Renewal of relations with US heightens expectations

Renewal of relations with US heightens expectations
Tentative signs of openness raise hopes, but is the island ready to do
business?
By John Paul Rathbone

There is a new entry among Cuba's roll of important dates. Alongside
Fidel Castro's 26th of July movement and the January 11959 "triumph of
the revolution", there is now December 172014. That was the day when
Barack Obama and Ratil Castro, the US and Cuban presidents, announced
that they wanted to normalise bilateral relations and end more than 50
years of cold war enmity. To be sure, communist Cuba was already
changing. After formally becoming president in 2008, Mr Castro began a
tentative economic liberalisation process to boost the country's
flagging economy — especially urgent now that Venezuela's growing crisis
jeopardises the $1.5bn of aid it sends every year. But the December 17
announcement lit a bonfire of expectations among US businesses — even if
Cuba's $80bn economy, for all its exotic allure, is much the same size
as the Dominican Republic's. "There is a new sense of excitement, of US
companies coming to look and thinking of starting seed businesses," says
one long-established European investor in Havana. "It makes sense. Start
small, learn how the system works and then see how it all goes." So, how
might it all go? US and Cuban officials have warned that expectations
are too high. "Prospects [in Washington] for lifting the embargo in the
short term are dim," cautions Michael Shifter of the Inter-American
Dialogue think-tank. The notion that US businesses and tourists might
soon turn Cuba into a Disney-style communist theme park with McDonald's
outlets spread along Havana's seafront is also unlikely; Havana has run
its own government for 56 years and is proud of its sovereignty.
Furthermore, even if the US embargo were to end overnight, the island
still faces an "internal embargo" — the thicket of Soviet-style
bureaucracy and centralising socialist attitudes that makes doing
business difficult. "All of Racal's economic reforms involved
decentralisation, which is good, as Cuba needs that," says Rafael
Hernandez, editor of Temas, a state-published cultural magazine. "The
problem is this . . . has not happened:' Still, change is coming to
Cuba, how-ever slowly, and one way to mark the changes is to travel back
to Pope John Paul II's 1998 visit. "Do not be afraid," he said. "May
Cuba, with all its magnificent potential, open itself to the world, and
may the world open itself to Cuba." Today, Cubans appear less afraid.
Activists are still hounded, but there is a willingness among many to
speak their minds, and some official tolerance too.
One sign of this is the continued exist¬ence of news website
14ymedio.com, set up by dissident journalist Yoani Sanchez - even if
limited internet access means few of Cuba's llm people can read it.
The world has also begun to open up to Cuba. Before December 17, there
were only 35 enquiries from foreign investors about Mariel - the $800m
port and free trade zone on Cuba's northern coast (see page 3), built by
Odebrecht, a Brazilian construction company, and operated by Singapore's
PSA. "After December 17, there is talk of 300 enquiries," notes Emilio
Morales of the Miami-based Havana Consulting Group - although how many
of these enquiries turn into actual investment is another matter.
The embargo, whose removal requires settling tricky issues such as $7bn
of US nationalisation claims, puts a brake on US businesses. It can also
put a brake on third-country businesses, too.
"We have to be entirely self-financed," comments one European resort
opera¬tor. "The new US approach has been `that may be no longer illegal,
but it is not necessarily legal either' - which makes financing
problematic:'
Lastly, Cuba is opening to the world, albeit slowly. The Communist party
is torn between letting reforms rip and
maintaining control. Little surprise that result sare disappointing—as
was tacitly recognised by Mr Castro, who wants to deepen reforms,
increasing the chances of an economic "soft landing" in 2018, when he
says he will retire as president
"Dealing with the internal embargo is one of Cuba's biggest challenges,"
says Pedro Freyre of US law firm Akerman. "The state might want to let
small businesses grow . . . but then it often taxes, regulates and
clobbers them." One sign of ambivalence is the emphasis on
state-sanctioned co-operatives, rather than the500,000 self-employedworkers.
Cuba also suffers from limited band-width to deal with foreign interest.
That is as true of Havana's stretched tourist capacity as it is of Cuban
officials with sufficient authority to make decisions.
Mariel's six approved projects, for example, required approval from the
Council of Ministers, the highest authority.
Even so, there is strong business interest in Cuba's so-called
"knowledge economy", especially biotechnology. A handful of large
foreign corporates — such as Canadian miner Sherritt International,
France's drinks maker Pernod Ricard and telecom's group Bouygues —setup
profitable businesses years ago. So too, more recently, have émigré
mom-and-pop entrepreneurs from Miami.
At Miami discount store Ñooo! Que Barato! (or "Wow! How cheap!")
Cuban-Americans can buy school uniforms for relatives' children. The
islands recent flowering of private restaurants and hotels — mostly
refurbished private homes — is also largely financed by Cuban-Americans,
who remit up to $2bn annually to relatives.
The message from foreign businesses in Cuba is that the island is a
potentially exciting market for anyone content to wait for uncertain and
long-term returns. In the meantime, a word of caution about the surge of
private foreign interest in Havana property, where purchases are
possible only via a resident Cuban partner, who then has legal title.
"The outsider takes all the risk," says one European businessman. "I've
heard As many unhappy as happy stories."

Source:
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