Monday, July 27, 2015

Resumption of U.S.-Cuba relations isn’t expected to set off a business stampede

Resumption of U.S.-Cuba relations isn't expected to set off a business

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

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

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."

Source: Resumption of U.S.-Cuba relations isn't expected to set off a
business stampede | Miami Herald -

No comments:

Post a Comment