s. The role of FDI in Cuba's external balance is less significant compared to the main items of the current account, which are the export of services (especially to Venezuela), tourism, and the inflow of remittances. Research showed that that foreign companies consider the most limiting factors of the Cuban investment environment for their activity and further development to be macroeconomic instability, the impossibility of acquiring real estate, unavailable local financing, problems in the area of capital movement and profit repatriation, and excessive labor market regulation. In addition to the evaluated factors, companies most often mentioned the bad payment morale of Cuban state-owned enterprises and the U.S. trade embargo as limiting factors. Regarding the impact of the activities of foreign companies on Cuban companies, the information obtained in the investigation indicates a certain spillover effects in the vertical direction, in particular through the direct support of the development of local companies by foreign companies. Limited labor mobility between foreign and domestic enterprises and limited cooperation between foreign companies and private enterprises have been identified as factors limiting the wider impact of both vertical and horizontal spillover effects. Based on these findings, proposals were formulated in the dissertation to improve the conditions for the operation of foreign companies in Cuba and increase their contribution to the Cuban economy. The research confirmed and further supplemented findings from other studies focused on the Cuban investment climate (in addition to the previous findings, the high sensitivity of the activities of foreign companies to macroeconomic factors was identified). The area of spillover effects has not yet been explored in the Cuban economy. The findings of the conducted research are thus completely new.