Doing Business in Cuba – Myth vs. Reality

Over the past year and a half, as American business executives, journalists, and government officials have set off for Cuba in search of future business deals, we’ve had the opportunity to meet with a good many of them in Havana, while observing the comments of others from a distance. A common denominator appears to be their mental frame of reference. Like hermit crabs shuttling their habitats on their shoulders, it’s evident that more than half a century of missing information or misinformation has taken its toll, and the American view of Cuba has come to be largely governed by social myths.

The problem for any company considering future opportunities in this market just 90 miles south of Florida, is that social myths make the worst kind of compass. Business executives wandering distractedly in the fog of social myth become easy prey for grifters looking to take advantage of their confusion. Their international competitors can rest a little easier, knowing that Americans are so far behind the curve that even a lifted embargo will not be an immediate game changer.

Here are some of the misperceptions we hear expressed most often:

Myth #1: Recent changes in U.S. regulations have freed American companies to do business in Cuba.

The executive orders issued by the White House starting in January, 2015 targeted a narrow segment of Cuba’s overall economy. The elephant in the room remains the Helms-Burton and Trading With the Enemy Act sanctions which comprehensively prohibit substantive trade with Cuba. Despite changes announced by the U.S. Treasury Department in conjunction with Obama’s visit to Cuba regarding the easing of certain restrictions on dollar transactions (through third countries), there is still no evidence that US banks have made any change in their rules and procedures to facilitate those transactions. The practical effect is that the dollar remains off-limits for international transactions involving Cuba, increasing the expense and complexity for companies who expect to pay and be paid.

For the majority of U.S. businesses, traveling to Cuba in the hope of closing deals now is an enjoyable but vacuous activity that mainly stimulates the wallets of travel providers.

Myth #2: Cuba is anxious for U.S. trade and investment because it fears collapse in Venezuela.

This myth is expressed less often by business executives than it is repeated by the international press. Understanding the reality that counters this myth provides a window into the negotiating process currently underway between the two countries. Having passed through the loss of two far larger trade partners – the United States and the Soviet Union – Cuba is better positioned than any other country, possibly including the United States, to survive lost trade with Venezuela. Cuba is determined not to make the same error a third time and its entire foreign trade model has been focused on diversification for more than two decades. Finally, there is the irrefutable evidence that even devastating loss is not sufficient to bring the country to its knees. Demanding “concessions” from Cuba is a futile exercise that conceals the negotiating table reality: U.S. business is driving negotiations forward, not the Cubans.

Myth #3: Cuba is a nepotistic banana republic essentially run by the Castros, therefore relationships with the Castro clan are the key to business success.

This myth is partly nourished by the view that this is business as usual in certain Latin American countries and Miami. Any company with firsthand experience of the Cuban trade approval process would have a hard time seeing the leveraging of personal connections to senior leaders as a realistic business tool. It is not that relatives inclined to sell favors do not exist. It is simply that these favors do not swing the complex decision making process, which is never controlled by a single executive with unilateral approval power.

Myth #4: Doing business in Cuba is extremely risky, as the government has no respect for private property.

A simple visit to Cuba’s patent and trademark office is sufficient to shatter this myth, but it has additional roots, stretching back to the nationalizations of U.S. property in the early 1960’s. It is refreshed occasionally by headlines about foreign executives prosecuted in Cuba for corruption or tax evasion. Unlike similar prosecutions in the U.S., generally reported as the malfeasance of isolated swindlers, in Cuba such cases are reported by the international press as direct attacks on private property. This double standard in reporting on Cuba has generated a deformed perception of Cuba’s legal environment. It tends to eclipse the much larger pool of foreign companies that operate profitably in Cuba by playing within its rules.

Myth #5: Cuban-Americans in the United States understand Cuba better than anyone, and as model entrepreneurs, are the ideal guides.

This myth has evident traction at the State Department, White House, and governors’ offices, where a Cuban birth certificate followed by years of grooming in Miami has become a launching pad for a flock of new “Cuba experts” eager to advise. Even recently strident voices have neatly repositioned themselves to profit from new engagement tactics.

The essential problem in the current environment is that Miami’s view of Cuba is a mixed brew of resentment at worst and condescension at best, and therefore poorly suited to interpreting Cuban reality. Cuban ancestry does however provide a valuable platform for offering seminars to Americans anxious to obtain information about Cuba, as well as for selling costly trips to Cuba to forge un-makeable deals.

Myth #6: Exploratory visits and consultations with open, engaging Cubans are the best way to find out what is really happening in Cuba.

The reliability of commercial information obtained on a casual visit to Cuba is inversely proportional to the ease with which a visitor collects it. In Cuba, economic information is considered strategic, and is compartmentalized in such a way that no single specialist, no matter how well-connected, has access to all elements at once. Furthermore, the prolonged confrontation between the U.S. and Cuba has fostered a secretive attitude at Cuban institutions; a reflexive and protective mechanism that means information-gathering takes twice as long in Cuba as in any developed country. The causes of this situation have not changed, and mistrust remains elevated on both sides.

Myth #7: Cuba is virgin territory, where U.S. products and services can easily position themselves, quickly overwhelming any competition by sheer proximity.

Actually, Americans are arriving in Cuba right around “last call.” European, Latin American, Asian and Russian companies have taken advantage of the voluntary abstention of the world’s largest economy to position their products adequately and permanently, erasing the overwhelming advantage that U.S. products and brands once enjoyed. Proximity is not synonymous with absolute strength and is only an advantage when considered in combination with the rest of the factors that govern business activity worldwide.

Myth #8: U.S. Agricultural sales to Cuba are the perfect training ground for the Cuban business environment.

The sale of U.S. agricultural products to Cuba is a totally artificial process that has nothing to do with the rules of international trade. It is not reciprocal. It lacks free access to normal transportation. It does not grant its participants any specialized knowledge about business activity in Cuba. In fact, it grants a distorted view that is ultimately unhelpful to clients looking to enter Cuba’s openly competitive market.

Myth #9: The Cuban economy is in ruins and has no possibility of improvement.

This myth is perhaps one of the most frequently employed to sow uncertainty in the minds of those considering the possibility of doing business with Cuba. There is no doubt that the coercive economic measures employed against Cuba have had a corresponding effect on the country’s development. It would be absurd to deny it. But despite those measures, Cuba’s economy has grown over the past 10 years, something practically unthinkable for any country faced with similar restrictions. Far from demonstrating decay and stagnation, this economic growth is proof positive of the Cuban capacity to resist the most hostile conditions and overcome serious obstacles.

Myth #10: Cuba is frozen in time.

Worn facades and 1950’s cars are the visual cliché that simultaneously delights tourists and provokes Cuban chagrin. It has nothing at all to do with Cuba’s economy and society. Cuba has been in a state of constant change during all the years that Americans stopped thinking about it, with a vibrant, accelerated dynamic and a sharp, well-educated population. Despite the grave economic pressure affecting their daily lives, Cubans have managed a development comparable with first-world nations, not only in health and education, but in their intellectual capacity; the rare and indispensable raw material for the development of any society.

These myths stand in the way of effective rapprochement with that society, while concealing another truth: there is a tight little universe of people that have profited from decades of hostility and the U.S. prohibitions on free trade. Myths fuel their monopoly; cutting them off at the source is the first step in deactivating their oxygen supply.

 

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