Friday, October 17, 2014

How Business Can Change Cuba

How Business Can Change Cuba
By Tim Padgett October 16, 2014

Yamina Vicente has lived in communist Cuba her whole life. But it didn't
take her long to learn one of capitalism's handier skills: creating
market demand.

Baby showers were practically unheard of in Cuba until last year, when
Vicente started an event planning company called Decorazón. She learned
about the gift-giving parties from American women visiting Cuba, then
persuaded some of her clients in Havana to throw their own.

Now, arranging baby showers—albeit on the shoestring budgets of a
country where the average monthly salary is $20—is one of Vicente's most
popular services. Another is planning Halloween bashes.

Recently, at the invitation of think tanks including Washington-based
Cuba Study Group, Vicente and other Cuban entrepreneurs made unusual
visits to Miami for tutoring from U.S. small business owners. During a
break at a downtown restaurant, Vicente shifted her high-velocity Cuban
Spanish into power-lunch gear. "I've got to do more than birthdays and
weddings," said Vicente, 31, a former Marxist economics teacher who
wears the smart attire and determined attitude of a rookie real estate
agent. "I've got to diversify."

Such ambitions are a far cry from "socialism or death," which Cuba's
former dictator, 88-year-old Fidel Castro, once plastered on billboards.
Cuban socialism is a miserable failure, so instead of choosing economic
death, Castro's younger brother and successor, Raúl Castro, has decided
he's got to do more than statism and collectivism can accomplish.

He's got to diversify.

If the U.S. really wants to help bring down the island's repressive
communist regime, it should chip away at it in Cuba, not just scream at
it from Miami. That is, Washington should help Raúl by helping novice
entrepreneurs like Vicente. "Their success will ultimately be our
success," says Tomas Bilbao, executive director of the Cuba Study Group,
which insists that engaging Cuba instead of isolating it is the best
means of eventually democratizing it.

Although Raúl is no democrat, he's opened the door—just a crack, but
wide enough to exploit. Four years ago he broadened the list of
permissible private enterprises, which once consisted of little more
than living-room restaurants known as paladares, to include licensing
more substantive businessess such as furniture making and bookkeeping.
Last year he said Cubans could travel freely abroad—on flights instead
of rafts. Earlier this year he approved tax breaks to attract more
foreign investment. And he's letting the Roman Catholic Church run
business classes and even offer MBA degrees.

But perhaps the most important move could happen this fall: scrapping
Cuba's dual currency system, the combo of a near-worthless peso for
ordinary Cubans and the "convertible" peso, pegged to the U.S. dollar
and used mainly for the tourism transactions that keep the economy
afloat. The scheme was created in the 1990s, when Cuba lost the Soviet
Union's largesse. But it's produced fiscal chaos.

Once the government develops counterfeit-proof bills and a new exchange
system, a unified currency could give regular Cubans more buying power.
Small business owners would have more cash for the capital goods they
need, from spark plugs for mechanic shops to sodium hydroxide for

Still, it won't be enough, especially for entrepreneurs who don't have
family in the U.S. Those relatives sent almost $3 billion back to Cuba
last year, and much of it helped capitalize the almost 500,000
microbusinesses now licensed there. More is needed, be it venture
capital, hardware like iPhones, or just consulting.

Which is why a powerhouse group of four dozen U.S. political, business,
and military leaders advised President Obama in May to relax
Washington's 52-year-old trade embargo against Cuba. Even career
conservatives such as John Negroponte, President George W. Bush's
intelligence chief, signed the letter urging Obama to use executive
powers and "help Cubans increase their self-reliance." Among its
recommendations: Lift the ban on U.S. travel to Cuba, allow U.S.
investors and NGOs to fund Cuban micro-enterprises, and let private U.S.
and Cuban businesses import and export goods to each other.

Hard-line Cuban exile leaders are furious at this approach—or the
suggestion that anything short of an exile-led reconquista will change
Cuba. Cuban American Representative Ileana Ros-Lehtinen of Miami called
it a "pathetic" trend that would "give the communist thugs more money
with which to repress." Florida Senator Marco Rubio, another Cuban
American hard-liner, accused U.S. Chamber of Commerce boss Tom Donohue
of handing the Castros a "propaganda coup" by making a "misguided" visit
to Cuba as the letter was sent to Obama.

Exile die-hards still hold considerable clout on Capitol Hill, a reason
Obama isn't likely to follow the letter's advice. But they're
increasingly in the minority. A Florida International University poll
this summer has most Miami Cubans in favor of ditching the embargo.
"We'll never effect positive change in Cuba if we stay on the sidelines,
head in the sand," says attorney Ric Herrero, who this year founded the
pro-engagement group #CubaNow.

#CubaNow represents a younger, more moderate generation of Cuban
Americans who realize the half-century-old embargo policy has failed to
dislodge the Castros—and in fact aided them politically. Such
organizations are betting that Cuban entrepreneurs will play a sort of
soft dissident role as their growing independence loosens the
government's grip, especially after the Castros finally die.

Granted, the Castros are still alive and ceding control as grudgingly as
octogenarian communists do. On Sept. 1, as if spooked by how seriously
Cubans are taking his call to free enterprise, Raúl slashed the amount
of goods travelers can bring to the island, curtailing the business
supply chain. "Finding steady suppliers is the common, fundamental
frustration in Cuba," says Vicente. Small business taxes are onerous, as
are arbitrary regulations, such as inspectors canceling licenses if they
decide an entrepreneur is getting too rich. Says Marcell Felipe, a
director of the hard-line Cuban Liberty Council in Miami: "Relying on
small business as a way to confront the regime is a big miscalculation."

Not so, says Emilio Morales, a former executive at Cimex, a
state-controlled corporation involved in banking, retailing, and
shipping, among other businesses. He emigrated to Miami in 2006 and
started the Havana Consulting Group. "Raúl has to take his reforms much
further," Morales says, but he thinks the Cuban president "is playing a
game that gets harder to control the longer you play it."

On laptops at his home office on Miami's west side, Morales's firm is
building a detailed commercial map of Cuba. It's an economic GPS device
pinpointing thousands of licensed microbusinesses and the financial
profiles of neighborhoods. The potential is robust, and the
miscalculation, Morales says, is Raúl's. Because his reforms let foreign
investors link up with private and not just state enterprises, "we could
reach a moment soon when venture capitalism takes off in Cuba."

Those entrepreneurs who don't have relatives abroad sending money,
Morales notes, could finally get decent seed money. A big reason Florida
is seeing a spike in rafters leaving Cuba this year is that the lack of
resources, made more apparent by Raúl's reforms, has led many to despair.

With the embargo still in place, analysts such as Juan Antonio Blanco,
head of Miami Dade College's Center for Latin American and Caribbean
Initiatives, say it's time to get creative. "We need some sort of
funding system, perhaps through churches," he says, "that allows people
here to 'adopt' a microbusiness in Cuba."

Such ideas got another boost in August, when the Tampa Bay Times
reported top aides to Ros-Lehtinen and Rubio traveled to China on
Beijing's tab to discuss foreign policy and trade. That double
standard—it's OK to engage China's abusive communist regime but not
Cuba's—eroded hard-liner credibility. And it gave more currency to the
argument that U.S. policy on Cuba is also in need of diversification.

Source: How Business Can Change Cuba - Businessweek -

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