Doing Business in Cuba - by Rob Montes

Cuba is an unconventional place to do business - but one rich in business opportunities for those willing to take the time to learn and understand the special circumstances. Many foreign companies, principally from Canada, Europe and China, are entering the Cuban market. US companies, technically prohibited from doing business in Cuba under the Helms-Burton Act, are nonetheless signing tentative agreements such as Memoranda of Understanding as they don't want to be left out when Cuba finally opens up - as it inevitably will.

As we enter the fifty-first year of the Cuban revolution, there’s been a lot of hype in the international press about Cuba “opening up.” Cubans are now officially permitted to buy computers and cellphones, to rent cars or enter hotels previously reserved for foreign tourists. Will Cuba be the next China? Is now the time to invest? Is now the time to see the island before the hordes of American tourists arrive? Those are the questions I couldn't find the answers to in the mainstream media, so I set out to explore the opportunities in this article for Offshore World.

CNN or the BBC really don't have even a basic understanding of the business environment in Cuba. So I returned here to see for myself … and to try to answer that eternal question that’s always been on everybody’s lips since the first time I visited Havana about ten years ago… “what will happen next?”

I started with an exercise in empathy. Rising before the sun, I set out with some Cuban friends to join more than half a million other son the traditional Workers’ Day March from Old Havana to Revolution Square. It proved to be  an opportunity to meet, talk with and understand real Cubans, rather than the cigar hustlers who always try to strike up conversations with tourists.… and my plan was to listen to speeches and get a little insight from the Cuban elite. Thousands of people have been bused in from other parts of the island to participate in the event. There’s a significant international presence, too… I will see, for example, delegations from trade unions of France, Italy, Belgium and Mexico for example, here to express solidarity with their fellow workers. Or, maybe more accurately, here to enjoy a Caribbean vacation and a few bottles of rum at the expense of their fellow workers.

The event is a good-natured, the Cubans open and welcoming. It is true that they are sometimes reticent about talking to foreigners, due to political pressure. But then, if we are marching here, we must be good guys approved by the government, right? Hmmm. So we chat to people along the way, stopping to buy sandwiches, popcorn, homemade potato chips and lemonade. Students in trendy uniforms of blue t-shirts and green pants line the sides of the Revolution Square, providing help and information – but also a friendly reminder, literally, not to step out of line.

There are certainly some signs of change in Cuba, beyond the most obvious one, that Fidel ias officially stepping down. Income from tourism, the main foreign currency earner in the late nineties and the first few years of the new millennium, has fallen – although experts I talked to don’t believe it will fall much further in the short term.

Cuban hard currency earnings, however, almost doubled in the three years 2004 through 2007, from US$ 5.5 billion to nearly US$ 11 billion, mainly as a result of two developments:

1. Export of medical and other services… mainly to Venezuela but also to other countries like Brazil, Pakistan, Panama, and Angola.
2. The surge in commodity prices. Cuba is a major producer of nickel which more than tripled in price during this period.

Oil is sold by Venezuela to Cuba at market prices, on special finance terms. Half is due 90 days, after shipment but the other half is deferred over seventeen years at a discounted 2% interest. This mutual relationship, however, is far from a one way flow of capital. Disciplined doctors and technicians, prepared to work in Venezuela’s slums and rural areas, would be impossible to find elsewhere for anything like this price.

There’s even be talk of another “special period” ahead… like the time in the early nineties when Soviet aid came to an end and Fidel Castro was forced to implement more liberal economic reforms, including legalising use of the US dollar on the street. Does this mean that Cuba will adopt the Chinese economic model, liberalizing the economy while maintaining political power? I don't know.

Is it true that Cubans earn $10 - $15 per month? This is true if we look strictly at the controlled exchange rates, but rather misleading overall, as it doesn’t represent actual purchasing power. in a way that someone accustomed to western economics might understand. Because in Cuba, they don’t do western economics.

The complex triple-currency economic system allows Cuban families to exist adequately on that salary, with acceptable food, shelter and medical care. Life is not easy for Cubans, but, at least economically speaking, it really could be a lot worse.

The $10-$15 per month becomes a fairer comparison, however, when we talk about the luxuries like mobile phones, computers or hotel rooms. These must be purchased at higher prices than in western countries, and paid for in hard currency. Therefore, a typical Cuban monthly salary buys approximately 20 minutes of cellular talk time.

Still, an estimated 20% of the population has hard currency income, either through working in tourism, or for foreign companies present in Cuba, or in the form of remittances from family members who have emigrated. I have known plenty of Cubans with cell phones and laptops for the past five years or so. Many Cubans with access to resources have already had mobile phones for the past years, in a system which might have been technically illegal but appears to have been tolerated, even encouraged, by the government who clearly profit from the revenue. And don’t imagine that these will be cheap basic models with black and white screens. Teenagers on Havana streets expect to have the latest trendy Nokias and Motorolas with built-in MP3, high-resolution cameras and so on.

Neither were the Cubans I talked to particularly excited about their new found rights to rent cars and enter hotels. Hotel reception staff confirmed that they would now rent rooms to Cubans. I did invite some Cuban friends to dinner in the Hotel Nacional, which required a lengthy debate with the hotel security guards and the registration of ID cards. Cubans discriminating against other Cubans in favor of foreigners - nothing new there, then!

Fidel Castro was famous for his lengthy speeches every 1st May. Under blazing sunshine or driving tropical rain, he would talk for hours, to the raptured attention of the crowds. Viva Fidel! His brother Raul, however, is quite the apparatchik. I did see somebody who might have been Raul standing up there as we walked past, but the people around us that I asked couldn’t actually tell me for sure if it was Raul or not… and anyway they didn’t seem remotely interested. More important was who had the bottle of rum they were surreptitiously passing around. Somebody told me that on last year’s march Raul had turned his back to the crowd.

A foreign friend of mine who lives in Havana for her work told me she stopped bothering to attend May 1st rallies after Fidel stopped giving speeches, because it didn’t have any meaning any more. She is by no means a supporter of the regime, but she said at least Fidel used to give interesting speeches.

I wonder how much longer you can keep people marching without reminding them what they are marching for. I suspect the majority of people there were, like me, just there for a day out. And it is perhaps subtle signs like this we should look for, that changes might be ahead, rather than government-sponsored hype about computers and cell phones. But the Cubans are not about to support another revolution.

This, then, begs the question of why the government suddenly want the rest of the world to know that their citizens (yes, governments all over the world do tend to regard citizens as “theirs”) can now enter hotels and the like. A Swiss expat I talked to said he thought the idea was to soften up public opinion abroad, especially in the US, in the hope that a Democratic President in the White House might ease the long-standing embargo.

What I can tell you definitely, however, is that Cuba is not adopting the Chinese economic model, at least not for the foreseeable future. It’s no more liberal than it was last year. For the intrepid investor who is prepared to work with the bureaucracy, there are definitely opportunities here, right now. Cuba will also continue to be an interesting tourist destination, with great people, great weather, and the most beautiful colonial capital in the region. Book now.

During 2009 and 2010 I will be organizing some approved investment tours in Cuba with a small group of friends and foreign business people. If you are interested in joining us, please contact me via the publishers: info @ offshore-world.org

Return to Offshore World Cuba index

Living and Investing in Cuba - Ebook for Expats

Using Panama as a base for Business Opportunities in Cuba (external link)