Economy

Easing rules with Cuba may produce bonanza for U.S. business

“We have, and we’ll have socialism,” reads a sign on the road to Biran, the birthplace in Cuba of dictators Fidel and Raul Castro, March 27, 2012.
“We have, and we’ll have socialism,” reads a sign on the road to Biran, the birthplace in Cuba of dictators Fidel and Raul Castro, March 27, 2012. MCT

The Obama administration’s move Wednesday toward normalized relations with Cuba after five decades of strife may set events in motion that will change business fortunes across the Florida Straits, the Caribbean and the Americas.

The United States is alone with a trade and travel ban on Cuba, now in place more than 50 years, and as a result, companies from Brazil, Canada, China, Germany and elsewhere have been able to open hotels, offer cruise ship services and operate mines.

That begins to change immediately, as the Obama administration said it would ease travel restrictions to Cuba under 12 categories. This will allow private foundations, researchers and professional organizations to have more people-to-people contacts. Americans will be allowed to provide business training to Cubans, who’ve often been trained in top-notch universities but have zero experience in private enterprise.

In recent years, the Roman Catholic Church has stepped into the void to provide basic business training in major cities such as Havana. But Cuba has no trade or vocational schools, and very little resembling private enterprise as Americans know it.

“I think this is momentous, and I think it opens up everything,” said Vicki J. Huddleston, a former head of the U.S. interests section for Cuba at the State Department. “This is the beginning of the removal of the (trade) embargo.”

President Barack Obama warned that he didn’t expect a transformation of Cuba overnight, and experts cautioned that the devil will be in the details.

“I think the most important thing is to see what the fine print actually says,” said David Lewis, a vice president and Caribbean expert at the consultancy Manchester Trade. “More remittances than before, more travel than before. That’s just mathematical change.”

U.S. farmers have been permitted to sell corn and wheat to Cuba since 2002, but the ability to secure trade financing was limited. The real changes will come, Lewis said, when the farmers can get easy financing to sell their products.

"Throughout history, agriculture has served as a bridge to foster cooperation, understanding and the exchange of ideas among people,” Agriculture Secretary Tom Vilsack said in a statement.

The lack of trade finance for U.S. farmers helped hand business to competitors in Brazil and elsewhere. One example is Canada’s Scotiabank, which has operations in Cuba that help Canadian companies with finance and credit.

If Obama’s steps lead to a real opening up for Cuba, larger players such as Mexico and Canada will have stiff competition.

“This is a beginning, not an end,” said Eric Miller, a vice president at the Canadian Council of Chief Executives, one of that nation’s top business groups. “There will be a lot more competition that Canada and other countries that are active in Cuba may start to see over time.”

Farm trade is one area that Canada and others will watch closely. That’s because U.S. farmers accounted for 36 percent of food aid to Cuba in 2004, including poultry products, corn and soybeans from the heartland.

But the Bush administration tried to squeeze the Cuban economy by requiring more upfront cash for imported food, and that was followed by the global financial crisis. In 2008, the U.S. exported $710 million in farm goods to Cuba, a figure that fell to $347 million in 2011, according to the U.S.-Cuba Trade and Economic Council, a New York-based group that favors an end to the embargo.

That might soon change.

“The U.S. will bring its rather considerable production power and obvious geographic proximity to bear on Cuba,” said Miller, a former Latin America policy adviser in the Canadian government. “It will be good to see opportunities to more freely engage with Cuba for U.S. firms because, quite frankly, a lot of North American production is integrated.”

The White House fact sheet on charting a new course with Cuba made scant mention of farm exports. In an effort to boost private entrepreneurship in Cuba, the administration will allow greater exports of goods used in private residential construction and agriculture equipment for small-scale farmers.

U.S. institutions will be allowed to open correspondent accounts at Cuban banks so that authorized transactions can be processed. Americans traveling to Cuba will be able to use their credit cards there now, too. Importantly, the administration is authorizing telecommunications companies to put infrastructure in place in Cuba for phone and Internet communications.

For many Caribbean nations, Wednesday’s announcement will come as a shock. They export to the United States the very same products Cuba produces, things such as rum and sugar. They have tourism-based economies that will see a formidable challenge if Cuba opens up. Mexico and the Dominican Republic have prepared for the competition; Jamaica and smaller islands not so much.

“There is infrastructure in Cuba for cruise ships,” Lewis said, noting that former Soviet allies helped build up seaports. “They’ve got shipping infrastructure that can bring in any destroyer or aircraft carrier from anywhere in the world.”

Over time, if relations normalize and Cuba rejoins the global trading system, there are enormous opportunities for U.S. companies. Before Fidel and Raul Castro seized power and closed the island to private enterprise, U.S. seaports such as New Orleans and Tampa, Fla., had close trade ties with Cuba.

Brazilian firms opened a world-class port in January in the Cuban city of Mariel that cost nearly $1 billion, and the only U.S. ship line authorized to call there, Crowley Maritime Corp. of Jacksonville, Fla., recently began operating there.

Package-express companies such as FedEx and UPS could go in like gangbusters, as Cuban-Americans send appliances, electronics and other items to family in Cuba.

Cuba, the largest Caribbean island, boasts a population of 11 million, but it’s poor. Its per-person purchasing power, according to the latest CIA World Factbook, ranks 118th out of the world's 195 nations.

Shortly before Pope Benedict XVI’s 2012 visit to Cuba, authorities moved to expand self-employment on the island. Most of the 181 newly allowed self-employment categories involved menial labor and services that are most relevant in urban areas: beauty salons, barbershops, plumbers and the like. In its first year, the government said it had already granted 371,000 licenses.

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