Sunday, May 31, 2015

Cuba - Very big fuss over very small economy

Cuba: Very big fuss over very small economy

President Barack Obama's historic normalization talks with Cuba have
brought about a lot of excitement in business circles, and hardly a day
goes by without new reports of U.S. investors, lawyers and entrepreneurs
flocking to the island. But I'm afraid most of them will lose their
shirts there.

A dispassionate look at Cuba's reality shows that, despite all the
hoopla about last week's U.S. removal of Cuba from its list of terrorist
nations, which opened the way for re-establishment of full diplomatic
relations between the two countries and international loans, Cuba
remains one of the most backward countries in Latin America. And it will
take many years to get its economy back to life.

Yes, Obama's opening to Cuba is by an large a good idea. And, granted,
there will be opportunities in the tourism industry to build new hotels.
But the scope of these business opportunities will be much more limited
than the Obama administration — eager for a foreign policy
legacy-setting victory in the aftermath of its Middle East failures — is
leading us to believe.

Consider the facts:

First, Cuba's gross national income per capita, although nearly
impossible to measure because the island does not measure its economy by
international standards, is estimated by the World Bank at $5,800 a
year. That's almost three times less than Chile's per capita income of
more than $15,000 a year, and way below Latin America's average of
$9,500 a year, according to World Bank figures.

Cuba's average wage is of about $20 a month (yes, you read right, a
month.) That will make it very hard for average Cubans to buy more
imported goods, wherever they come from.

Second, Cuba's 11 million population has an average age of about 40, one
of the oldest in Latin America, because of few births and massive
migration. That will make it hard for Cuba to become a magnet for
investments in factories or outsourcing services.

While other Latin American countries will benefit from young populations
in coming years, Cuba's demographic scene is likely to worsen.

In a recent report entitled "Big fuss, small market," John Price,
managing director of the Americas Market Intelligence consulting firm in
Miami, argued that "if East Germany is any guide to what may happen next
in Cuba, an additional two million Cubans would leave the island within
five years of an end to travel restrictions."

He added, "Most of those anxious to leave will be the best educated
working-age adults who can pursue higher wages and better opportunities
abroad. Cuba will become a nation of elderly, with limited growth

Third, despite Obama's executive orders to open up tourism and some
investments to Cuba, only the U.S. Congress can lift the full U.S.
commercial embargo on the island, and that's not likely to happen
anytime soon.

Even if some Republican legislators from mid-Western farm states support
lifting the U.S. embargo, the prevailing mood within Republicans in
Congress will be to deny Obama a vote that would allow him to set a
foreign policy legacy as the U.S. president who "opened up" Cuba, much
like Nixon "opened up" China.

"I don't see the U.S. embargo lifted while Obama is in office," Price
told me."I doubt that anything will happen within the next two or three

Fourth, despite a big influx of dollars from U.S. tourism and family
remittances, Cuba is threatened with a worsening economic crisis if
Venezuela can't keep up with its oil subsidies to the island. That may
delay Cuba's economic resurgence further.

Fifth, Cuba lacks and independent judiciary to protect investors'
rights, as so many Spanish and Canadian business people have learned the
hard way. And that's not likely to change anytime soon.

In a recent interview, U.S. Secretary of Commerce Penny Pritzker told me
that even though Cuba is a small economy, the Cuban people are
entrepreneurial , and have a great economic potential. "It's a
beginning, you have to start. And by starting, things will evolve," she

My opinion: Maybe so. But for the time being, as Florida International
University business professor Jerry Haar has rightly — and only
half-jokingly — commented, the most profitable businesses dealing with
Cuba will be those that put together conferences and seminars on doing
business in Cuba.

Obama did the right thing in starting normalization talks with Cuba's
military dictatorship, although he should be much more forthright in
demanding basic freedoms on the island. But the administration should
tone down its claims that the U.S.-Cuba honeymoon will lead to political
and economic changes on the island, and to great business opportunities
for foreign companies. It won't, at least in the near future.

Source: Cuba: Very big fuss over very small economy | Miami Herald Miami
Herald -

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