Business

Resumption Of U.S.-Cuba Relations Isn’t Expected To Set Off A Business Stampede

By Mimi Whitefield
The Miami Herald.

With embassies now open in each country, it might seem that Cuba and the United States are ready to do business with each other.

But there are still many barriers. Not only is a trade embargo still in effect, but businesses also are proceeding slowly when it comes to taking advantage of the limited commercial opening toward Cuba outlined by President Barack Obama as part of the U.S. rapprochement with Cuba.

Among the most visible deals to date are Stonegate Bank’s announcement last week that it had signed a correspondent banking agreement with Cuba’s Banco Internacional de Comercio — a move that should make it easier to pay for transactions — and Airbnb’s Cuban launch. It now offers more than 2,000 listings in casas particulares, private homes that rent rooms to travelers.

Yet to materialize are any major deals in agriculture or telecommunications. U.S. rules announced in January allow American companies to sell telecommunications and computer equipment and even partner with the Cuban government in ventures to improve access to the Internet and telecommunications.

Even though Cuba has shortages of many building supplies and the new U.S. rules allow shipments of construction materials and equipment to Cuba’s budding private sector, there have been no announcements by major companies that they’re sending enough supplies to paint up Havana or shipping cement mix.

Cuba is a new frontier for American business.

Because there hasn’t been a semblance of a normal business relationship in more than half a century, when the United States wrote its new rules of business engagement with Cuba earlier this year, it was dealing more with the theoretical than real world experience. Also, the rules were written hurriedly.

Roberta Jacobson, assistant secretary of state for western hemisphere affairs, calls the new rules “a work in progress.”
“Cubans are getting used to it; our business people are getting used to it,” she said. “We are going to tweak. We may not have written them right.”

During a White House briefing last week with business people, academics and others who have been supportive of the normalization process, briefers said that a revision and clarification of some banking and travel rules would come out shortly. They also asked business executives to keep the feedback coming on the evolving rules.

Pompano-based Stonegate is the first U.S. bank to engage with Cuba under the regulations that came out in January.

But banks in general are very nervous about Cuba, said Ted Piccone, a senior fellow at the Brookings Institution. “Part of it is the banking culture is very conservative, but the banks also have seen that they can be heavily penalized if they don’t abide by the letter of the law.”

Meanwhile, as U.S. business pioneers try to strike deals, they must also contend with a Cuban system that doesn’t necessarily mesh with U.S. business practices, limited Internet service, and a Cuban bureaucracy that often seems more interested in going slow than expediting business.

Beyond the sluggish bureaucracy, the government also is testing the shifting currents with caution.

Carlos Alzugaray, a retired Cuban diplomat, points out there are reasons the government wants to go slow and not risk losing political control by allowing too swift an economic transformation or rapprochement with the United States.

Cuban leader Raúl Castro, he said, has undertaken three processes of change at once: economic reform, a new relationship with the United States, and a generational shift in political power as he retires in 2018.

All carry a degree of risk that could derail the government’s goal of “prosperous and sustainable socialism.”

“They want to do things slowly, to keep things under control,” said Piccone. “There’s also an ongoing battle between Raúlistas [who are more supportive of economic change] and Fidelistas for control, and that’s another reason that things are so slow.”

“I think U.S. business executives need to understand that this is still a centrally planned economy and you will have to deal with various ministries to get things done,” said Pedro Freyre, a Miami lawyer who has accompanied clients to Cuba. It’s not that many Cuban bureaucrats aren’t smart or well-trained, he said, “but they have a different mindset.”

It’s also unclear how eager the Cuban government may be to do deals with some American businesses.

“There are opportunities — but not for everything and not for everybody,” said David Seleski, chief executive and president of Stonegate Bank. “You shouldn’t go in thinking you’re going to make as much money as possible. But if you go in with the attitude you want a reasonable return and are going to do something that will help the Cuban people, then you can be successful.”

It’s clear, too, Seleski said, that the government wants to attract investment and increase self-employment. During a recent trip, he visited the Mariel Special Economic Zone near the refurbished port of Mariel.

The government has revised its foreign investment law and is trying to attract foreign manufacturing companies to the zone.

Its potential would greatly increase if there were no longer an embargo and foreign companies could manufacture and ship to the U.S. market. Under the Obama opening, however, at least one U.S. manufacturing company is trying to get a license to make small tractors in the zone that would be destined for Cuba’s private farmers.

“Cuba’s foreign investment law could be attractive provided there’s free enterprise. Right now there is not,” said Dan Zabludowski, a Coral Gables lawyer who represents U.S. and international clients.

“We see a lot of improvements coming to Cuba, but it is a place where you should do your due diligence, do your homework before going in,” he said. “Americans are going to have to be educated on Cuba.”

“Cuba kind of reminded me of where Eastern Europe was back in the early 1990s,” said Zabludowski, who visited Cuba this spring with the international section of the Florida Bar. “They want to go forward but they need a tremendous amount of infrastructure.”

U.S. companies, such as Google and Twitter, have made overtures to Cuba and a few minor telecom ventures have been inked, but there hasn’t been much response from Cuba on the telecom front.

An interview that José Ramón Machado Ventura, second secretary of the Communist Party of Cuba, recently gave to the Juventud Rebelde newspaper indicates deep suspicion and a desire for Cuba to take its time on Internet improvements: “Everyone know why there is no Internet in Cuba — because it is so costly,” he said. “There are some who want to give it to us free, but they’re not doing it so the Cuban people can communicate but for the purpose of penetrating us and undertaking ideological work to achieve a new conquest.”

Cuba must have better Internet service, he said, “but our kind [of Internet], knowing that it is the intention of imperialism to handle it as a way to destroy the Revolution.”

Another problem is that Alimport, Cuba’s state importing enterprise, isn’t set up to handle imports by private entrepreneurs.

The U.S. rules do contemplate working with Alimport, however, as long as American exports intended for Cuba’s self-employed end up in the hands of the private sector, according to U.S. officials.

Cuba’s dual currency system is apt to give U.S. business executives pause, too. Most Cuban salaries and people’s everyday purchases are denominated in Cuban pesos but foreign companies and the tourism economy use the Cuban convertible peso (CUC), which is exchanged at one to $1 U.S. The official exchange rate is 25 Cuban pesos for one CUC. For state enterprises, however, the CUP is on par with the CUC or sometimes other exchange rates are used.

This unwieldy system distorts prices, balance sheets and decision-making and makes potential investors and business partners wary. Cuba has said it is in the process of unifying its currency but it’s moving slowly because of the risks of inflation and because there will be winners and losers in the process.

To help companies try to overcome some of the obstacles in entering the Cuban market, Burson-Marsteller, a public relations and communications firm, recently launched a Cuba consultancy team that will advise clients on matters such as positioning themselves in the Cuban market, how they should enter it, how to present their corporate presence in Cuba and how to effectively communicate to various stakeholders about their Cuba business.

For companies and industries that consider Cuba a longer term play when the embargo is lifted, Burson-Marsteller will advise them on an advocacy role to help bring about policy changes, said Ramiro Prudencio, the company’s Latin America president and chief executive.

“I think that for most companies, Cuba needs to be a long-term play — unless they’re in very specific industries,” he said. But travel and tourism will present “almost immediate opportunities.”

Companies that want to do business in Cuba, he said, must be cognizant of whether their venture is in sync with government development plans and offers social and economic benefits to the Cuban people.

“We want to make sure companies are successful in Cuba,” he said. “It’s about having the message right and the right policy. Cuba is not just any market and it is not just any country.”

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