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Dr. Gomez: Preparing to do Business in a Future Cuba

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Public Policy
Wednesday, 26 June 2013 12:08

Dr. Andy Gomez, Senior Policy Advisor

The government of Raul Castro continues to introduce what appear to be economic reforms in Cuba with the purpose of jump-starting a moribund economic system that for more than a decade has been controlled by the government and dependent on subsides by countries such as Russia and Venezuela. However, at the same time, the Cuban leadership has shown clear signs that they have no intention of relinquishing political control or honoring fundamental freedoms. 

This is a time of great economic and political uncertainty in Cuba. For the first time in decades there are clear factions starting to form within the Cuban government.  There are the hardliners, who would like to see no change at all. Then  there is a class of bureaucrats who do not agree with the pace of the current reforms. This group would like to see a great deal more economic liberalization. These individuals, some in very senior posts in the current government, propose reform within the existing government structure. It is difficult to tell at this point if this latter group is as ideologically committed to the Revolution as the others.

 If you factor in the billions of dollars Cuba owes foreign lenders, as well as the confiscated property and related U.S.-Cuba claims, Cuba will have no choice but to work with foreign investors to start digging out of this problem. No matter the faction, all of them understand that a key element of success will require foreign economic assistance of various forms. This will be needed for many reasons, but most importantly, foreign capital will be needed to stabilize the Cuban economy.

While tourism and commodity exports are likely to represent the prominent source of Cuba’s monetary earnings during the early stages of an economic transformation, a major acceleration in economic growth and trade will require large inflows of foreign direct investment and services. Of course, American companies will have to wait until the economic embargo is lifted before they can participate in this process.

Cuba’s current and future leaders understand that their main economic support will come ninety miles to the north. Once a transition government is recognized under U.S. law, significant economic investment from the U.S. will most likely occur when investors are convinced of Cuba’s commitment to a more open society consistent with U.S. law and policy, free markets, the rule of law, as well as the protection of property rights and the enforcement of commercial contracts. These are just a few of the current underlying preclusions to the United State’s involvement with Cuban economic growth.

Investing in Cuba’s infrastructure will provide many lucrative investment and business opportunities. For example, Cuba does not have enough hotel rooms to accommodate tourists. New hotels will have to be built and so will the infrastructure to support that line of business in order to accommodate the expected large influx of new tourists that will visit the island. 

The island’s transportation system is in shambles, the electrical grid system is very outdated, roads and bridges are old, most of the country’s water supply is lost by leaks along its aged pipes, and the railway system is almost non-existent. The airports and seaports are also in need of repair and modernization. The list of critical infrastructure updates and repairs that need to occur to support a vibrant economy is much longer and more extensive.

One thing Cuba has in its favor is a very high literacy rate compared to most other countries in Latin America. This fact can and will make it very attractive for business looking to outsource work to send business to the island in many fields. The Cuban people are also extremely resourceful and hard-working. With the economic and political freedom, the transition process from a closed to open economy in Cuba should provide a fertile foundation for exponential growth that will surpass the successes of similar transition economies of Eastern Europe after the Cold War. 

At Poblete Tamargo, we are very well-prepared to help your company -- no matter how big or small -- to start developing a strategic plan for your business whether you seek improvements on the inner workings of your business or are looking to upgrade your company’s way of or potential interfacing with Cuba and its economy. We can also advise you on current U.S. law and regulations, as well as how Washington will play a pivotal role in Cuba transition matters.

Our understanding of the political, economic and social climate on Cuba in particular gives us the added advantage of improving your position for the future when US Cuba relations resume. The time to plan for this future is now. Give us a call so we can discuss your interests and start preparing your plan with you to enter the future free and democratic Cuban marketplace.

 

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