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Cuba reforms – Who are the biggest winners?

Cuba reforms: Who are the biggest winners?
By Kim Gittleson
BBC business reporter, New York

The 53-year-old Cuban embargo is the US’s longest-running trade sanction.

Although US President Barack Obama cannot fully lift that sanction
without approval from Congress, his executive action eases several
provisions.

This has everyone from Cuban-Americans looking to send money home to big
investors eyeing the Cuban economy.

What are some of the biggest potential economic impacts of these reforms?

Remittances
Currently, US remittances to Cuba are estimated to be around $2bn
(£1.3bn) a year, according to the US Department of State.

Mr Obama’s action effectively quadruples the amount that US citizens,
primarily Cuban Americans, can send to Cuba from $500 to $2,000.

That could be a big boon to the Cuban economy.

More importantly, it has the ability to alter the structure of Cuba’s
economy by changing the nature of foreign investment in the country, as
well as where that investments goes.

Essentially, it could signal a shift from money flowing into Cuba’s
state-run sector and into the hands of private citizens.

“This particular measure is a sign to promote the sending of money and
investment and other kinds of support for the fledgling private economy
in Cuba,” Jorge Duany, director of the Cuban Research Institute at
Florida International University, told the BBC. He notes employment in
that sector has already grown to nearly half a million people.

Increasing remittances also solves a problem currently facing the Cuban
economy, whose growth this year has effectively ground to a halt.

That sputtering is due to a variety of factors, one of which includes
the fact that Cuba’s long-standing trading partner, Venezuela, has been
suffering as a result of plummeting oil prices.

The government has said it needs at least $2.5bn in outside investment
to maintain a steady growth rate, so increasing remittances is one way
to boost growth.

Agribusiness
One big winner could be US agribusiness.

Under relaxed restrictions put in place under former US President Bill
Clinton in 2000, US agribusinesses were allowed to export food and
certain other products to Cuba.

From 2000 to 2013, those exports were an estimated $5bn, and US food
exports are estimated to be around $300m this year.

“Currently, Cuba’s importing around 60-65% of their food, which is a lot
for a country with Cuba’s agricultural potential,” Florida University
professor William A Messina said.

But US firms have recently been losing ground to nations like Brazil, so
any loosening of restrictions could be a boom.

“For us, there may be modest gains but for the US agriculture community
it gives us a chance to compete against countries like Argentina,” Devry
Boughner Vorwerk, director of international business relations at
Cargill, told the BBC.

It could also help jumpstart Cuba’s agricultural industry, particularly
if a ban on selling agricultural equipment and pesticides is lifted.

“They have a huge agricultural potential and the ability to import
equipment would be beneficial,” added Prof Messina.

Tourism
Another major aspect of the reforms is an easing of travel restrictions
to Cuba, as well as a new measure that would allow US travellers to Cuba
to use their debit and credit cards.

Around 170,000 authorised travellers went to Cuba last year, according
to the US Department of Commerce.

The new order would ease restrictions in 12 categories, including visas
allowing for family visits, professional visits, and educational activities.

While it still bans ordinary tourism, the tourism industry would benefit
from the influx of new visitors.

“The tourism and tourism-related services that involve both state
enterprises and state joint ventures with foreign capital, as well as a
growing number of small-and-medium enterprises owned by Cubans, could
benefit in the short term,” Eric Hershberg, director of the Center for
Latin American and Latino Studies at American University, told the BBC
on the phone from Havana, Cuba.

Telecommunications
Cuba has one of the lowest internet penetration rates in the world –
estimated at around 5% by the White House.

“The Cuban economy suffers from a very poor, outdated infrastructure
including communications and all kinds of technological advancements
including internet and telephones,” said Prof Duany.

Part of Mr Obama’s reforms would allow US telecommunications firms to
begin working with Cuba to build up its current communications
infrastructure.

This would both boost the Cuban economy – but also pave the way for
allowing more sophisticated financial transactions down the line.

Cigars
Finally, in a move that perhaps won’t make a huge dent on the Cuban
economy but will be welcome relief to some, the new rules ease
restrictions involving bringing famed Cuban cigars to the US.

US travellers can now bring up to $100 worth of tobacco products back
from their visit.

Marcus Daniel, the president of Florida cigar firm Marcus Daniel, Inc,
said that could potentially harm US cigar stores like his.

“The tough part is that in the interim, Americans can legally purchase
and bring Cuban cigars into the US, but I make my living off of selling
cigars and can’t legally purchase and sell [Cuban] cigars to them in my
store,” he told the BBC.

But, he added, he was optimistic that more reforms could be coming, and
that the increased awareness could ultimately help him further down the
line.

“Most cigar-smoking Americans wanted this done a long time ago – I think
I’m going to send a box of cigars to Raul and Obama for a job well
done,” he said.

Source: BBC News – Cuba reforms: Who are the biggest winners? –
http://www.bbc.com/news/business-30523362

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