5 Businesses Lining Up to Do Business With Cuba
When President Barack Obama announced in December 2014 that the United States would begin to restore diplomatic relations with Cuba, cigar aficionados rejoiced. People who are allowed to travel to the island country can now bring back $100 worth of tobacco products legally — a first since diplomatic relations were frozen in the early 1960s under President John F. Kennedy. But cigars aside, there are numerous other industries that also stand to benefit by exchanges between the two countries.
According to the Peterson Institute for International Economics, U.S. exports to Cuba are only a few million dollars per year, with imports at practically zero. Under normalized conditions, however, the institute estimates that the value of goods and services exported from the U.S. to Cuba could be $6 billion, with imports from the country totaling $7 billion. The institute notes that agriculture and telecommunications are two sectors that could be targets for expansion within Cuba.
Travel has now increased from the United States to the nation just a few hundred miles south of Miami, but restrictions are still in place. Only Congress can lift the economic trade embargo, which for now is still stifling that exchange of goods. Tourism also isn’t technically allowed yet, though people with family members or other ties to the country are now permitted to travel relatively freely. Despite those continuing restrictions, businesses in several industries are already lining up to offer their products and services, either to the people of Cuba or as a resource for Americans looking to spend some cash in Havana.
Another potential hurdle is that the 11 million people living in Cuba aren’t wealthy by any means, limiting their buying power of potential new goods coming from the United States. The average wages are about $20 per month in the country, per The Washington Post, and credit systems aren’t yet in place between the two countries. In some cases the uncertainty of if, or when, trade will be allowed is casting a pall of uncertainty over the industries. But in other cases, they’ve already been given the green light by Uncle Sam.
Cuba imports almost all of its foodstuffs, meaning that it continues to be a potential market for U.S.-grown corn, poultry, and soybeans, according to the Peterson institute. Some lifted sanctions in the early 2000s allowed for exports from the United States for these goods, but peaked at $700 million in 2008. The average is about $360 million in agricultural exports per year. The share of Cuban imports has decreased significantly over the past several years, from 42% in 2007 to just 20% now.
That’s partially because American suppliers like Cargill (who sells grain to the country) have been undersold by countries like Brazil, The New York Times reports, but also because trade restrictions make it more difficult to sell directly to Cuban suppliers. “This is a wonderful first step, but we would like to see the embargo ended,” Devry Boughner Vorwerk, a vice president of corporate affairs for Cargill, told the Times after Obama’s initial announcement in December. Other companies that deal with the production side of agriculture, like John Deere, also see a market for expansion. “Cuba is a potential market for John Deere products and services,” Ken Golden, a spokesman for Deere & Company, told the Times.
If it’s one sector Cuba is in most need of, it’s likely telecommunications. Mike Periu, president of marketing firm Proximo and a descendant of Cuban immigrants, wrote in a post for American Express that a Cuban doctor would need to spend about one week’s paycheck in order to pay for one hour of computer time in an Internet cafe with a dial-up connection. Much of the telecommunications industry in Cuba is still state-controlled, and the Peterson institute reports that only 5% of Cubans have open Internet access, with only about 20% of Cubans fortunate enough to own a cellphone.
Among the less stringent rules about interactions with Cuba is the ability to provide equipment for the “free flow of information to, from, and among the Cuban people,” according to the U.S. Department of Commerce. At the beginning of March, IDT Corp. was the first company to establish direct phone calls between the two countries. Cuba and the U.S. are also in talks to decide how best to move forward with any telecommunications expansions in the country.
“We confirmed we’re ready to receive U.S. telecom companies to explore business opportunities — business that could be of benefit to both sides,” Josefina Vidal, the Cuban Foreign Ministry official heading the Cuban delegation, said after the first round of U.S.-Cuba talks in January per the Miami Herald.
Despite previously mentioned issues of affordability, Cubans are “hungry” for better communications services, both through phone and Internet options, the Herald reports California Democrat Anna Eshoo as saying. Eshoo was part of a House delegation that traveled to the country in February. “They understand the power, and the empowerment that comes with the tools that come about as a result of broadband,” Eshoo said.
Cuba is already a fairly accessible country from Florida, and flights from Miami would be incredibly short. But options for travelers from around the United States could prove to be lucrative if tourism sanctions are lifted eventually. For now, even the growing number of Cuban nationals permitted to travel back to their home country is enough to convince some airlines to begin offering flight services to the country.
On May 5, JetBlue announced it will begin flying from New York’s JFK airport to Havana in July. The flights will be offered through Cuba Travel Services, a charter company that will partner with JetBlue for the service. The announcement was unique, as New York Governor Andrew Cuomo joined in following a trade mission to Cuba earlier in the year. “Our Global NY initiative and our trade mission to Cuba are all about opening the door to new economic opportunities, and JetBlue’s exciting announcement today is proof that our approach is delivering results for New York businesses,” Cuomo said. According to the Los Angeles Times, New York City has the second-largest population of Cuban Americans after the state of Florida.
Hotels and other accommodations are a few of the businesses that could see great potential, but also great challenge in the Cuban market, especially if the tourism market is established. The potential for high-end hotels to cater to big spenders looking for a unique destination is definitely high, but the growing pains of establishing the industry could take several years. The first step would be figuring out whether or not Cuba will insist on owning the properties, as it has in the past, or if the hotel chains themselves would control the buildings.
“We will take our cues from the U.S. government but look forward to opening hotels in Cuba, as companies from other countries have done already,” Arne M. Sorenson, president and chief executive of Marriott International, said in the Times article. Another issue is the time it will likely take to train staff members to provide the sort of luxury service that would be required, said Rick Newton, founding partner at Resort Capital Partners, a real-estate investment advisory firm that focuses on small high-end properties in the Caribbean.
“What you’re going to get is a midmarket two- or three-star experience from a remodeled hotel in Havana that will be cool for somebody from New York or Charlotte who wants to experience and think back to the Hemingway days,” Newton predicted to the Times. “But for a true five-star experience that will attract five-star customers who want five-star amenities, and served by a five-star staff, we’re at least a decade out.”
5. Cruise liners
“The natural beauty of Cuba brings millions of tourists, with many coming to see the thousands of species of plants and animals that live nowhere else on Earth,” according to National Geographic‘s Atlas of the World. “Protected natural areas take up nearly 22 percent of Cuban territory, providing habitats for crocodiles, flamingos, orchids, and more.”
It’s this sort of natural environment, plus the allure of a once-forbidden country and the island’s many beaches, that Norwegian Cruise Line CEO Frank Del Rio said make Cuba an ideal port of call for cruise ships. Del Rio left Cuba as a 7-year-old, The Washington Post reports, and is excited to think about the potential for expanding business in the country. “Cuba is hand-made for the cruise business,” Del Rio said. Even though the executive embraces the possibility, the chances of that destination added to any Norwegian cruises in the near future is slim. “Right now, all we really have is a willingness on both sides to improve relations,” Del Rio said. “These are baby steps. But they are baby steps leading up to the ultimate prize, and the ultimate prize is lifting the embargo.”
In fact, the only guarantee for any business or industry looking to expand in Cuba is that it will likely be a slow, arduous process. “The business community needs to recognize this is going to be a very slow process,” Jodi Bond, vice president of the Americas for the U.S. Chamber of Commerce, told the Post. Furthermore, many of the decisions about what the relationships will look like will depend upon how much influence Cuba can handle, or want to welcome into the country. “They [Cuba] have to decide how much reform they are willing to make,” said Assistant Secretary of State Roberta S. Jacobson. “It is no longer going to be the U.S. government that is holding things back.”
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