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    Cuba foreign investment risk assessment

    French CoFace credit risk and investment company has released a risk
    assessment for the country of Cuba.

    Coface country assessment reports analyze and forecast country risk
    using macroeconomic, financial and political data.

    The company reviews the financial history and the risks to the business
    environment of the country.

    CoFace assigns Cuba a D rating for credit and investment risk.

    Main Economic Indicators 2009 2010 2011 (e) 2012 (p)
    GDP Growth (%) 1.4 2.1 2.4 2.4
    Inflation (annual average) 1.4 2.9 4.7 5.7
    Fiscal balance / GDP (%) -4.8 -3.6 -3.0 -2.5
    Public debt / GDP (%) 1.0 0.4 -1.2 -0.4
    Current account balance / GDP (%) 34.4 34.2 34.9 35.3


    Attractiveness of tourism, mineral resources (nickel) and agricultural
    (sugar, tobacco) abundant
    Discovery of oil in 2008
    Skilled labor
    Relatively good social indicators
    Preferential agreement with Venezuela on oil imports


    Vulnerability to external shocks (weather, commodity prices)
    Limited access to external financing
    Lack of infrastructure and governance weaknesses
    Uncertainties about the evolution of the Castro regime and foreign relations


    Growth hindered by uncertainty reforms

    The trend in 2011 is expected to continue in 2012. Growth should remain
    poor due to the slow progress of reform, including the conversion
    process of "surplus labor" from the public to the private sector. The
    economy will suffer as a decline in tourism and a decline in nickel
    prices, in a tense international situation. Furthermore, the transition
    from a command economy to a market economy should be accompanied by
    rising unemployment.

    The phasing of the policy of subsidizing the price should increase
    inflationary pressures given the rising cost of living. the medium term,
    the performance of the Cuban economy is largely dependent on the
    continued implementation of reforms since late 2010 and particular, the
    development of the private sector through the relaxation of legislation
    on business start-ups, the phasing of the rationing system and the
    unification of dual exchange rate.

    Import controls

    The current balance is maintained artificially at a level close to
    balance by a policy of limiting imports, both to replenish foreign
    exchange reserves to promote the substitution of domestic production
    with imports. Imports consist mainly of petroleum products from
    Venezuela, capital goods and food products. Nickel and agricultural
    products are major export items. In 2011, the current account deficit
    deteriorated slightly due to higher import prices and repatriation of
    profits in the mining sector. In 2012, the current account should
    improve due to reduced import demand due to increased domestic production.

    The surplus in services should be reduced as a result of the contraction
    of tourism, even if the surplus is likely to remain high due to exports
    of medical services to Venezuela. Despite external debt in average
    across the region, the debt service remains substantial (25% of foreign
    exchange earnings) and should increase further in the coming years. In
    the wake of the reduction and rationalization of public sector spending
    of State contracted in 2011 and decline further in 2012. The deficit
    narrowed between 2009 and 2011. However, the tax system continues to
    show significant gaps. The informal economy represents a significant
    share of production that is not subject to tax. The government debt
    amounts to more than one third of GDP and should only slightly over the
    medium term.

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