Americans who ask what Cuba will be like when it opens to foreign investment may be in danger of missing the boat. Visitors may not notice that they land at an airport financed by a Canadian banking consortium, take a Mercedes taxi to a hotel built by a French construction group and part owned by a Spanish hotel chain. They may though be surprised to be drinking Coca Cola or Red-Bull in a bar located next to the Benetton, Adidas or Mango franchise. Indeed the confidence of many American investors that the best hotel sites are still untapped, that existing relationships will be simply rolled over and that flipping Havana water front condominiums will soon become the Havana vogue is not just misplaced but a misreading of both the current and likely future situation. Furthermore over the past three years Cuba has been on a shopping spree, spending its windfall gains from high nickel prices and booming service earnings on refurbishing its electricity grid, refineries, roads, railways, other transport infrastructure & and housing. These investments have still only scratched the surface of Cuba’s investment backlog but even so amounts to billions of dollars which have gone to German, Korean, Russian, Chinese and Venezuelan companies; monies which could have gone to US companies. On a finance side Canadian and European banks have placed several large structured finance deals over the past decade establishing these banks’ knowledge of and reputation in dealing with Cuba.
After more than 33 years visiting Cuba with US business executives, it is clear to me that the Cuba of today is a very different beast to that of twenty, ten or even five years ago. While American firms will probably be able to buy their way in further down the line at a premium they should realize that the island nation will be very different to the one they may imagine. CURRENT TRADE BETWEENU.S. AND CUBA Since 2000, when the US Congress passed the Trade Sanctions Reform Act, there has been some trade between the two countries, most notably in Cuban purchases of agricultural products [there have also been some interesting contacts made in the biotechnology sector]. Cuba today buys approximately US$ 550 million of agricultural products from 37 states making it an important export market for several Mid-Western states. This makes sense given that the US is both very close and has a very competitive farm sector. Were it not for a multitude of restrictions which have been placed on this trade (no direct payments are allowed and no credit is allowed), the trade could easily reach US$ 1bn per year today out of an estimated total food purchasing for Cuba of (an estimated) US$ 2bn (2007). Despite the restrictions, headaches and opprobrium sometimes dished out since 2000, more than 150 US companies have become involved in this limited trade, something which has given a group of US business executives a clear look into Cuba today. The feedback I have received since 1975 has consistently emphasized that the reality of Cuba is very different to its portrayal in the US. Not only do the Cubans have a very positive view of Americans and American culture (cars, baseball, movies) but business proceeds quickly and professionally by the capable executives of Alimport (the Cuban entity responsible for food purchases, from overseas). No-one with any experience doing business with Cuba would ever claim that it was easy, especially when you are negotiating more complex deals involving foreign investment, Havana is not Houston nor even Hanoi. Relationships are important, process and due diligence a requirement to do almost anything and the country as a whole is idiosyncratic and distinct. Many businessmen do however look upon Cuba favorably compared with other Latin American countries. Cuba does follow a clearly defined rule of law with contracts upheld, is safe and there is very little corruption at higher levels. LOOKING AHEAD Given the historical and geographical connection between Cuba and the United States, it is clear that at some point the economies of these two countries will become interlinked. Cuba will be a bridgehead and hub linking the US with the rest of the Caribbean and Latin America. Telecommunications, aviation, shipping and even LPG gas terminals will radiate out from Havana as so many spokes from a wheel. Millions of US tourists will visit each year with hundreds of new hotels being built to accommodate them, airports will be expanded, infrastructure upgraded and replaced. The US will become an important market for Cuban resources, cigars, rum and biotechnology products while Cuba will purchase heavy machinery, foodstuffs and financial products from its giant neighbor. This does not mean, however, that this will all happen on US terms, and certainly not in the manner designated by the State Department’s much lamented Transition to Democracy document. It may be many years, if ever, before a McDonalds is present on every corner. The smoothness of the transition from Raúl to Fidel suggests that there will be no “big bang” moment and that any transition will in fact be much more akin to that seen in Asian countries with a large ongoing state presence than an Eastern European rush to ape a liberal capitalist model. Supporters of the US Embargo will point to cases where sanctions have been successfully used as leverage to change the national politics of a particular government. Most notably they mention South Africa in the 1980s and Serbia Montenegro in recent years, forgetting that in both cases the world was (rightly) united against the regimes of these countries. In the last annual vote (October 30, 2007) at the United Nations against the US Embargo, the US stood shoulder to shoulder with only Israel, Palau and the Marshall Islands with 184 countries against and one abstention (Micronesia). Ironically, even Israeli individuals and companies have been important investors in commercial real estate, agriculture and cosmetics in Cuba over the past 10 years. The EU may be a political lightweight but economically is an able counterweight to the US, and while may have their own differences with Cuba politically, they stand resolutely behind the principal of engagement from a trade perspective and penalize any EU company which refuses to do business with Cuba due to concern with the US embargo. Vietnam and Libya are much better analogies, US companies effectively lobbied to abolish the respective trade bans on both countries when they realized that they were missing out on a booming market and immense oil reserves. That does not mean that you have to fully support the political structure but simply to realize that engagement rather than estrangement is likely to bring significant mutual benefits. The timing of any policy change in the US seems to have stagnated as all available oxygen is sucked out by the Iraq debate. It is to be hoped that a new administration will look again at US policy and allow US companies to take advantage of what are today some significant business opportunities and which also build a platform for significant development in the future. |
