Why Cuba? The Race to Havana

Let the race to Havana begin with these economic insights.

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By:  Tyson Guajardo, Lynx Global Intelligence

 

Under the Obama administration, the world witnessed the restoration of diplomatic relations between Cuba and the United States following decades of mutual antagonism.  Since this historic event, U.S. Citizens have seen their restrictions on travel to the Caribbean island come tumbling down.  Individuals who fall within 12 categories previously needed to apply for a special license to visit Cuba, but are now merely required to check a box on a form, committing not to engage solely in tourist activities during their stay.  Regular commercial airline flights, cruise, ships and ferries have also been recently authorized.  Although the trade embargo remains in place, this easing of US economic sanctions on the island provides numerous investment opportunities that few dared to dream of just a few years prior.  And while President Trump has threatened to undo almost all of Obama’s executive orders pertaining to Cuba, many experts see this as an unlikely move, as it would go against an increasingly one-sided public opinion and vast commercial interests.

It would be wise for many businesses in the United States (and anywhere else for that matter) to consider the possibilities of investment in Cuba, following its trend of economic liberalization: Since Raul Castro took over for Fidel in 2008, state regulations on private enterprise have steadily decreased.  This has opened a world of new markets for outsiders.  There are numerous prospects in the industries of tourism, agriculture, energy and manufactured goods.  Moreover, Cuba is abundant in highly skilled and educated workers.  Even more compelling is the strategic port location that the island provides for several other nations in the Caribbean and the southeastern United States.  And in 2018, Raul is scheduled to step down as president, which could lead to further economic restrictions being busted wide open under his successor.  Let the race to Havana begin with these economic insights:

Tourism

Cuba is hoping to build 21 new hotels in the Cienfuegos, Trinidad, Guardalavaca, Playa Santa Lucía and Covarrubias areas.  The state companies owning existing hotels are searching for new management contracts including 19 for new hotels and 14 for those already in business.  The government entity CubaGolf intends to “promote the island as a golf-holiday destination” and is already in negotiations with numerous foreign partners to establish joint ventures for the creation of tourism-golf condo complexes.  However, in exceptionally popular locations such as urban Havana and Varadero beaches, prospects are still mostly reserved for state owned enterprises.

Agriculture 

Most land is owned by the state with only 15 percent available to private farmers and another 7 percent for farmer cooperatives.  Despite this, Cuba is looking for joint ventures in cattle, pork, and poultry production; as well as in citrus, peanuts and shrimp farming.  Additionally, Cuba is open to a partner who would be willing and able to invest $10.3 million to create a “leading brand on the international level” of premium coffee grown in specific regions of the hills in Guantánamo Province.  Other opportunities will be available in greenhouses for vegetables, hog production, soy processing, confectionary facilities, and dry yeast production.  Unfortunately, sugar will remain with heavy restrictions, as well as tobacco/cigar industries and lobster fishing & processing.

Energy

While opportunities for joint ventures in petroleum extraction onshore and offshore will be available, Cuba’s goal is to raise the percentage of electricity produced from renewable sources from the current 4 percent to 24 percent by 2030.  This means that foreign investment in hydro, biomass and solar energy is in high demand (for wind farms, Cuba will allow 100% foreign ownership!).

Manufactures

Aluminum cans are in short supply as the firms Bucanero (InBev) and Los Portales (Nestlé) are the current primary clients tasked with producing 577 million of these in joint ventures.  In tech manufacturing, Cuba wants foreign investors to help produce desktop computers and tablets.  The current annual demand is only 75,000, but this is expected to grow to around 1 million in 10 years.

 

Source: Open for Business: Building the New Cuban Economy, Richard E. Feinberg

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