International Trade, Politics and the US Embargo

Visitors to Cuba may not notice that they land at an airport financed by a Canadian banking consortium but they certainly will be aware when take a Mercedes taxi or Chinese made coach to a hotel built by a French construction group and part owned by a Spanish hotel chain.

They may be somewhat surprised to be drinking Coca Cola or Red–Bull in a bar located next to the Benetton, Adidas or Mango franchise or see Lucky Strikes cigarettes and Nestlé ice cream advertised almost everywhere.

Over the past three years Cuba has been on a shopping spree, spending its windfall gains from high nickel prices and booming service and tourism earnings on refurbishing its electricity grid, refineries, roads, railways, other transport infrastructure  and housing. These investments have still only scratched the surface of Cuba´s investment backlog but even so amounts to billions of dollars which have gone to German, Korean, Russian, Chinese, British, Canadian and Venezuelan companies. On the finance side Canadian and European banks have placed several large structured finance deals over the past decade establishing these banks´ knowledge of and reputation in dealing with Cuba.

It is also of note that in return for investments today some European and Canadian firms have been given a monopoly over certain sectors of the economy including today (to various degrees) cement, telecommunications, water, soft drinks, tobacco, cigars and rum. There are also strategic investments being made by overseas investors in oil & gas, port development and mining. The national oil companies of China, India, Vietnam and Malaysia are not investing in blocks of Cuban oil & gas simply to sell out to American interests further down the line but as part of their global strategy to secure energy and mineral reserves well into the next century.

Oil & gas is a particularly logical fit [between Cuba and the US] given that exploration in Cuba waters is taking place as close as 60 miles from the coast of Florida.

International brands surprise many visitors to Cuba. But they are there!

CURRENT TRADE BETWEEN THE U.S. AND CUBA

Since 2000, when the US Congress passed the Trade Sanctions Reform Act, there has been some trade between the two countries, most notably in Cuban purchases of agricultural products [there have also been some interesting contacts made in the biotechnology sector]. Cuba today buys approximately US$ 550 million of agricultural products from 37 states making it an important export market for several Mid–Western states. This makes sense given that the US is both very close and has a very competitive farm sector.

Were it not for a multitude of restrictions that have been placed on this trade (no direct payments are allowed and no credit is allowed), the trade could easily reach US$ 1bn per year today out of an estimated total food purchasing for Cuba of (an estimated) US$ 2bn (2007).

Despite the restrictions, headaches and opprobrium sometimes dished out since 2000, more than 150 US companies have become involved in this limited trade, something which has given a group of US business executives a clear look into Cuba today. The feedback I have received since 1975 has consistently emphasized that the reality of Cuba is very different to its portrayal in the US. Not only do the Cubans have a very positive view of Americans and American culture (cars, baseball, movies) but business proceeds quickly and professionally by the capable executives of Alimport (the Cuban entity responsible for food purchases, from overseas).

No–one with any experience doing business with Cuba would ever claim that it was easy, especially when you are negotiating more complex deals involving foreign investment, Havana is not Houston nor even Hanoi. Relationships are important, process and due diligence a requirement to do almost anything and the country as a whole is idiosyncratic and distinct. Many businessmen do however look upon Cuba favorably compared with other Latin American countries (by cordell). Cuba does follow a clearly defined rule of law with contracts upheld, is safe and there is very little corruption at higher levels.

LOOKING AHEAD

International investment in from most of the world has expanded and continues to grow. Given the historical and geographical connection between Cuba and the United States, it is clear that at some point the economies of these two countries will become interlinked. Cuba will be a bridgehead and hub linking the US with the rest of the Caribbean and Latin America.