Now that U.S. and Cuban flags fly over reestablished embassies in Washington and Havana, the question on many minds is: Is Cuba open for business?
The short answer: Yes, but with caveats.
In leading four Americas Society/Council of the Americas business delegations to the island over the past three years to explore possible investment opportunities, I’ve seen the enthusiasm of many U.S. companies to gain a foothold in the Cuban market — and Cuba’s desire to raise much-needed foreign capital. Yet we’ve also seen evidence of the long and complicated history between our countries and — perhaps above all — the pressing need to build trust on both sides.
Cuba’s desire for more foreign investment is genuine, and driven by the island nation’s economic performance in recent years. While 2011 market-oriented reforms were meant to create a more productive economy, Cuba’s growth from 2011 to 2013 averaged only about 2.3 percent per year, and dropped to a 1.3 percent expansion in 2014. The updated 2014 foreign investment law showed the Cuban government’s awareness of the need to appeal to the global market, and contained some encouraging aspects such as tax cuts and exemptions. Yet challenges still remain, such as the requirement for companies to work through state-run agencies for all hiring and payment — instead of hiring workers directly and paying them in convertible currency. There is a clear push and pull between the need for capitalism and the preservation of socialism as Cuba tries to raise investment while maintaining control over its centrally planned economy.
The Cuban government wants economic growth rates to rise to around 4 percent or 5 percent per year, and is actively trying to raise the funds to meet that target — between $2 billion and $2.5 billion in annual foreign investment. The government’s first Portfolio of Foreign Investment Opportunities, published in November 2014 (with the second to be published in November 2015), was a kind of official Cuban wish list — outlining 246 proposals for investments in strategically important areas, with a total value surpassing $8 billion.
The top projects are oil (86 total projects), tourism (56 total projects) and agro-food (32 total projects). Proposed ownership structures range from 100 percent ownership in the Mariel special economic development zone, joint ventures (the majority of businesses in Cuba), or international economic associations (contracts for hotel administration and provision of professional services, among others). Cuba’s trading partners, such as Canada, China, Venezuela, Spain, Brazil and Mexico, are rapidly entering the market.
While these projects are off the table for U.S. companies due to the trade embargo, they are able to take advantage of other opportunities, thanks to new regulations passed by the Obama administration in January and September 2015. The new framework greatly expanded on previous executive actions in telecommunications, remittances and travel, while creating new areas of investment in banking and supporting the Cuban people and the country’s independent and growing private sector. This is in addition to the Trade Sanctions Reform and Export Enhancement Act exemption that lifted restrictions on U.S. food, agricultural products, and medicine exports to Cuba in 2000.
Despite this complex picture, many U.S. companies have shown tremendous interest in Cuba, especially considering it is a small Caribbean country of only 11 million people with an economy worth about $68 billion. Some of these companies are focusing, wisely, on areas that are currently permitted under the regulatory framework. This allows them to establish a presence in Cuba while also positioning themselves for potential future investment in other sectors when the embargo is finally lifted.
This is the right approach. It has been clear in our many trips to the island that traveling to Havana and establishing relationships with Cuban counterparts is an important precursor to any investment. This building of trust, together with the need for executives to grapple with the bureaucratic and top-down approach of doing business in Cuba, is a venture that requires patience — and many trips to the island — to build.
We’re on a good path. Engaging, traveling and understanding the opportunities and challenges will help bring us closer to achieving U.S. policy goals of greater engagement and closer to the day when trade and investment flow normally between Cuba and the United States.
Alana Tummino heads the AS/COA Cuba Working Group and is the organization’s director of policy. She is also senior editor of Americas Quarterly