The actions taken by President Trump to “completely roll back” the US/Cuba normalization process launched by President Obama have not been helpful, but in reality have been far less harmful than commonly believed. Their main objective was to win headlines and the 2020 vote of a peculiar Miami sector that has built a very profitable corner on the Cuban market, based on keeping everyone else out. But it would be a mistake for US businesses to simply forget about Cuba for the next two or six years, and here are ten reasons why:
1. Trump’s regulatory changes are more bark than bite.
The famous “complete rollback” is not even close to complete. It began with slight changes to the rules for Americans traveling to Cuba, was augmented with a blacklist of certain Cuban companies off limits to Americans and finally, a partial suspension of Helms Burton Title III.
Yet, travel is still legal, even for individuals. There are many Cuban companies that do not appear on the blacklist.
And while in theory, Title III allows US citizens to seek compensation judgments in US courts for properties nationalized or expropriated in Cuba after 1959, this is a smokescreen. The real targets of the aberrant Title III were US allies doing business on the island, but given the double-edged nature of this particular sword, Trump opted for a partial suspension, allowing only lawsuits against the Cuban government but not the allies.
Everyone knows that Cuba is never going to respond to a judgment from a US court – this is already proven – and furthermore, frozen Cuban assets in US banks were drained long ago by these kinds of awards to other claimants. Thus, a lawsuit with no foreseeable payout is pointless and this explains why none have been filed. The real objective as always, was negative publicity to instill fear and doubt, but any business executive who confuses perception for reality probably shouldn’t be in business at all.
2. The gold rush has subsided.
After the beginning of the normalization process in 2015, travel agents looking for quick, easy commissions flooded Cuban ministries with a parade of tire-kicking business tourists. The reactions from Cuban managers, initially hopeful and positive, eventually gave way to weary impatience and eventually, irritation, as they found themselves having to educate their guests about the fact that Cuba was not the roadblock. Executives who come to Cuba now are no longer competing for appointments with the tire kickers and are practically guaranteed a warmer reception, as long as they’ve at least done their homework.
3. Doing business in Cuba is a process that doesn’t happen overnight.
Doing business in Cuba is a lot like getting to know someone you think you might want to marry. There’s no substitute for getting to know the person and love-at-first-sight is a dangerous myth. The embargo is a big obstacle now, the harsh rhetoric unhelpful, but neither of these are eternal. When this page is turned (not if but when) and the normalization process begins again, where do you want to be? Competing with hundreds of other companies suddenly vying for that attention or reaping the fruits of a relationship already established over several years?
4. Now is the most cost-effective time to do it.
Competing with many other companies is not the same as competing with just a few, or none. The later you enter, the more you must spend to place your product or service ahead of the competition. This is not to say that Cuba is a virgin market – foreign companies have been doing business in Cuba for more than 20 years. But it is mostly a virgin market for one US competitor against another. In the future, that competition will be ferocious. If you’re not first, you have to be best, and being best is quite simply, harder than being first.
5. US license applications are not prohibited.
Any impression that commercial licenses are not being processed at the U.S. Department of Commerce or are being automatically declined is incorrect. Like the saying goes, you can’t win if you don’t play. For this you’ll need a good attorney, not only one who’s adept at maneuvering a tricky regulatory environment but also one with a positive attitude.
6. Despite all the negative press, business between US companies and Cuba is still being done.
Whether the business is moving forward quietly, or not so quietly (see last week’s Memorandum of Understanding between Google and Cuba for peering, pending a future US/Cuba cable) licenses are being approved and relationships are being established.
7. Current opportunities exist.
Not all US business opportunities in Cuba are dependent on future events (a lifting of the embargo, normal agriculture credit financing, an undersea cable). There are plenty of opportunities within existing regulations to work with Cuba’s private sector. This includes not only B&Bs, restaurants and small retailers but also cooperatives, some of which are truly substantial and frequently overlooked. Because examples depend very much on the sector of interest, it’s not particularly helpful to name only one, but we’ll mention one anyway. Software production and exportation is one legal and very interesting option that inexplicably, has not been seriously exploited.
8. Small opportunities can be leveraged into bigger ones.
The foreign companies that were willing to deal with Cuba during its most difficult times have earned a loyalty premium – this is part of the equation any competitor will have to consider. The same will be true for those US companies who were able to think creatively about legal avenues to introduce their products, even on a very small scale, where branding now will pay big dividends later on.
9. The space for US companies is not unlimited – first come, first served.
Cuba experienced two terrible economic shocks. The first came in the 1960s after the break with the United States and was arguably worse than the second, in the 1990s after the Soviet Union’s disappearance. Both followed complete dependence on a single market that vanished unexpectedly. Cuba has spent the past 20 years making sure this will not happen again. It has been cultivating a wide array of foreign investors in order to avoid these kinds of shocks, and this is why the disappearance of any one of them, though hurtful, would not be as devastating as some imagine. So even though Cuba is open to US investment, as a percentage of the entire economy it will be limited. Get in or get lost.
10. The environment is forgiving, now. Later, not so much.
The Cuban business process has a steep learning curve, one that is constantly changing. Some of the biggest US corporations who approached Cuba during the 2015-2016 thaw wrongly assumed that putting a huge gift basket of business offers on the table would guarantee a bigger slice of the pie. The Cubans were not flattered however, they were startled, and it became evident that a slower, more conservative approach was a better strategy. The point here is simply that as early movers, they had the necessary space to learn from experience and adjust their offers. The standard still holds, but the clock is ticking.
The Havana International Fair (FIHAV) held every November in Cuba is the largest general show of the year for trade between both domestic and international companies. It provides a convenient meeting point for introductions and information gathering, and includes an investment forum sponsored by the Cuban Chamber of Commerce where investors can meet face to face with directors from the sectors of greatest interest, to move that process forward.
IcarusCuba began attending FIHAV in 2014, just two months before the surprise announcement about the opening of a normalization process for diplomatic relations between the US and Cuba. US representation at FIHAV 2017 was comparable to 2014, when a few generic stands were occupied mainly by delegations from Virginia, Maryland, Alabama and Illinois, whose interests were primarily agricultural. The decline in US agricultural purchases by Cuba was already well underway by then although some of the exhibitors were still confounded about the reasons.
The reasons were not that hard to understand. For a number of years, Cuba made agricultural purchases in cash (as insisted by Congress) from particular states thought to be key in the congressional fight to normalize relations. But the support gained was insufficient to move the political needle. Cash purchases were a terrible burden for a country with an extreme liquidity problem, just as intended by the Miami congressional delegation that crafted the rule. Nobody in the modern world operates in cash. Cuban buyers turned to international suppliers offering more realistic terms.
It was always going to be impossible for American producers to compete with the regular credit offered by Brazil, and 2 years interest free credit from China, but also, starting from a market stunted by underdevelopment, Cuban purchases would never be sufficiently large to impress Washington. Larger agricultural producers like Cargill were clearly capable of seeing Cuba’s future market potential, and fully understood the importance of investment. Nevertheless, a bill that would allow for credit to be extended to Cuba through normal financial channels has still not prospered.
The financing question is clearly limited by the two countries’ failure to resolve the financial claims question, something that depends on a normalized relationship and negotiated agreement from both sides. The Trump administration’s unilateral erasure of diplomatic relations has been an unfortunate setback to that process, but these issues are beyond the scope of this report.
Liquidity, liquidity, liquidity
Cuba’s liquidity problem is a vicious circle where production is limited by the lack of hard currency and vice versa. It is a problem with long antecedents. Starting in the 1990s, the country re-opened to foreign capital, looking to resolve the problem by seeking foreign investment from around the world in exchange for shared ownership and profits. Russia, China and Brazil have responded in important ways, other countries to a lesser degree. Investment from all foreign players accelerated in 2015 when the prospect of future US competition began to seem, if not imminent, at least tangible.
Even before 2015, China and Brazil were joint investors in the modernization and upgrade of Cuba’s new super-port at Mariel on the northern coast – directly across the Gulf of Mexico from Mobile, Alabama. Mariel is now set to handle traffic from supersized Post-Panamax vessels and has been conceived as a sort of free-trade zone plus, with manufacturing, distribution and warehousing capabilities.
Much of the foreign investment sought by Cuba is directed toward this zone, clearly designed as the beating heart for a distribution system that Cuba currently lacks completely. Unilever set up a manufacturing plant there for personal care products, in a joint enterprise with a Cuban company, but there are 30 additional projects already underway and more under negotiation. France will be manufacturing solar panels, Spain will be producing metallic paint, and Brazil will dominate logistics, to name just a few. Outside the zone, China is deeply invested in Cuban telecom upgrades and Russia recently committed to a $3 billion investment that includes a complete rebuild of Cuba’s rail system. The longer the US waits to resolve its differences with Cuba, the fewer the remaining opportunities for its participation in the Cuban economy.
Embargo politics & the Miami conflict
Until now, the US political push toward normalization has concentrated on timid cracks in the embargo: credit extension and freedom to travel for US citizens. It’s a classic example of “thinking small,” and confining the argument to a Miami sandbox occupied for the last 58 years by a shrinking handful of normalization opponents. The Obama administration’s green light for airline service to Cuba and OFAC licenses for companies like Marriott and GE were important steps forward, but in the larger context Obama still worshipped at Miami’s altar, albeit the one run by Miami 2.0, rather than the previous generation.
Obama’s team viewed the emerging small businesses in Cuba – largely funded by Miami 2.0 – as a useful wedge. The State Dept. worked with a small circle of Washington travel agents to construct itineraries that focused on Miami’s favorite private Cuban entrepreneurs – over and over and over again. They also facilitated five year visas and travel expenses for these same entrepreneurs to visit the US and appear on panels about the burgeoning growth of private enterprise in Cuba. The story was misleading and incomplete, but it was enthusiastically received. The point was to use these entrepreneurs first as a sales force to convince policy makers that the embargo had failed to achieve its objectives, and second as a beachhead to achieve those objectives, one Cuban B&B at a time. Progress might be glacial but at least Obama could take credit for cracking the wall.
The Trump administration’s approach was less subtle – it adopted Obama’s approach to a certain extent but additionally, directly targeted anyone competing with old Miami, whether the competition came from Miami 2.0 or important US corporations. Fear and intimidation were the preferred weapons, because the regulatory changes were insubstantial.
The fear was wielded through allegations of “sonic attacks” for which the administration has offered no proof but which served as a pretext to unilaterally destroy diplomatic relations essential to any US business activity. A new Ice Age imposed at the Treasury Department’s Office of Foreign Assets Control (OFAC) sealed the deal.
A good demonstration of this is found in the airline sector. Until 2015, direct airline service to Cuba was controlled from Miami by poorly managed charters selling overpriced flights that operated essentially without regulatory oversight. One look at the enormous and minimally controlled sums of cash being handled at the charters’ airport counters was sufficient to raise natural questions about tax evasion and money laundering.
Obama’s opening to the major airlines destroyed this dirty monopoly overnight, but it is now seeing a resurgence. It’s a bit counterproductive for the Cuban small business beachhead envisioned by Obama, though that opening has not been totally erased. The main point is to reserve most-favored-nation trading status for Miami, old or new, with priority for the former.
Most US companies are not interested in trading with Miami however, and neither is Cuba, on the industrial scale. But if the clock has now been set back, it is not by much. The embargo was always the elephant in the room, as much under Obama as Trump. Much of the interest expressed by US executives visiting Cuba was mainly a matter of satisfying pent-up curiosity but these visits also revealed a deep – though understandable – ignorance of how a socialist business system functions, and how little US businesses could actually do in Cuba thanks to restrictions from their own government.
The fact that the US presence at FIHAV 2015 and 2016 was larger than this year’s is relatively meaningless. Even at the best of times, the tiniest nations represented at FIHAV have had a more professional presence than the United States. South Africa came to the fair for the first time this year and occupied an elegant and impressive space in the mezzanine overlooking the ragtag US section. The difference was appalling. FIHAV exhibit spaces are an important signal to the Cuban government. Spain expands its presence every year and this year occupied four entire pavilions. In 2014 it occupied two.
Beyond the problem of professional presentation, it is high time American companies grasp the reality of Cuba’s liquidity problem and move beyond the mindset of FIHAV as a display space to foster sales to Cuban buyers. Investment is the real key to doing business in Cuba, and while smaller companies are unable to participate at this level, there are still opportunities for businesses with products that can help Cuba improve its production.
The small tractors invented by the startup Cleber company were conceived and promoted with much fanfare as doing just that. They also happened to fit nicely with the plodding Obama plan to seize the Cuban beachhead one small business at a time, this time through small independent farmers. There aren’t many of those in Cuba, but an OFAC license was issued anyway, for Cleber to assemble its tractors at Mariel. But an OFAC license is meaningless inside Cuba – it’s the Cuban license that counts.
Cuba does not view Mariel as a maquilladora, or assembly hub, but as a manufacturing powerhouse for a highly skilled population. Most biotech investment – serious projects with high quality standards and pricetags – is being directed toward Mariel. Software development is another category moving that direction. Tractors for a tiny, dubious market were never part of the plan. The difference is key to understanding Cuba’s overall approach to foreign business.
The Cleber tractors supposedly will now be manufactured in Alabama, but prospects for future sales in Cuba are poor. One farmer we spoke with questioned whether the tractor could fetch $10k in the US, let alone a developing country, and pointed out the lack of basic elements like 4-wheel traction to allow for more than one plow and wider surface cultivators. Not to mention a configuration that would force a farmer to attach a heavy implement underneath the tractor, between the front and back wheels, rather than the natural arrangement of attaching and dragging it from behind with the weight of a forward engine to compensate. But in the final analysis it was mainly the conceptual, not the design flaws that doomed the project.
John Deere and Caterpillar were both mentioned at FIHAV 2017 as US companies who have concluded successful deals with Cuba. It is important to understand the nature of the deals. John Deere has signed an agreement with Cuba for the testing of its equipment in Cuba, to meet Cuba’s regulatory certification process. It is a necessary step forward but it is not the same as sales, much less manufacturing. But it is an intelligent move for the time being. Since every company that hopes to eventually do business with Cuba must pass through a feasibility study process, one step of which is regulatory certification, it makes sense to get that out of the way – particularly while more fearful US competitors are hanging back. It puts a company one step closer to market than their competitors once the embargo comes down.
As for Caterpillar, the deal was a bit more flash than substance, since it involves a Puerto Rican family-run dealership that will be setting up a distribution center at Mariel. Considering the disastrous situation in Puerto Rico, Mariel is probably a better and safer distribution point toward the rest of the Caribbean, but sales to Cuban farms are impossible at the moment, both because of the embargo and Cuba’s liquidity problem. Longer term, the chances of Caterpillar selling its high end machines to Cuba through a dealer are still low, mainly because Cuba insists on eliminating intermediaries whenever possible in order to cut costs. Caterpillar occasionally sells direct and may want to keep this in mind. Regardless, it is an important goodwill measure, because it is a tangible expression of a major US company’s interest in Cuba, and provides an example for other US companies to follow.
Cuba’s detailed approach to foreign investment
Every year at FIHAV, Cuba presents its foreign investment portfolio. It is quite expansive and relatively detailed, reminding us of a comment from former Agriculture Secretary Tom Vilsack: “The Cubans know exactly what they want.”
All of the projects in the portfolio have been closely studied to determine their feasibility and affordability, and in some cases, projections for return on investment. There are projects still on the drawing board, awaiting feasibility study completion, but Cuba is also open to additional investment ideas it has not considered. The projects included in the annual portfolio are simply the ones set for the fast-track.
Any business in Cuba will need to be undertaken with a Cuban partner, but some of the projects in the portfolio are seeking 100% foreign financing and presumably the foreign partner’s profits and ownership would be negotiable. Others are to be jointly funded.
Some of the most interesting projects in this year’s portfolio include:
Two waterparks, one in Havana, another in Varadero. Both are standard waterparks with lazy rivers, waterslides and other attractions. The estimated costs are $25 million each with an estimated 8 year return on investment.
Hotel management contracts. Marriott (Starwood) does not own either of the hotels it runs in Havana – it simply has a management contract. There are scores of additional management contracts available throughout the country for other hotel properties, some with additional renovation investment possibilities, and presumably additional profits. Building opportunities have been defined as well, with higher price tags, naturally. Detailed analysis is available for each project, including occupancy rates and expected financial returns.
A combination shopping mall/conference center in the center of the Varadero peninsula, probably Cuba’s biggest tourist draw in terms of sheer numbers, is greatly in need of restoration and the estimated cost is relatively low: $4 million, with an estimated recovery period of three years.
All pharmaceutical & biotech investment projects are slated for buildout at Mariel, currently and senselessly off limits to American companies who would need OFAC license exceptions in order to operate there. These include:
Production of vaccines for cancer treatment: $60 million
Production of therapeutic antibodies: $75 million
Production of cephalosprines, injectable carbapenemas and oral penicillin: $120 million
Production of cytostatics: $60 million
Production of oral contraceptives and hormones: $25 million
Joint enterprise dedicated to certification and validation of clean & sterile rooms for biopharma, hospitals and laboratories: $20 million
Cuba views telecom as strategic, so much of this sector is off limits, however there are investment opportunities for software development, scientific/tech centers, tech support and call centers, as well as international certification.
Postal services are grouped within this sector and investment is badly needed to update (or actually, introduce) technologies for the processing of domestic and international mail and packages, express messenger services and postal graphics.
Nickel in Cuba is largely dominated by Canada and China, but there are a wealth of other mineral possibilities. Cuba has studied and identified five regions in addition to the Isle of Youth, and has identified 45 projects for prospecting/exploration. The minerals include gold, silver, copper, lead, zinc and chrome. There are another eight prospects for wolfram and technical minerals like mica and kaoline. Cuba is looking to sign 5-year International Economic Partnerships for risk exploration, at which point the foreign partner could move on to a Joint Enterprise agreement, or not. The minerals are intended primarily for foreign export, with acquisition priority granted to the investor.
Cuba is still looking to develop its agriculture on almost every conceivable level, from aquaculture to dairy products. Plants to produce pasta, sauces, dressings, cereals, fruit juices, spices and condiments will all be fast tracked, and with the exception of relatively expensive wheat milling and soy processing plants, the costs are much more affordable, in the $5 to $20 million range.
Overcoming the trap of negative thinking
Moving forward, we believe that US companies and legislators should not capitulate to defeatist attitudes. They should insist on viewing Cuba as an opportunity, not a problem, and continue their legal travel to Cuba to learn where they fit in, or don’t – even if the US Embassy is unable to meet with them due to short staffing. We’re quite sure that when push comes to shove, staff will be found, but if not, Cuban managers are not in short supply. A business visa can still be obtained from this side of the water (Havana), and foreign business visits are important to demonstrate that fear and intimidation will not force the horse back into the barn.
Purely on a business level, a regulatory freeze opens the possibility of a calmer environment that allows US companies with foresight to move ahead of their more fearful competitors by completing their market research and ticking off the unglamorous requirements in the Cuban process, as demonstrated by John Deere. While it is true that OFAC will for the moment not be granting the kinds of licenses that were granted to Marriott and GE, an OFAC license is not a magic panacea. The embargo is still the real problem, and no president can change that. In the meantime it’s important not to ignore the possibility of getting other ducks in a row, and one of those is certification, another is market research.
For that, businesses should keep in mind that truly useful fact finding missions are not the ones promoted by tour operators selling the chance to make “valuable contacts” for the future. Not only are those contacts constantly changing, business approval in Cuba is never a matter of convincing one or two highly placed people. (Beware the consultant who claims some personal connection to Miguel Diaz Canel.) The Cuban system doesn’t work that way. It’s collective, not individual, and business is no exception. Decisions start at the ground level, through committees, before traveling higher up the food chain.
The great informational divide
Information is always a challenge to obtain in Cuba, even for consultants who are based here. Probably the most damaging thing about the terrible US/Cuban relationship is the lack of trust, on both sides. This presents particular problems when it comes to moving beyond the thin layer of information offered in the Ministry of Foreign Investment’s glossy portfolio.
As he presented that portfolio this year, Foreign Investment Minister Rodrigo Malmierca spoke openly of Cuba’s need to improve its efficiency in the investment approval process and we heartily agree, but the problem is greater than that. Consideration should be given to senseless barricades that exist from the outset, especially in non-strategic sectors. Investors and their representatives cannot eternally be dealt with on an eyes-only basis, where simple questions are only answered once the investor obtains a business visa and touches Cuban soil. It’s the equivalent of demanding that a potential investor obtain a marriage license and a honeymoon suite for a first date. It wastes resources and generates ill-will; two luxuries that Cuba can ill afford.
For now, ordinary information gathering is a matter of patience and persistence. It’s critical to have someone on the ground who is skilled at breaking through artificial barriers – a deep understanding of Cuban culture is essential for the task.
Many people in Miami have a deep understanding of Cuban culture, but it’s important not to conflate Miami and Havana. Miami’s view of Cuba is predominantly negative, whether it comes from the old guard, eternally resentful about their losses, or the new guard who doesn’t have the same axe to grind but still starts from the premise that Cuba would be so much better if it was just a little more like the United States. This is particularly unhelpful when it comes to business, which demands a more objective focus, and it’s absolutely disastrous when it comes to honest, unbiased market research.
We recommend that both businesses and policy makers get out of the sandbox. Havana is the gateway to Cuba, not Miami. We urge clients to seek assistance from people who grasp that: people with a sincere interest in seeing both sides prosper, without impositions or preconditions.
The recent setbacks in relations are real, but they are temporary. They ought not to be granted more importance than they deserve.
The long path to re-establishing Cuban/U.S. relations is permeated with obstacles and misunderstandings, some of which make it even harder to reach that objective. One of the most visible misperceptions has to do with the general impression among U.S. leaders that Cuba is the ripe fruit just waiting to fall into U.S. hands, and that what happened in January 1959 in Cuba was something akin to a temper tantrum that would eventually be resolved by the Cubans who fled to and set up shop in Miami.Continue reading “The strange U.S. perception that Havana is located in Florida”
When Adam shared the apple with Eve, he must have thought it a good investment, though both were expelled from paradise as a result. In the end, it’s clear that they came out the better for it, since afterwards they had access to earthly pleasures as well as difficulties. As a matter of fact, paradise was not perfect – it had plenty of restrictions.
Fifty-five years of confrontation, misunderstandings, entrenched positions and distrust have turned relations between Cuba and the United States into an irrational nightmare that leaves all logic in human relations behind.
It’s very difficult these days to take a balanced approach when it comes to relations between Cubans and Americans. This is even more evident at the highest official levels on both sides.
For some time, I’ve found myself at the center of this problem. In my work as a business consultant, I’ve always believed that the most rational approach is to refrain from identifying with either side, the better to assist both. It’s impossible to produce any kind of useful analysis if it is only performed from a one-sided perspective. It’s not that an analyst won’t have perceptions that might tend to favor or disadvantage one of the parties, but it’s a matter of being intellectually honest and understanding that both sides need support.Continue reading “The Irrationality in U.S./Cuban Relations”
Prior to the 1990’s, the Cuban economy was completely integrated in the world’s socialist bloc with nearly ninety percent of its trade and investment coming from the member countries in that bloc, via the Council for Mutual Economic Assistance (CMEA). The Soviet Union was the largest participant in the group and relations were based on complementary economics.
Within this context, the benchmark currency was the convertible ruble and the hallmark of the system was its extensive Economic Plan that was initially designed for a strategic 5 year period, with yearly updates thereafter.
Notwithstanding its CMEA agreements, Cuba also engaged in a small amount of trade with capitalist countries where it operated under the rules of international commerce at the time.
With the disintegration of the Soviet Union and the socialist camp, Cuba was left practically without access to the majority of the markets with which it had previously traded and found itself obliged to insert itself completely in the complicated world of commercial capitalist relations, with the aggravating factor that this sector was heavily restricted by the U.S. embargo against the island, and international trade was subordinate to the United States as a consequence of its status as world leader.Continue reading “Successes & Failures by Foreign Investors in Cuba: A Primer”
Just when you thought you’d seen it all. Now the Miami Herald is complaining (again) about discrimination against Cuban Americans. This time their target is not Carnival Cruise Line but American Airlines. The reason? A Cuban-born pilot flying for American arrived in Cuba without a Cuban passport and Cuba refused him entry. The Herald is urging the airline to join its anti-Cuban offensive and “negotiate harder” with Cuba.
First of all, discrimination is a rich word coming from the Cuban Americans who’ve been its unique beneficiaries for so many years. When they were the only US citizens/residents granted legal cover to visit Cuba, the discrimination against their fellow (non-Cuban) Americans who were intimidated, harassed, prosecuted, and fined for doing the same was utterly uninteresting to them. Cuban Americans are still the only immigrants given a red carpet treatment and path to citizenship when they arrive in the US illegally. Where is the outrage?Continue reading “American Airlines’ In-House Saboteurs”
With recent executive efforts to re-establish ties with Cuba, the curtain between the U.S. and the island nation is lifting—and businesses are seeing potential in the country’s estranged neighbor. But doing business in Cuba requires an intricate process almost as delicate as diplomacy itself—still, it is possible, said the founders of IcarusCuba LLC Thursday.
“This seminar does not have the purpose of telling you all the business opportunities available in Cuba. The purpose of this is to start a process,” said David Urra Arias, co-founder and chief analyst for IcarusCuba, who is also a native of Cuba.
Speaking at an event hosted by the World Trade Center Utah, Arias and Sue Ashdown, president of IcarusCuba LLC, said the California-sized island is ripe with opportunities—if businesses know where to look and how to go about getting them. To that end, she said, she and Arias started their business in 2014, before there were even rumbles that the two countries would actually mend fences.
“We thought U.S. executives might be interested in doing business but no idea how to go about doing that,” she said.
In order to do business with Cuban companies, U.S. businesses need to understand a number of things about Cuba. Among those is that the country has been more or less shut off from North America for 55 years, and that its significantly different social system also means its financial system is somewhat different from the U.S.’
Although the island has been somewhat isolated, at least from the bulk of its neighbors, for the last half century, Cuba excels in several areas, including education. Forty-four percent of adults have a master’s degree equivalent in education, and almost 10 percent have a doctorate-level education, Ashdown said, even if many of those advanced degree-holders are making their livings as taxi drivers or other jobs typically thought of as being less prestigious than those typically obtained with such education.
“[Cuba] saw spending on education as an investment, not an expenditure,” she said.
In overall quality of life, Cuba ranks 67th out of 187 nations, according to metrics from the United Nations, and its economy has been steadily growing since 2000, when it started opening itself up to accepting foreign capital. While there is still an embargo on many aspects of Cuban trade, thereby preventing companies from making major investments into any Cuban companies, small investments with private companies are still possible, and a smart move for companies interested in forming ties with the country.
In fact, Arias said, U.S. companies should look to invest sooner rather than later—other countries, including China, Russia and the Netherlands, have already been trading with Cuba. As is true with other facets of marketing, being first is often better than being best, he says, but the U.S.’ proximity to Cuba is a big advantage those other countries don’t have.
Arias said it is crucial, both in terms of profit and getting approved for trade by the Cuban government, that any agreement be for a mutually advantageous arrangement.
“Any project has to hold advantages for the company as well as for the country,” he said.
Each November, he said, the Cuban government announces specific sectors of the economy it deems are most necessary—and, consequently, would likely approve projects for far faster than in sectors that area already being adequately served. Those sectors often include glass processing (Cuba’s heat means a lot of glass-bottled beverages are consumed), household weather-predicting equipment, cars, tractors and disposable medical supplies such as needles, he said. Food is also a perennial need, he said, especially for items that can’t be easily grown or produced on the island.
Companies should also keep in mind that for Cuba to be a good market for exporting to, Cuba needs to have exporting opportunities of its own so it can have the money to pay for foreign goods, he said.
All in all, there’s still a long, rocky path to free relations between the U.S. and Cuba, but the future is bright, Ashdown said.
“It’s a long process, but not an impossible one,” she said.
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:
“The measure regarding the use of the dollar still does not mean that banking relations between Cuba and the U.S. have normalized. Cuban banks are still not allowed to have correspondent accounts in U.S. banks, which means that we must continue to operate via third parties, which increases operating and procedural costs…
“The prohibition on U.S. imports of Cuban products remains in place. The only thing that was modified was the absurd prohibition on U.S. citizens’ consumption of Cuban products and services in third countries.”
– Cuban Foreign Minister Bruno Rodríguez, Press Conference, Havana, March 17, 2016
Interesting to see how the press are reporting the latest changes to U.S. Commerce and Treasury regulations concerning Cuba.
“The new rules open international banking to Cuba and to commerce with dollars.” (L.A. Times)
Well, kind of. The dollar still can only be presented indirectly by Cuban financial institutions for payment through third country financial institutions. Common sense tells you that direct transfers are always less costly than transfers that make multiple stops along the way, so for Cuba the costs remain elevated, but at least non-Cuban banks can stop fretting about the possibility of being fined.
But why is nobody reporting this embarrassing bit?
“Americans traveling in Europe [may now] purchase and consume Cuban origin alcohol and tobacco products while abroad…“
So that Cohiba you smoked in London last month? Hope you didn’t video it on your cellphone.
James Barrood is the CEO of the New Jersey Tech Council which came to Cuba on two separate trade missions. He offers an unusually clear-sighted, pragmatic view of the way business in both countries could benefit from normalized relations, free of the usual axe-grinding and arrogance about how Cuba needs to do x y or z in order to be allowed to trade with the U.S. Barrood recognizes that trade is a two way street, but even more, he opened his eyes while visiting and saw the amazing things Cuba has to offer Americans. Not just in terms of high technology and biotechnology (the powerhouse that is hardly ever mentioned), but in terms of its society.
“We must forget our preconceptions that Cuba is a third-world, backward, poor island of 11 million people. It is not. Rather, in many ways, it is a modern miracle. I encourage you to visit, not as a cigar or rum aficionado nor a beach bum, but as a passionate student who wants to engage a people and culture, and simply learn. A historical opportunity this extraordinary will never present itself again.”
Translation: IcarusCuba LLC – credit requested for redistribution
The media frenzy over Paris Hilton’s recent visit to Cuba for the Cigar Festival was pretty predictable. The heiress to one of the world’s largest hotel chains didn’t limit herself to visiting Havana, but traveled to Soroa and Cayo Largo as well, and everywhere she went, people who came in contact with her were impressed by her down-to-earth, easygoing nature. When she visited Varadero, she stole the show at the International Hotel’s cabaret, where she went on stage, grabbed a congo, and accompanied the orchestra before dancing along with the entertainers.Continue reading “Hilton: Nothing to Claim”
Havana’s international fair (FIHAV) is a great unknown for the vast majority of American businesses. But not all.
American businesses do attend the fair. They are not listed anywhere in the exhibitors catalog, nor are they shown anywhere on the exhibitors map. Tucked away in a quiet, remote pavilion, they mainly include a variety of agricultural producers, ports and shippers, quietly attending the fair under the shelter of licenses granted by OFAC.
Some snapshots from FIHAV 2014:
Cuba is much more than just rum and tobacco but those stands are the evident showstoppers.
And now, the American exhibits, on opening day. (Most American visitors did not arrive until the second or third day.) Compare and contrast.
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