President Barack Obama’s recent visit to Cuba, as controversial as it was, highlighted in the minds of many the potential profits that could be had from business with that country if and when the economic embargo is lifted. Cuba is a country of 11 million potential customers with a port in Havana just under 200 nautical miles from Miami. The millions of American tourists estimated to be ready to visit the island are going to need good hotels and resorts to stay in.
However, Mike Periu, President, Proximo International, LLC, offers a very severe reality check. Largely because of Cuban government policies, Cuba is, to put it mildly, a very challenging place to do business. The problem is that, while Cuba is anxious to attract foreign investment to help buttress its crumbling economy, its government is unwilling to enact the necessary reforms to turn the sclerosis-ridden socialist system into a thriving free market.
“As with all socialist economies, the Cuban government controls the factors of production: manufacturing facilities, distribution centers, large-scale agriculture and energy projects, access to domestic capital, even who you can hire, are all under direct government control through a series of massive holding companies. Concepts such as the rule of law, due process, and honoring contractual agreements, which we take for granted in the U.S., don’t exist in Cuba.”
In theory, a foreign company can own up to 100 percent of an enterprise in Cuba. In practice, this arrangement never happens. Foreign enterprises operating in Cuba must work through Cuban government holding companies that retain majority ownership and hence total control.
Because wages are set by the government and average just about $20 a month, the purchasing power of the average Cuban is too limited to buy any imported products. Some Cubans supplement their income with money sent by relatives overseas or by dealing in the illegal black market. While some Cubans are now permitted to own small businesses, confiscatory taxation and burdensome regulations make success problematic without resort to extralegal ways of doing business.
Success for foreign companies, mainly European, has been fleeting, as well.
“Currently, there are fewer than 250 foreign companies doing business in Cuba, and this number is declining as more partners give up. Many foreign investors fall into two camps: a) those who have lost money on their Cuba ventures; and b) those who have made money, only to see the Cuban government take over the now-profitable venture, seize assets, arrest executives, and/or forcibly renegotiate terms.”
All of this may be moot. The Congress will have to lift the economic embargo, which has been in place against Cuba since the Kennedy Administration, for most American companies to even attempt to invest in Cuba. The prospect of that happening, no matter who is elected president, is dim, to put it mildly. Cuba could offer concessions in the form of economic and political reforms, but the current regime seems to be ill-disposed to do so.