Fulton Armstrong*
Fulton Armstrong is a Research Fellow at the Center for Latin American and Latino Studies. This is the third of four policy briefs that he will write as part of the Center’s Cuba Initiative, carried out with support from the Christopher Reynolds Foundation.
October 19, 2015
As the U.S. embargo—the main obstacle to expanding U.S.-Cuban economic ties—is relaxed by presidential regulatory action and eventually lifted by Congress, limits on Cuba’s own willingness and ability to conduct trade, absorb investment, utilize information technology, and even accommodate tourists risk putting a brake on the normalization of economic relations. Five decades of embargo and failed socialist models have rendered key sectors in Cuba ill-equipped to take advantage of the surge in U.S. business interest in the island. In some areas, the political will to open up and reform is crucial. These problems do not translate into a rejection of normalization but rather into a slower timeline than many on and off the island would hope for.
After 50-plus years of estrangement, bilateral contacts since last December have given rise to high levels of optimism—among U.S. investors, importers, and exporters—about relatively rapid economic engagement. Press reports and information from Cuban and non-Cuban experts suggest that most Cubans, skeptical that their government will make reforms facilitating trade and investment quickly enough, are slightly more pessimistic. But hardly a week goes by that U.S. trade experts, think tanks, and media don’t reflect strong private-sector interest in Cuba. Visiting Havana in October, U.S. Commerce Secretary Penny Pritzker emphasized, “What we’re trying to do is be as open as we can until the blockade [sic] is lifted.”
Cuba has not been shy about its desires either. Secretary Pritzker said Cuban officials “have been very forward leaning and wanting more American direct investment.” Last year, the Cuban government announced its “Portfolio of Foreign Investment Opportunities”—some 246 projects in energy, tourism, agriculture, and industry—for which it seeks US$8.7 billion in investment. Moreover, Havana says it wants growth rates to rise to 4–5 percent per year (from an estimated 1.5 percent in 2014), fueled by at least US$2 billion in annual foreign investment. …….
Conclusion: VISION AND PATIENCE
The limits on Cuba’s ability to absorb a rapid expansion in tourism, trade, and investment are significant, but continuing U.S. controls are also imposing obstacles. The Obama Administration has chosen not to use its executive authority under the Cuban Asset Control Regulations, written into the “Libertad [Helms-Burton] Act,” to expand trade with state-owned enterprises beyond those currently licensed—in agriculture, pharmaceuticals, telecommunications, and for environmental protection. Apart from these exceptions, trade is only permitted with small entrepreneurs, who have minimal capacity to import and export. These limits, which can be reduced through executive action, pose a major hindrance to the broader normalization process.
Cuba’s challenges in taking advantage of new opportunities are not insurmountable—with political will and time. Havana’s approach to change usually has been gradual and halting,
but change a la cubana has also been significant. Since the start of the disintegration of the Soviet Union in 1989, Cuba’s economy and economic culture have changed more than the government’s socialist slogans would suggest—and further change is certain. The economic contract between the people and the government has changed drastically as hundreds of thousands of workers have been laid off, social services have been cut, and the Cuban people have been admonished by President Castro to embrace reforms “without haste, but without pause.”
The pace of reform and corresponding expansion of Cuba’s absorptive capacity may be maddening slow for many Cubans and Americans alike. But insofar as the U.S.-Cuba normalization process is irreversible, so too is the conviction in Cuba on the need to “update” the systems through reform in order to take advantage of the opportunities it brings.
The challenges implicit in change are not new, and not unique to Cuba’s relations with the United States. Potential U.S. partners eager to engage are about to learn what their European and Canadian counterparts have long known: even with clear incentives on the table, Cuba proceeds at a pace that maximizes its own stability and advantage—which most often means slowly. Those concerns naturally will be especially intense as they inform dealing with the United States, which still rationalizes expansion of commercial ties in terms of the desirability of promoting democracy in Cuba. But Cuban national pride and the Communist Party’s fear of losing control could very well be assuaged as the island experiences the benefits of the engagement. Foreigners, especially the United States, who push too hard, too fast, and too haughtily could fail and even delay this aspect of normalization, just as Cubans who move too passively, too slowly, and too skeptically could stymie the process as well.
Continue Reading: Fulton Armstrong US-Cuba Policy Brief 3, October 2015 (003)
