Is Cuba ready for the business boom?
Is Cuba ready for the business boom?
Cuba’s “practically virgin” foreign business scene is drawing increasing
interest – with a British trade delegation travelling to Havana at the
end of the month. But is Havana ready?
By Georgia Birch, Havana7:00AM BST 05 Apr 20151
Nico has a problem. The small, turquoise bungalow he runs as a B&B in
the far east of Cuba is not getting noticed.
Bought last year by Canadian benefactors for Nico and his wife to run –
and the Canadians to use as a refuge from the harsh Calgary winter – the
business in Baracoa needs promoting.
Help could be on its way, though. On Thursday Air B&B, the American home
rental service, announced that it was beginning operations on the
island. As a result people like Nico will be able to advertise his B&B
to a potentially enormous market, and fill his home with intrepid explorers.
Yoana also has a problem. A gastroenterologist, she has worked in the
atmospheric centre of Havana for the past 30 years. Atmospheric, but
crumbling. Yoana’s clinic suffers from creaking equipment and a shortage
of investment. She is fiercely proud of her work – despite earning 960
pesos (£24.50) a month – but admits that the system is outdated. “I’m
growing old and dilapidated with it,” she laughed.
Help for her, too, could be on its way. Cuba’s government has realised
that its highly-educated squadrons of medics, pharmacists and
biotechnicians are an appealing prospect for international businesses
looking to expand. As a result, the authorities in Havana are
highlighting the investment potential of their nation, in developments
unimaginable only a few years ago.
Cuba is changing fast.
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On December 17 President Barack Obama and President Raul Castro, in
simultaneous addresses to their nations, announced that diplomatic ties
would be restored – ending over half a century of Cold War era
hostility. Communications, banking systems and travel connections would
be improved, the two men promised. Since then Mastercard and Netflix
have moved into Cuba – although given the speed of internet connections,
their presence is as yet largely symbolic. That will change soon,
though: an exploratory team from Google visited Cuba this month, and
US-based IDT Corp has also agreed with Cuba to provide direct
international telephone systems.
On Friday Mr Obama and Mr Castro will come face to face in Panama at the
Summit of the Americas, in what is being billed as the first working
meeting between the two countries – separated by only 90 miles of sea –
And later this month, from April 27-30, a delegation of British
businesses led by Lord Hutton will travel to Havana to meet with senior
Cuban figures and discuss potential investments. The main sectors being
touted include energy (oil and gas as well as renewables), mining,
tourism, biotechnology, agribusiness, industry, manufacturing and transport.
“Britain, its interests, and British companies must not be left behind,”
said Lord Hutton. There is undeniably the sense that Britain must not
miss out. The visit, organised by the Caribbean Council, will take place
“at an important time, when Cuban relations with the US, the EU and the
UK are evolving,” they say.
And yet, as one British businessman told The Telegraph in Havana earlier
this month, doing business on the largest island in the Caribbean is
“not for the faint hearted”.
“It’s virgin territory,” said Ricardo Torres, of the Cuban Centre for
Economic Studies at the University of Havana. He told The Telegraph
there were huge opportunities in mining – especially nickel – and in
tourism, with 2015 on course to be a record year. “That’s why it’s so
attractive. There are very few foreign companies here. And its
conditions are unique.”
Cuba remains one of the world’s last centrally-planned economies, with
the president walking a tightrope between the vital loosening of
stranglehold restrictions on the economy, and avoiding unleashing
full-blooded capitalism. Fidel Castro on a visit to Beijing was famously
horrified by the direction that China’s “Communism” was taking, and his
younger brother insists that Cuba’s economic development, begun in
earnest in 2011, will follow their own “Cuban model”.
“For revolutionary Cuba, foreign investment has been about more than
dollars and cents,” said Richard Feinberg, author of a 2012 Brookings
Institute study into Cuba’s economic climate. “It’s about cultural
identity and national sovereignty.”
FDI in Cuba is shrouded in mystery, he said. Data are scarce and
executives rarely grant interviews. Hence, only a few scholars have
sought to break through the mist.
“Not surprisingly, Cuba has received remarkably small inflows of foreign
investment, even taking into account the size of its economy,” he added.
Since 2011, Cuba has begun encouraging the formation of private
enterprises, permitting property and automobile sales, and reducing the
role of the state in agriculture.
And it has begun to look abroad.
A Canadian nickel mining and smelter company, Sherritt International, is
generating the largest single source of foreign exchange earnings,
surpassing sugar. Perhaps surprisingly, given the embargo, the US last
year exported almost $300 million worth of goods (mainly in agriculture)
to Cuba – although imports were officially zero.
Levels of UK-Cuba trade are relatively low, with the UK exporting to
Cuba £25m in 2012 and £22m in 2013. Imports from Cuba accounted for a
mere £33m in 2012 and £105m in 2013. Britain is currently the 11th
largest trading partner with Cuba – Spain, unsurprisingly, is the top EU
collaborator, closely followed by the Netherlands. But worldwide it is
Venezuela with whom Cuba does the most of its deals.
And given the precarious situation in Caracas, and in Moscow – a
historic crutch to the Castro regime – it is unsurprising that the
country is looking abroad.
“We want to emphasise that the UK is ready to support Cuba in the
updating of its economic model,” said Tim Cole, the British ambassador
to Cuba. This, he said, will “improve its business climate and open
itself to foreign investment.”
Last month Mr Cole hosted a seminar in which Cuban government
functionaries and British business consultants discussed how to attract
investment. Such meetings would have been previously unthinkable.
“Cuba is widely considered a hostile business environment for those not
close to the upper ranks of the government,” said Diego Moya-Ocampos,
Latin America analyst for IHS Jane’s. “The island nationalised all
foreign business in the 1960s when the country embraced communism. FDI
was banned until the 1990s when it became necessary to compensate for
lost revenues resulting from the fall of the Soviet Union.”
The launch of the $1 billion special development zone at its port in
Mariel – funded largely by Brazil, and currently the site of much
international interest – “could significantly improve the Cuban business
environment,” said Mr Moya-Ocampos.
“Although its full potential will still be limited by the US embargo on
the island,” he added.
Only a handful of British businesses are currently present in Cuba.
AstraZeneca operates in Cuba, but with the business managed out of
offices in Panama and Costa Rica, and without employing AstraZeneca
people in the country. British company Havana Energy has signed a joint
venture agreement in Cuba to produce renewable energy with cane refuse
and other biomass vegetation. Financial services are yet to operate in
Cuba – the US embargo has not only prevented US companies from trading
with Cuba, but has been interpreted in such a way by the US Treasury as
to have also become a significant impediment to UK companies as well.
But British banks could soon follow the lead of MasterCard and expand
onto the island – especially if, as expected, the US shortly removed
Cuba from its list of state sponsors of terror.
Perhaps the biggest British company currently in Cuba is Imperial
Tobacco, which operates a joint venture with the Cuban government –
Habanos cigars. The company produces some of the most famous cigars in
the world – Cohiba, Montecristo, Romeo y Julieta, among others. Habanos
announced global sales of $439 million in 2014, down one per cent from
2013, but with high expectations of a bumper year for 2015, given that
Mr Obama announced in December that US travellers could now take
$100-worth of cigars out of the country.
“I think we could export $250 million or more,” said Jorge Luis
Fernandez Maique, commercial vice president at Habanos, at the annual
fair in Havana in January.
Back in Baracoa, however, the bright lights of big multinational
businesses seem a long way away. Indeed, the only bright lights Nico and
his family see are those from Haiti, shimmering across the waters from
the far eastern tip of the island at Maisi.
Maisi is an area being promoted to British businesses this month, with a
$285m investment needed for a potential wind farm.
“It will be excellent news for us if all of this happens,” said Nico,
sitting on his veranda, his two children at his feet. “We need visitors
Mr Feinberg, the economist, agrees.
“As Cubans have been well aware since the arrival of Christopher
Columbus, the encroaching international economy matters greatly,” he
said. “It can be a source of not only harsh punishments, but also great
Source: Is Cuba ready for the business boom? – Telegraph –