President Obama’s initiative holds forth tremendous potential for American export to Cuba and for Cuban exports to the US. Some industries, like tourism and agriculture, will see dramatic changes as soon as OFAC revises current policy to meet the President’s initiative. These industries and others that already have feet on the ground will be able to increase their share quickly. For other industries, an entrée into Cuban exports will have to wait for Congress and the bitter rhetoric that is sure to follow.
As with everything in Cuba, there are the Castro brothers. President Raul Castro steadfastly shuns capitalism. American businesses should not expect Cuba to move far from its Communist model. Change in Cuba comes slowly and, by comparison, might make our US Congress look efficient. For a country its size, Cuba has an inordinately cumbersome bureaucracy. Navigating the country’s administrative processes is a grueling undertaking.
From CNBC to Forbes and the New York Times and Wall Street Journal, Cuba’s vast economic potential seems to be undisputed. With two presidents from two diametrically opposed countries trying to feel their way through change, the chance of quick, dramatic economic policy change is slim. US businesses that see potential in Cuba will have more access to Cuba travel and more opportunities to establish strategies even though there are presently many more questions than defined solutions.
Fox Latino News reports that the Peterson Institute for International Economics estimates US exports to Cuba will climb to $4.3 billion annually. In 2013, exports topped off at $360 million. For Cuba, exports are projected to reach about $5.8 billion annually, an economic shock wave that will send repercussions through the country, the labor force and the standard of living. The Castro’s are not about to take their foot completely off the brake on this type expansion.
What seems clear from the US perspective is that several industries will see very real opportunities very quickly. Need answers about business in Cuba? Contact Dave at Info@travelguidecuba.com
Agriculture Exports – The American Farm Bureau indicates that US farmers are currently exporting corn, soybeans and frozen chicken parts to Cuba under 2000 legislation that allowed export to private sector farming operations. Exports to state-owned farms are prohibited. Farming operations and giant export-import companies, like Cargill, have cited financial constraints as the biggest drawback to assisting Cuban farmers become more productive. Under Obama’s initiative, financial transactions will be easier and more fluid than ever.
Look for growers and farming equipment manufacturers to step up exports to non-state operated farms. Not coincidentally, Cuba recently released hundreds of state-controlled farms for private sector development. Cuba’s farming potential is vast but has been held back by antiquated equipment and farming practices. Most of US exports to Cuba in 2013 were agricultural products. Cuba was once one of the largest sugar producers in the world, a status presently enjoyed by Brazil. Sugar is produced in 100 nations around the world. Once modernized, Cuba is sure to climb up the ladder quickly.
Americans might be surprised to know that in 1959, direct US investment in Cuba totaled $359 million (equal to $2.8 billion today), an amount that tripled US investment in the rest of Latin America. Castro’s nationalization of US interests was a leading factor in President Eisenhower’s decision to end US subsidies to Cuban agriculture. We should expect Cuban sugar, corn and fruit production to spike upwards.
Companies like Cargill, John Deere, Caterpillar and many others have their sights set on Cuba’s agricultural modernization. Once OFAC moves, US manufacturers will export large quantities of farming equipment.
Medical Exports – Under the same 2000 legislation that permitted farm exports from the US to Cuba, medical exports were also extended. With the financial transaction obstacle diminished, medical exports will benefit this sector.
Tourism Infrastructure – If Cuban tourism is to reach its full potential, massive foreign investment in industry infrastructure is needed. Marriott, Starwood, Hilton Worldwide, Apple Leisure Group and other US businesses are anxious to build new beachfront hotels and resorts that will add rooms to the country’s tourism industry and compete with existing international chains that already dominate the landscape.
Energy – When the embargo is lifted, the US will be well positioned to help Cuba with its gasoline, diesel and refining challenges. The island’s largest refinery has not attracted any foreign investors. Companies like General Electric can assist Cuba in expanding and boosting its dated electrical transmission capabilities.
Aviation – Americans are infatuated with Cuba. Since President Obama announced his Charting a New Course plan, travel agencies have been flooded with calls. There are many reasons for the unprecedented response but certainly the easing of the financial constraints helps. With a new direct JFK to Havana flight set to commence in March and with direct flights from other major cities in the works, look for US airlines like JetBlue, Delta and American Airlines to raise their participation levels. Cuba’s numerous international airports should expect more US tourists and business travelers, in the near future.
Auto Parts – While US automakers are prohibited from selling in the country, quick change is unlikely. With the an average annual income of about $6,200, individual demand for new US cars in Cuba will be slow. However, demand for auto parts should increase rapidly. Many Cubans have become accomplished and ingenuous auto mechanics.
Telecommunication and Technology – President Obama negotiated for the immediate right to sell communication and Internet technology to Cuban citizens. We might also see Cuban laborers working in technology manufacturing facilities in the not-too-distant future. Like agriculture and tourism, these sectors could be the first to take hold. With only 5 percent of the population enjoying Internet access that seems punitively expensive, Cubans will jump at affordable Internet and telecommunication services.
As the US unfolds and clarifies how Obama’s policies will be implemented and while Congress enters what promises to be a very contentious debate, Cuba will be attempting to build a more viable platform to recruit foreign investment, an undertaking with which the country has struggled for 52 years.