Don't Expect a Boom in U.S. Investment in Cuba Anytime Soon
normalizing diplomatic relations after 5 decades got people talking. As the talks evolved, the U.S. excluded the island from the list of states sponsoring terrorism, and everything currently points to an end to the trade embargo. But is it just a big symbolic act or a real opportunity for American businesses?
The truth is, there will be opportunities for foreign investors in Cuba, but for a very limited number of sectors. When the U.S. government announced that the island would be excluded from the list of state sponsors of terrorism, AirBnb quickly jumped at the opportunity to operate in the Caribbean nation and now offers over 1,000 Cuban hosts.
As one might expect, this shows that the tourism industry has a lot of room for growth. But what about other sectors?
The size of the Cuban economy is $64 billion, according to a study authored by Richard Feinberg (Brookings Institution). That is about a third of Ecuador's economy and Feinberg says that it could be even lower depending on the currency value accounted. Another important variable is the fact that a private individual cannot own a majority stake (or more than 49%) of a business in Cuba. The government owns at least 51% of all companies.
One might think that Cuban expatriates in the U.S. would be obvious investors because of their knowledge of the culture and language. However, Jorge Duany, director of the Cuban Research Institute, suggests that this is a false assumption because of local regulations.
"The current law regulating foreign investment in Cuba doesn’t specifically prohibit investment by Cubans living abroad, but in general, Cuban laws treat persons of Cuban origin who live outside the country as foreigners," Duany explained in an interview for IVN.
In the past, Fidel Castro nationalized companies without posterior compensation, an action that affected mostly Cubans and Americans. Experts say that the country does not have enough money to compensate old litigation. Some companies previously chased off by the government, such as Bacardi and Florida Crystals, have indicated a desire to return to Cuba. However, there is a lingering issue over whether or not they have anything to gain in the current legal environment.
Most proponents of ending the embargo belong to the food and beverage industry. Cargill was one of the top lobbyists in Washington calling for renewed trade relations with Cuba long before the current talks started. Cuba was once one of the biggest importers of U.S. rice. The country still is the top consumer of the grain per capita in the Americas (at 198 pounds per person).
"The single most important component of the daily diet of the Cuban people is rice. Proponents of lifting the embargo have recently argued that the United States could meet most of Cuba’s demand for rice within the next ten years. Other potential food markets include chicken, wheat, meat, potatoes, fruits, vegetables, soybean, and milk powder. Once U.S. tourists are allowed to visit the island, demand for processed foods such as soft drinks, wine, frozen sausages, and canned food is also likely to increase," Jorge Duany states.
A recent tour organized by the American Bar Association to Havana surprised many of the travelers. Peter Quinter, a trade lawyer based in Boca Ratón, Florida, revealed in an interview for Sun Sentinel that people thought that the Cuban economy was more dynamic.
"We were told Cuba has about 2 million cell phones and 600,000 cars, of which half are owned and operated by the government," told Quinter.
The Florida lawyer also highlighted that key sectors of the Cuban economic system are controlled by companies that are not American, but potentially could be. The phone system is Italian. Most hotel chains are Spanish. A lot of business people were from Russia, Colombia, Venezuela, Panama, France, Spain, and Canada. And it had a lot of U.S. visitors.
"I encourage people to explore opportunities, but also to be very cautious: Wait until new regulations are issued by the U.S. government and Cuban government to give investors more legal protection," Quinter advises.