Af­ter Fidel, busi­ness as usual? Cuba still poor for in­vestors

The Washington Times Weekly - - National - By Steve Hirsch

Pres­i­dent Bush’s hard-line at­ti­tude to­ward Cuba has prompted busi­nesses to pull back from ex­plor­ing op­por­tu­ni­ties in the com­mu­nist na­tion.

That is not ex­pected to change eve­na­sail­ing,long­time­dic­ta­torFidel Cas­tro lies in a hospi­tal bed and his brother Raul runs the coun­try.

Other fac­tors hin­der­ing the po­ten­tial of do­ing busi­ness there in­clude the is­land’s small pop­u­la­tion and poor in­vest­ment cli­mate, but Mr. Bush’s strong stance is the over­ar­ch­ing is­sue, ac­cord­ing to gov­ern­ment of­fi­cials, busi­nesses and long­time ob­servers and an­a­lysts.

The Cuban eco­nomic em­bargo, im­posed in the early 1960s, al­lows cash sales only for food, medicine and med­i­cal equip­ment and re­stricts travel to the is­land.

Dur­ing the Clin­ton ad­min­is­tra­tion, U.S. com­pa­nies vis­ited Cuba on trade mis­sions and con­sid­ered trade, in­vest­ment and other busi­ness op­por­tu­ni­ties.

The Bush ad­min­is­tra­tion, how­ever, has adopted a tougher approach, in­clud­ing a tight­en­ing last year of pay­ment re­quire­ments on food ex­ports to Cuba. That, busi­ness of­fi­cials say, has played a ma­jor part in dis­cour­ag­ing U.S. com­pa­nies from ex­plor­ing the Cuban mar­ket.

“If you look at the way the ad­min­is­tra­tion has tried to re­strict food sales to Cuba, even though Congress passed a law per­mit­ting them, and at the road­blocks they’ve placed in the path of peo­ple and com­pa­nies try­ing to visit Cuba, com­pa­nies don’t have to stare too hard at the tea leaves to get the mes­sage,” Na­tional For­eign Trade Coun­cil Pres­i­dent William A. Rein­sch said.

“They just give up on try­ing to plan for busi­ness there. There has clearly been a chill­ing ef­fect on open­ing doors to Cuba, and the re­sult is that we will be un­pre­pared when re­stric­tions are fi­nally lifted, which ev­ery­body knows will hap­pen even­tu­ally,” he said. Bush backs em­bargo

The Bush ad­min­is­tra­tion has left lit­tle doubt where it stands on the em­bargo.

Mr. Bush said in 2002 that with­out po­lit­i­cal and eco­nomic re­form, trade­with­Cuba“willmere­lyen­rich Fidel Cas­tro and his cronies” and that the bar on U.S. fi­nanc­ing for Cuban farm­pur­chases would con­tinue, say­ing that it “would just be a for­eign-aid pro­gram in dis­guise, which would ben­e­fit the cur­rent regime.”

When­ever the United States has shown in­ter­est in eas­ing re­la­tions with Mr. Cas­tro, “some­how it’s al­ways failed,” Com­merce Sec­re­tary Car­los Gu­tier­rez said in a re­cent in­ter­view.

“You look back at his­tory over the last 47 years and any­time that it looks likewe’re get­ting too friendly, they go to An­gola, they shoot a plane down, they open up their jails [. . . ] and they let out a lot of very nasty peo­ple, not po­lit­i­cal pris­on­ers,” he said.

The ad­min­is­tra­tion be­lieves that out­side in­vest­ment will not lead to po­lit­i­cal lib­er­al­iza­tion or de­moc­ra­ti­za­tion, stressed Caleb Charles McCarry, the ad­min­is­tra­tion’s Cuba tran­si­tion co­or­di­na­tor.

“In­vest­ing in the cur­rent eco­nomic and po­lit­i­cal struc­ture in Cuba sim­ply sup­ports the regime, and­does­not­sup­port­th­ea­spi­ra­tions of the Cuban peo­ple for gen­uine change that leads to po­lit­i­cal and eco­nomic free­dom,” he said.

Un­der cur­rent law, Cuba would have to es­tab­lish a tran­si­tion gov­ern­ment that takes a num­ber of steps to­ward democ­racy and “does not in­clude” Mr. Cas­tro or his brother Raul for the em­bargo to be lifted.

Raul Cas­tro is now run­ning the coun­try while the Cuban leader is in the hospi­tal, lead­ing some ob­servers to spec­u­late that the postFidel Cas­tro era has be­gun. Mr. Cas­tro has not been seen in pub­lic since July.

How­ever, even if Fidel Cas­tro leaves of­fice in the next five years, the Econ­o­mist Intelligence Unit in Lon­don said in an Oc­to­ber re­port that it “does not an­tic­i­pate any sud­den, rad­i­cal al­ter­ations in the po­lit­i­cal sys­tem.”

In ad­di­tion, un­less re­la­tions with Wash­ing­ton im­prove, the re­port said, Ha­vana “will con­tinue to limit dis­sent on the grounds of na­tional se­cu­rity.”

The re­port pre­dicted con­tin­ued hos­tile U.S.-Cuban re­la­tions and sanc­tions, re­gard­less of Fidel Cas­tro’s pres­ence, say­ing the sort of fun­da­men­tal change in the re­la­tion­ship that could lead to lib­er­al­iza­tion “would re­quire strong po­lit­i­cal will on both sides to over­come re­sis­tance based on ide­ol­ogy and vested in­ter­ests, and there are no signs yet of any shift in the en­trenched po­si­tions.” Hill could ease em­bargo

The elec­tion of Demo­cratic House and Se­nate ma­jori­ties for the next Congress could lead to ef­forts to ease the em­bargo. But with­out rad­i­cal change in Cuba or a soft­ened ad­min­is­tra­tion stance, those moves would be lim­ited.

Last month, a del­e­ga­tion of 10 mem­bers of Congress from both sides of the aisle vis­ited Ha­vana, the largest U.S. leg­isla­tive mis­sion to Cuba un­der Mr. Cas­tro to date.

Raul Cas­tro in­vited the U.S. to talk about the two coun­tries’ re­la­tions, in­clud­ing top­ics such as the em­bargo, im­mi­gra­tion, drug traf­fick­ing, cap­ture of fugi­tives, the en­vi­ron­ment and oil ex­plo­ration.

Rep. Jeff Flake, an Ari­zona Repub­li­can who has spon­sored leg­is­la­tion to al­low U.S. com­pa­nies to work with Cuba to ex­ploit oil re­serves off its north­ern­coast, said his bill would be more likely to get out of com­mit­tee in the next Congress and pre­dicted more pro­pos­als aroundtheedge­soft­heem­bargo,in such ar­eas as bank­ing reg­u­la­tion.

Heis­theRepub­li­can­chair­manof the Cuba Work­ing Group, a bi­par­ti­san group of mem­bers of Congress who are push­ing for changes in U.S. pol­icy to­ward Cuba.

Rep. Bill De­lahunt, Mas­sachusetts Demo­crat and the prob­a­ble chair­man of the In­ter­na­tional Re­la­tions over­sight and in­ves­ti­ga­tions sub­com­mit­tee, plans hear­ings on U.S.democ­ra­cyas­sis­tance­forCuba. Mr. De­lahunt, who is the Demo­cratic­head­oftheCubaWork­ingGroup, said Congress ini­tially will fo­cus on travel re­stric­tions, al­though he crit- icized cur­rent over­all Cuba pol­icy.

“You’d have to be obliv­i­ous to the past 50 years not to con­clude that this just hasn’t worked. And now, we don’t un­der­stand, I don’t think, what’s hap­pen­ing in Cuba, what the re­al­ity is in Cuba, and I think it hurt­susifwe­want­to­have­in­flu­ence in Cuba as Fidel Cas­tro passes from the scene,” he said.

Rep. Charles B. Ran­gel, the New York Demo­crat who is ex­pected to head the Ways and Means Com­mit­tee, will con­tinue to op­pose the em­bargo through a Trea­sury ap­pro­pri­a­tions amend­ment to bar fund­ing of the en­force­ment of the em­bargo, ac­cord­ing to his staff.

But any push to lift the em­bargo in the new Congress would not get to the floor for a vote, said Sen. Larry E. Craig, an Idaho Repub­li­can who spon­sored the oil leg­is­la­tion in the Se­nate.

He cited both a re­luc­tance in the Se­nate to take dra­matic ac­tion un­til there is a change in Ha­vana and strong back­ing for the em­bargo by the Bush ad­min­is­tra­tion.

Congress can have some in­flu­ence on for­eign-pol­icy is­sues, he said, “but if the ex­ec­u­tive is hard over on an is­sue, and they are, clearly, on this is­sue, then it will be very dif­fi­cult to do any­thing over the next two years.” Do­ing busi­ness tough

One U.S. of­fi­cial said the ad­min­is­tra­tion is not us­ing its em­bargo en­force­ment to try to dis­cour­age Amer­i­can com­pa­nies from con­sid­er­ing the Cuban mar­ket, but to en­sure a tran­si­tion to “real democ­racy,” in­clud­ing “real eco­nomic re­form.”

Mr. Rein­sch, how­ever, de­scribed the sit­u­a­tion more am­bigu­ously.

“We don’t think — or can’t prove at any rate — that the ad­min­is­tra­tion has overtly told com­pa­nies to stay out of Cuba not­with­stand­ing the laws per­mit­ting them to en­gage in cer­tain ac­tiv­i­ties there,” he said.

“We do think that their ac­tions have been de­lib­er­ate and have sent clear sig­nals to the busi­ness com­mu­nity that do­ing busi­ness with Cuba won’t be worth the ef­fort.”

Oth­ers clearly say the ad­min­is­tra­tion’s stance has tamped down busi­ness en­thu­si­asm for Cuba.

In 1994, mem­bers of the U.S.Cuba Trade and Eco­nomic Coun­cil came from a variety of in­dus­tries, in­clud­ing phar­ma­ceu­ti­cals, fi­nan­cial ser­vices, tourism, food, agri­cul­ture and re­tail, al­though le­gal trade was lim­ited to health care prod­ucts, said John S. Kavulich II, the group’s se­nior pol­icy ad­viser. By 2002and2003,he­said,mem­ber­ship was largely in the food and agri­cul­ture in­dus­tries.

Many busi­nesses that have shown in­ter­est in Cuba would not com­ment for this ar­ti­cle.

Cuba has bought more than $1.3 bil­lion in U.S. farm prod­ucts since late 2001, ac­cord­ing to the Con­gres­sional Re­search Ser­vice, but even com­pa­nies al­lowed to ex­port to Cuba see the em­bargo as a hin­drance.

The U.S. rice in­dus­try ex­ports 150,000 to 200,000 met­ric tons to Cuba a year, but that should be more like 500,000, said Stu­art E. Proc­tor Jr., pres­i­dent of the USA Rice Fed­er­a­tion. Cuban of­fi­cials have said the U.S. would be Cuba’s top rice sup­plier if it weren’t for the

em­bargo, he said.

Mr. Proc­tor said U.S. reg­u­la­tions have made ship­ping rice to Cuba more dif­fi­cult, rais­ing ques­tions for Cuban of­fi­cials about Amer­ica as a rice sup­plier.

“You’ve got to be a re­li­able sup­plier, and we’re not, in the eyes of the Cubans,” he said. In­vest­ment pos­si­bil­i­ties

Ob­servers in­stead stress the po­ten­tial for in­vest­ment, where op­por­tu­ni­ties for U.S. com­pa­nies re­main, al­though com­pa­nies com­ing from coun­tries rang­ing from Is­rael to China to Bri­tain are al­ready work­ing there.

In­vestors from other coun­tries have­moved into such in­dus­tries as nickel min­ing, telecom­mu­ni­ca­tions, in­fra­struc­ture and cit­rus pro­duc­tion, Lex­ing­ton In­sti­tute Cuba an­a­lyst Philip Peters said, al­though he added that Cuba is look­ing for part­ners in other ar­eas.

Po­ten­tial op­por­tu­ni­ties for Amer­i­can com­pa­nies in­clude en­ergy, agri­cul­ture, tourism, biotech­nol­ogy and in­for­ma­tion tech­nol­ogy, Mr. Peters said.

The best ini­tial op­por­tu­ni­ties will be those that gen­er­ate hard cur­rency, such as nickel min­ing, where there is still room for new for­eign com­pa­nies, as well as oil and ho­tels cater­ing to for­eign­ers, he said.

Some for­eign oil com­pa­nies have signed agree­ments with Cuba for oil and gas ex­plo­ration along Cuba’s north­ern coast, in­clud­ing Rep­sol of Spain, Sher­ritt In­ter­na­tional of Canada and Sinopac of China.

Ex­ec­u­tives from en­ergy-re­lated U.S. com­pa­nies such as Exxon Mo­bil Corp., Cater­pil­lar Inc. and Valero En­ergy Corp. met with Cuban of­fi­cials in Mex­ico City ear­lier this year to dis­cuss Cuban oil re­serves, but are barred from ex­plor­ing those re­serves.

The U.S. Ge­o­log­i­cal Sur­vey has es­ti­mated there are be­tween 1 tril­lion and 9.3 tril­lion bar­rels of undis­cov­ered oil and be­tween 1.9 tril­lion and 22 tril­lion cu­bic feet of undis­cov­ered nat­u­ral gas off Cuba’s north­ern coast.

If the United States main­tains its em­bargo, In­dia, Spain and Canada could end up drilling for oil 51 miles off the U.S. coast, ac­cord­ing to Kirby Jones, pres­i­dent of the U.S.-Cuba Trade As­so­ci­a­tion.

“If you’re a Florid­ian look­ing with binoc­u­lars away from Key West, if you’re go­ing to see an oil plat­form, I think you’d feel more com­fort­able if it was a U.S. plat­form than a Chi­nese plat­form,” Mr. Flake said.

Mr. Jones says the post-Cas­tro era al­ready has ar­rived, de­scrib­ing the coun­try as a so­phis­ti­cated, grow­ing­busi­nessen­vi­ron­men­twith 350 joint ven­tures op­er­at­ing and 500 to 600 for­eign com­pa­nies main­tain­ing of­fices. He said that even in ar­eas that are still open to Amer­i­cans, op­por­tu­ni­ties be­come fewer each day.

Cuba, he said, is much dif­fer­ent than it was in 1994, when the first joint ven­ture was set up. For­eign part­ners al­ready are op­er­at­ing in all the sec­tors of the Cuban econ­omy where they are al­lowed — those aside from de­fense, health care and ed­u­ca­tion — and he said many of them have in­vested hun­dreds of mil­lions of dol­lars in the past 12 years. Other hin­drances

The U.S. em­bargo is not the only ob­sta­cle to busi­ness, though. Ob­servers note that Cuba only has about 11 mil­lion peo­ple and they have lim­ited ac­cess to hard cur­rency. Viet­nam, by con­trast, has a pop­u­la­tion of more than 84 mil­lion and is not an is­land.

One agri­cul­ture in­dus­try of­fi­cial said his com­pany’s at­ten­tion to the Cuban mar­ket “would not be enor­mous” if the em­bargo were lifted but the po­lit­i­cal sit­u­a­tion didn’t change. The of­fi­cial said U.S. com­pa­nies in the agri­cul­tural sec­tor would be in­ter­ested in Cuban pos­si­bil­i­ties with­out the em­bargo, but that there would be no rush into Cuba as long as the econ­omy is state-driven.

An­other agri­cul­ture ex­ec­u­tive said there are ap­peal­ing as­pects to Cuba, in­clud­ing its prox­im­ity and the fact that it pays cash, but added it will al­ways be a small part of the mar­ket, even with­out the U.S. em­bargo.

Out­side of agri­cul­ture, op­por­tu­ni­ties for U.S. ex­ports may be lim­ited as well.

“There’s rea­son to be­lieve that over time the Cuban econ­omy is go­ing to do well and pro­duce a con­sumer class for Amer­i­can goods, but not in the short term,” ac­cord­ing to lawyer Robert Muse, who has sub­stan­tial ex­pe­ri­ence in U.S. laws re­lat­ing to Cuba.

“When the em­bargo’s lifted, some U.S. com­pa­nies will seek to ex­port to Cuba, but it’s go­ing to be tar­geted ex­ports. It’s go­ing to be lux­ury goods for the ho­tel trade, for ex­am­ple,” he said.

Joint ven­tures aren’t as nu­mer­ous as they used to be for in­vestors. Cuban au­thor­i­ties have cut back on the num­ber of small for­eign com­pa­nies ac­tive in Cuba since 2003, but are in­ter­ested in larger com­pa­nies for ma­jor projects in such ar­eas as min­ing and en­ergy, ac­cord­ing to the Econ­o­mist Intelligence Unit.

In open­ing to out­side in­vest­ment, Mr. Muse said Mr. Cas­tro “made a tac­ti­cal ac­com­mo­da­tion with cap­i­tal­ism” dur­ing the 1990s, when the Soviet bloc trad­ing ar­range­ments ex­pired and “Cuba needed se­ri­ous for­eign in­vest­ment, it needed to, in the ex­pres­sion they used in Cuba at the time, rein­sert it­self into the world econ­omy.”

It also needed some lim­ited re­form to al­le­vi­ate se­ri­ous short­ages of food, con­sumer goods and ser­vices, ac­cord­ing to the CIA’s World Fact­book.

“But that sit­u­a­tion has bet­tered it­self over time,” Mr. Muse said, adding that Cuba is now more eco­nom­i­cally stable “and there’s been a di­rect cor­re­la­tion be­tween the lack of new in­vest­ment go­ing into Cuba and its fi­nan­cial health,” he said.

Cuba has in­creased ties with China and Venezuela, which has helped Cuba’s econ­omy. “Th­ese re­la­tion­shipsseem­set­to­be­comem­ore im­por­tant” and will over­shadow Cuban re­la­tions with Or­ga­ni­za­tion for Eco­nomic Co­op­er­a­tion and De­vel­op­ment coun­tries, ac­cord­ing to the Econ­o­mist Intelligence Unit.

Cuban au­thor­i­ties would not com­ment for this ar­ti­cle, but oth­ers pointed to Cuban gov­ern­ment poli­cies as a bar­rier to in­vest­ment.

The Econ­o­mist Intelligence Unit de­scribed Cuba as “one of the world’s least at­trac­tive for­eign in­vest­ment des­ti­na­tions” from 2001 through 2005. The sit­u­a­tion is likely to im­prove only slightly through 2011 be­cause of state dom­i­na­tion of Cuba’s econ­omy and lim­ited op­por­tu­ni­ties for private busi­ness, the re­port said.

Out­sidein­vest­men­tal­so­has­been hin­dered by out­stand­ing claims on ex­pro­pri­ated prop­erty and by U.S. sanc­tions, which in­crease costs of such ac­tiv­i­ties as ship­ping and re­strict the ex­port mar­ket for Cuban prod­ucts, the re­port said.

Cuba’s in­hos­pitable in­vest­ment en­vi­ron­ment may mean that there are still op­por­tu­ni­ties for U.S. firms, should re­la­tions ease be­tween the two coun­tries.

Mr. Muse said Mr. Cas­tro’s “gen­uine dis­taste for in­ter­na­tional cap­i­tal­ism and the profit mo­tive” prob­a­bly­hasleft­mu­chofthein­vest­ment mar­ket rel­a­tively open, adding that “verylit­tle­is­fore­closed­fromAmer­i­can com­pa­nies at the mo­ment.”

How­ever, he added that in ar­eas where there is room for only one for­eign in­vestor, pri­mar­ily in raw ma­te­ri­als, Amer­i­can com­pa­nies could lose out.

As­so­ci­ated Press

Tourists in a car­riage drove past a bill­board with an im­age of Cuban Pres­i­dent Fidel Cas­tro in Ha­vana. Ho­tels in Cuba cater­ing to for­eign­ers are among the most promis­ing op­por­tu­ni­ties for U.S. in­vest­ment.

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