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Booming earnings from the exports of medical services and nickel have financed significant increases in capital imports.
Imports of goods and services increased by a reported 36% in 2005.
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Machinery & equipment
Comprises diesel generators, medical equipment and a variety of other infrastructural and transport related equipment (see right) as well as capital goods for investments in the mining, and telecommunications sectors.
'Petrocaribe' oil agreement
Cuba's import bill for oil under its contract with PDVSA is fixed at US$ 28-32 per barrel which insulates Cuba from global price increases. Under the standard 'Petrocaribe' agreement (signed with 13 Caribbean countries) 60% of the cost of the oil is paid up front with the balance to be paid over 25 years with a 1% interes rate. High oil prices have helped stimulate exploration activity.
Planes, trains & buses
Cuba agreed to purchase the following during 2005-6:
Trains:
12 Chinese freight trains (+ US$ 50 million) and 500 passenger and railroad cars from Pars Wagon (an Iranian company) for US$ 135 million.
Planes:
Aviaimport S.A. recently ordered from Russia's Ilyushin Finance Co five planes (two long-haul Ilyushin-96-300 and two medium-haul Tupolev-204-100
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passenger jets and one Tupolev-204S cargo jet) worth $325 million.
Buses:
Cuba took delivery in early 2006 of 800 'Astro' buses purchases from Zhengzhou Yutong Bus Co., Ltd., China's largest bus maker. Discussions have also reportedly been finalized for a further 6,000 and the refurbishment of up to 40,000 existing buses.
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Exports of Goods & services
Total revenues earned have surged as medical service income has grown significantly under the terms of ALBA and other bilateral agreements with Venezuela.
Tourism (2005-6)
Tourist arrivals increased by 12% in 2005 (7.5%, 2004) to 2.3 million, while earnings increased by 15% to US$ 2.7 billion (helped by the revaluation). Visitor numbers benefited from the displacement of tourists in early 2005 due to the tsunami in Asia and in late 2005 due to Cancun's hurricane damage.
Informal and anecdotal evidence suggests that 2006 will see further tourist growth, although the full 2.5 million budgeted is unlikely to be met due to disruption caused by the NAM summit to tourist schedules and a fall in the number of Venezuelans coming to Cuba for medical treatment.
Nickel & cobalt (2005-6)
Total revenue for nickel & cobalt mined in Cuba in 2005 was estimated at US$ 1.1 billion. This is consistent with 2004 (US$ 1,022 million) and significantly higher than 2003 (US$633 million) or 2002 (US$426 million). Production increased slightly by 6% to 77,000 tonnes.
2006 has seen international nickel prices reach a record US$ 35,000 per tonne representing a +100%
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increase on 2005. This suggests that revenue could increase to as much as US$ 2bn annually if the commodity boom continues, although a slight fall in production in the third quarter has been reported by Sherritt.
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Imports surge during 2006
During 2006 there have been indications and announcements of extensive import purchases virtually across the board. This increase is likely to offset any improvements in exports in the balance of trade and may consume a large part of the recent additions to reserves. It is not clear what impact this will have on overall credit risk faced for providers of finance to Cuba, but again emphasizes the need for dynamic analysis.
Arguably, given in 2006 reported first quarter economic growth of 12.5% there is some flexibility available to increase spending.
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