Presented at Florida International University, Cuban Research Institute Conference: “Beyond Perpetual Antagonism: Re-imagining U.S. – Cuba Relations.”
February 24, 2017
Presented at Florida International University, Cuban Research Institute Conference: “Beyond Perpetual Antagonism: Re-imagining U.S. – Cuba Relations.”
February 24, 2017
© 2017 – Routledge
To Order: Routledge
ABOUT THE BOOK
The boundary between Cuba and the United States has become more and more porous, as have those with Latin America and the Caribbean. Never in the past half-century has Cuba’s leadership or its social and political fabric been so exposed to the influence of the outside world. In this book, an all-star cast of experts critically address the recent past and present in U.S.-Cuban relations in their full complexity and subtlety to develop a perspective on the evolution of the conflict and an inventory of forms of cooperation. This much needed approach provides a way to answer the questions “what has been . . .?” and “what is . . .?” while also thinking seriously about “what if . . .?”
To illustrate the most significant areas of U.S.-Cuban relations in the contemporary era, this newly updated edition of Debating U.S.-Cuban Relations adds six more themes to the study of this complex relation: political, security, economic, and cultural/academic issues; the triangular relations of the United States, Cuba, and Europe; and the politics of Cuban migration/emigration. Each topic is represented by perspectives from both Cuban and non-Cuban scholars, leading to a resource rich in insight and a model of transnational dialogue.
The future course of U.S.-Cuban relations will likely be more complex than in the past, not only because of the matrix of factors involved but also because of the number of actors. Such a multiplicity of domestic, regional, and global factors is unique; it includes the rise to power of new administrations in both countries since 2008. Raúl Castro became president of Cuba in February 2008 and Barack Obama was inaugurated president of the United States in January 2009. And it will feature the inauguration of a new president of the United States in January 2017 and a new president of Cuba, likely in February 2018.
TABLE OF CONTENTS
Chapter 1: Introduction: A Baseball Game. Jorge I. Domínguez and Rafael M. Hernández
Chapter 2: Intimate Enemies: Paradoxes in the Conflict between the United States and
Cuba. Rafael M. Hernández
Chapter 3: Reshaping the Relations between the United States and Cuba. Jorge I. Domínguez
Chapter 4: Cuba’s National Security vis-à-vis the United States: Conflict or Cooperation? Carlos Alzugaray Treto
Chapter 5: Cuban-United States Cooperation in the Defence and Security Fields: Where Are We? Where Might We Be Able to Go? Hal Klepak
Chapter 6: Terrorism and the Anti-Hijacking Accord in Cuba’s Relations with the United States. Peter Kornbluh
Chapter 7: The European Union and U.S.-Cuban Relations. Eduardo Perera Gómez
Chapter 8: European Union Policy in the Cuba-U.S.-Spain Triangle. Susanne Gratius
Chapter 9: U.S.-Cuba Relations: The Potential Economic Implications of Normalization. Archibald R. M. Ritter
Chapter 10: United States-Cuba Economic Relations: The Pending Normalization. Jorge Mario Sánchez Egozcue
Chapter 11: Cuba, Its Immigration and U.S.-Cuba Relations. Lorena G. Barberia
Chapter 12: U.S.-Cuba: Emigration and Bilateral Relations. Antonio Aja Díaz
Chapter 13: The Subject(s) of Academic and Cultural Exchange: Paradigms, Powers, and Possibilities. Sheryl Lutjens
Chapter 14: Academic Diplomacy: Cultural Exchange between Cuba and the United States. Milagros Martínez Reinosa
By Arch Ritter
By Arch Ritter October 5, 2016
Canada and Cuba have maintained a normal and mutually beneficial economic relationship from Colonial times to 2016. With the beginning of Cuba’s “Special Period” in 1990 and its modest moves towards a mixed market economy in the 1990s, Canadian participants were optimistic about future economic relations. In the 2000’s, this was replaced by some skepticism, but with the reforms of 2010-2012 and the beginning of the normalization of US Cuba relations, optimism has returned. This article provides an update on Cuban-Canadian economic relations, including trade, foreign investment, development assistance and migration and some speculation concerning the future of the relationship.
Canada-Cuba Trade Relations
Since the start of Cuba’s revolution, normal trade relations between Canada and Cuba have been maintained. However, trade has waxed and waned over the years as can be seen in Chart 1. The chief feature of the trade relationship in the 1980s was the large volume of Canadian exports which were mainly wheat. Trade expanded steadily in the 1990s with the ending of the special trade relationship with the Soviet Union, as Cuba’s economy began to recover and as it began to diversify its export markets and sources of imports.
After 2001, Cuba’s exports to Canada expanded and began to exceed Canada’s exports to Cuba due to high nickel volumes and prices. Canadian exports to Cuba have more or less stagnated since 2001 while other countries have increased their market shares. By 2015, Canada was the fourth ranking exporter to Cuba following Venezuela, China, and Spain (Table 1.) In contrast, Canada was the second largest export market for Cuba after Venezuela in 2015, accounting for 11% of Cuba’s exports.
Cuba’s exports to Canada have consisted almost totally of nickel concentrates, with cigars, rum, seafood and copper scrap (presumably a quirk in 2015) as very small foreign exchange earners (Table 2.).
By 2015, Canada’s exports to Cuba were reasonably diversified (Table 2.) Its agricultural exports remained significant, though overwhelmed by US agricultural exports. Minerals (sulfur for Cuba’s nickel industry, potash for fertilizer), metals (copper products for Cuba’s electrical system mainly) and machinery of various types have all been significant in the 2010s.
Cuba’s best and most faithful friend is the brutal Canadian Winter, which has driven millions of Canadians to warmer Caribbean climes during the December to April period. Canada has been the largest single national source of tourists consistently from 1990 to 2015 and accounted for almost 40% of all tourist arrivals in 2015. But when US tourism opens up completely, there will likely be a deluge of US winter-escape tourism as well as curiosity tourism, convention tourism, medical tourism, March-break tourism and retirement relocation. The result will likely be that prices rise, and Canadian winter time tourism may well be squeezed out of Cuba into lower cost destinations.
In 1991, Cuba opened itself to foreign investment in joint venture arrangements with state firms. By the end of 1999, there were 72 joint ventures or “economic association” agreements between Canadian firms and Cuban state enterprises but few seem to have ever come to life.
Sherritt International has been by far the most successful Canadian-Cuban joint venture. Its formula for success is one that cannot likely be replicated by any other enterprise. In effect, it exchanged 50% of its ownership in the nickel refinery in Alberta Canada for 50% ownership of the Moa mine and concentrator in Cuba and shared in the ownership of the marketing enterprise. This made Cuba a significant foreign investor in Canada! The Sherritt experience was explored in the previous issue of this publication.
A number of mineral exploration companies established joint ventures in Cuba by 1994 in association with Geominera S.A. It was thought that Cuba was an ideal location for mineral exploration because much of the country had been covered by aero-magnetic and geological surveys in the Soviet era. Among the enterprises involved in exploration projects in joint ventures with Geominera were Holmer Gold Mines, Joutel Resources, CaribGold Resources, Northern Orion, and MacDonald Mines. Unfortunately, the exploration undertaken from 1992 to 2007 yielded disappointing results and none of the exploration projects led to producing mines. This suggests that either the quality and/or magnitude of the deposits are lower than in other regions of the world. Alternatively, perhaps the investment conditions, the policy environment and/or the political risk situation were worse than elsewhere. It would be surprising if there were another mineral exploration rush in the medium term future, unless mineral prices were to rise to very high levels.
Canadian enterprises in real estate development have also had difficult experiences in Cuba. One project announced in October 1998 by an association between Cuba’s luxury hotel chain, Gran Caribe and Cuban Canadian Resorts International proposed U.S. $250 million set of four condominiums with hotel and resort facilities. It would have opened up an important new type of tourism for Cuba. However, in May 2000, the Ministry of Foreign Investment and Cooperation announced a prohibition of foreign ownership of condominium units killing this and other such projects for the time being.
Another project was that of Leisure Canada for the construction of some 11 hotels and two golf courses, a marina. (Leisure Canada Incorporated, 2000). This project fizzled out. In 2011 Leisure Canada, having changed its name to 360 VOX Corporation, was bought out by Dundee Corporation in May 2014. Any mention of this project has disappeared.
One successful venture was the construction of five airports in Cuba, including Varadero and Havana International Airports by Intelcan Technosystems of Ottawa. The CDN$ 52 million investment in the Havana Airport, was financed in part by Canada’s Export Development Corporation (33%) and 15% from Intelcan. Since 2000, the ultimate payment has come from international passengers who pay U.S. $25.00 (CUC 25.00) as an airport tax on departure.
Unfortunately brilliant successes for Canadian-Cuban joint ventures seem to be few and far between. Indeed, a number of executives of Canadian trading enterprises and joint ventures, Cy Tokmakjian and Sarkis Yacoubian, were jailed and tried on corruption charges –a cooling factor in the foreign investment process. The moral of the story is that establishing a joint venture in Cuba can work, but it must be done with patience, intelligence, and scrupulous awareness of Cuban regulations and processes and with clear benefits for the Cuban partner enterprise and the Cuban people.
Canadian Development Assistance
The Canadian International Development Agency (CIDA) has provided some interesting development assistance to Cuba since 1994. A major proportion of this has been “economic” in character, aimed at the “modernization of the state.” Some has been used to support the initiation of projects by Canadian enterprises with Cuban counterparts or to promote Canadian exports. Some of the economic programs were micro-enterprise tax administration, economic management, support for technical training and computer acquisition at the Central Bank, a program to help strengthen administration and professional economics at the Ministry of Economics and Planning and training/certification programs for tradesmen in some basic industrial areas. Various types of commodity assistance were provided as well. Much of the assistance provided by NGOs was aimed at community level activities. A small amount of assistance was directed towards human rights and governance initiatives including a “Human Rights Fund Pilot Project” and “Dialogue Fund” with multiple Canadian and Cuban partners.
An interesting dimension of Canadian-Cuban relations is migration. As indicated in Chart 3, Cuban migration to Canada has risen from levels in the hundreds in the 1980s to around 1,400 in 2014-2015. However, an unknown number of the Cuban immigrants to Canada move on to the United States, especially Florida, reflecting the attraction of the large Cuban-American population there and the weather.
Detailed sociological information on Cuban migrants is not available. However, my impressions are that, generally speaking, they are relatively well-educated, industrious, self-activating and entrepreneurial. They also seem to be relatively young, for the most part, many having recently finished their education and just starting out on their careers. Many Cuban immigrants seem to have done reasonably well and have found work in their professional areas, something that is not easy in a new society, culture and language. This migration represents a “brain drain” or a loss of human capital for Cuba and a corresponding gain for Canada.
Prospective Canadian-Cuban Economic Relations
The future economic relationship between Canada and Cuba will be shaped mainly by three factors: the strength and durability of Cuba’s economic recovery; the nature of Cuba’s economic policies affecting trade, and foreign investment; and the character and timing of complete normalization of relations with the United States.
A sustained recovery of the Cuban economy would promote a deepened and broadened economic relationship with Canada. A growing Cuban economy would permit increases in imports from all trading partners, including Canada. At the same time, economic recovery in Cuba also requires expansion of its exports of goods and services.
Is an enduring recuperation of the Cuban economy probable in the next decade or so? First, the driving force for the Cuban economy, namely export earnings, at this time depends mainly on tourism, medical services and nickel exports. Nickel and tourism should continue to be strong, but the obscured subsidization from Venezuela is over. Cuba’s medical service exports will likely be transitory as other countries develop their own medical systems and increase medical personnel. Pharmaceutical exports may hold promise in the longer term but have been somewhat disappointing relative to the high hopes once placed in their prospects. Little progress appears imminent regarding the expansion of other merchandise exports. New exports of manufactured products have not appeared on the scene in a significant way and are obstructed by some public policies.
Some continuing problems may prompt skepticism regarding Cuba’s economic prospects in the near future. Among the difficulties often cited are: a dual exchange rate system with negative consequences for export diversification and expansion; a blockage of people’s initiatives, energies and entrepreneurship due to the unwillingness to extend further the reform process especially for medium scale enterprise; and the deterioration of parts of the infrastructure, most notably housing.
The second set of factors that will shape Canada’s future economic relations with Cuba in is Cuba’s policies relating to trade, foreign investment and tourism. These policies are unlikely to undergo dramatic change under Raul Castro’s leadership. This implies that the basic Canadian-Cuban economic relationship should not be affected seriously by changed Cuban policies in the next few years. The state-trading that in part characterizes these relationships is not intrinsically beneficial for Canada.
Thirdly, the complete normalization of U.S. – Cuban relations especially regarding trade and US investment in Cuba, will have a major effect on the Canada-Cuba economic relationship. Complete normalization will permit expansion of Cuban exports, US foreign investment in Cuba, US tourism in Cuba, financial flows and the possibility of open and vigorous collaboration of Cuban-America and Cuban citizens in business activities. Greater prosperity will be the result.
Normalization with the United States will lead to expanded exports of goods and services to Cuba from the U.S. and vice versa. This is due to geographic and transport factors. More frequent freighter connections, high speed hydrofoil passenger boat connections, a re-connection of U.S. and Cuban railway systems and a proliferation of airline connections will lead to a reintegration of the two economies. The diversified U.S. economy can provide a broad range of consumer and capital goods and services competitively with other countries and with low transport costs and quick delivery times.
Canadian exporters to Cuba therefore will face a challenge after US – Cuban normalization. The location and logistical advantages of U.S. exporters, plus the interest, activism and advantages of the Cuban-American business community will outweigh any lingering “goodwill effect” with Canada. Overnight or next-day delivery of products ordered from the U.S. makes continuation of some types of exports from Canada difficult, as delivery from Canada currently may take up to two weeks or more on ships leaving Canada every week or ten days on average.
On the other hand, some of Canada’s current exports to Cuba are competitive with U.S. products and should increase in a post-embargo Cuban economic recovery. This might include fertilizers (potash), cereals, animal feed stocks, lumber, wood and paper products and fabricated non-ferrous metals products. Canada also is competitive in certain types of capital equipment such as minerals machinery and equipment, some paper making equipment, Bombardier aircraft, railway rolling stock and equipment, urban transit vehicles, communications equipment, electrical generation and distribution equipment, and some specialized vehicles. However, some Canadian exports may be threatened by U.S. competition.
In summary, the recovery of the Cuban economy and the increase in foreign exchange receipts that U.S.-Cuban normalization in time should bring about will be of benefit for some Canadian exporters while others may be replaced by U.S. suppliers. Will the “expansionary effect” outweigh the costs of the “displacement effect” for Canadian exporters? Perhaps, but this is not assured.
Normalization will also induce U.S. enterprises to invest in Cuba. With no further changes to the foreign investment law and within the current policy environment, one can imagine some but not many U.S. firms entering joint ventures. But with policy liberalization in a post-Raul Castro situation, one can imagine large numbers of U.S. enterprises investing in Cuba. Cuban-Americans would also enter Cuba to set up small businesses or to finance business ventures with their Cuban relatives or counterparts. The “geo-economic” gravitational pull of the U.S. will be strong. After U.S.-Cuba rapprochement Canadian trade and investment as a proportion of total trade and investment will likely diminish even though both might increase in absolute terms.
To conclude, there are future uncertainties and challenges regarding the Canadian-Cuban economic relationship. The character and intensity of future economic performance in Cuba, Cuba’s policy environment and the timing of the complete normalization of relations with the United States are still ambiguous and uncertain. These factors will have mixed effects, but effects that on balance should be positive for Canada and Cuba.
Citizenship and Immigration Canada. http://www.cic.gc.ca/english/resources/statistics/facts2014/permanent/10.asp. Accessed October 23, 2016
Cuban Club Resorts. 2000. Web site: www.cubanclubresorts.com
Global Affairs Canada, Cuba – International Development Projects, http://www.acdi-cida.gc.ca/cidaweb/cpo.nsf/fWebCSAZEn?ReadForm&idx=00&CC=CU. Accessed 3 October 2016
Industry Canada, Trade Data Online (TDO), Trade by Product (HS Codes) http://www.ic.gc.ca/eic/site/tdo-dcd.nsf/eng/Home
Leisure Canada Incorporated. (2000, August, 17). Press Release. Reproduced in www.cubanet.org
Nolen, Stephanie. 2015. In tourist-deluged Cuba, Canadian firms are noticeably absent. The Globe and Mail December 13.
Oficina Nacional de Estadisticas, Cuba. Anuario Estadistico de Cuba. (Various issues) http://www.one.cu/ . Accessed various times and October 4 2016.
Sequin Rob. 2013. Leisure Canada now a defunct Cuba real estate development brand. Havana Journal September 25,
By Arch Ritter
September 6, 2016
Cuban nickel production and the Sherritt-Cuba joint venture should have good prospects in view of Cuba’s large and low-cost reserves of nickel. Sherritt’s technology and probable future demand. However, there are a number of looming issues that darken the horizon for Sherritt and to a lesser extent for Cuba including high transportation costs – shipping nickel/cobalt concentrate from Cuba to Fort Saskatchewan Alberta – together with the “Helms-Burton” status of the mine, and future price levels and volatility..
The Moa mine and processing facility, with a 25,000 ton capacity, were initially constructed by US interests – the Moa Bay Mining Company, a subsidiary of Freeport Sulphur. They used proprietary technology from Sherritt, which had pioneered hydrometallurgy processes at their plant in Fort Saskatchewan Alberta. Extraction and processing began in 1959.
The Government of Cuba then expropriated the operation without compensation in August, 1960 and restarted it in 1961 producing concentrate for the Soviet Union. The US Foreign Claims Settlement Commission (US FCSC) valued the company at US$ 88.4 million at the time of the expropriation.
Sherritt’s direct connection with Cuba began in 1991 with purchases of Cuban nickel concentrate for its Alberta refinery. Sherritt had had insufficient volumes of concentrate for many years and in 1990 a refining contract with INCO expired. In 1994, Sherritt International and the Compania General de Niquel of Cuba established a 50/50 joint venture, which now owns the Moa extraction, processing, and smelting operation, the Alberta refinery and the international marketing enterprise. The former President of the company, Ian Delaney, also negotiated agreements with the Cuban Government, permitting Sherritt to enter other sectors of the economy, including electric energy, oil and gas, agriculture, tourism, transportation, communications, and real estate. By 2000, Sherritt International had become a major diversified conglomerate in Cuba.
In this deal, the Cuban Government became and is currently a foreign investor in Canada, as the Compania General de Niquel owns 50% of the nickel refinery, a fact not well known in either Cuba or Canada.
The joint venture between Sherritt International and the Government Cuba is a cooperative masterpiece. It has generated great benefits for both parties.
I. The Nickel/Cobalt Operation
The linking of the Moa nickel deposit and part of Cuba’s processing capacity with the Alberta refinery and its access to attractive energy sources was a stroke of genius and/or good luck for Sherritt and Cuba.
Cuba acquired a market for its nickel concentrate. It acquired access to the technological improvements that have occurred from 1959 to 2016. These have generated improvements in productivity, energy efficiency, environmental impacts, and health and safety. It acquired Sherritt’s managerial know-how which. Together with technological improvements, have increased production from around 12,500 tons in the early 1990s to around 34,000 tons in the 2010s.The Government of Cuba is now the joint owner of a vertically integrated nickel operation, from extraction and concentrating through to refining and international marketing. Cuba also has obtained new technologies and managerial skills for oil and gas extraction and utilization, as well as electricity generation. Cuba’s nickel reserves are fifth largest in the world and production volumes are 10th largest.[i] Nickel has been Cuba’s largest merchandise export since the collapse of sugar by 2002. Foreign exchange earnings from the Sherritt-Cuba joint venture’s share of nickel and cobalt exports have averaged about 40% of total nickel/cobalt exports.
It is not surprising that Ian Delaney became known as “Fidel’s Favorite Capitalist”!
For its part, Sherritt has been able to maintain its Canadian refinery and to use its base in nickel to enter other sectors in Cuba. Its earnings from its Cuban operations are significant. The joint venture has been able to increase metal production and achieve high net operating earnings, which have been in the area of 40 to 50 percent of the company’s gross revenues for most years, depending on international nickel prices. The following chart illustrates Cuba’s total nickel production volumes. The impact of Sherritt’s innovations in increasing production volumes in the second half of the 1990s is apparent.
II. Petroleum, Natural Gas and Electric Power
Sherritt International’s petroleum and natural gas activities also have been successful. New sources of oil and gas have been discovered and extraction rates have increased through enhanced recovery techniques from 1996 to 2000. Natural gas recovery and utilization has also been improved through the construction of two processing plants, a feeder pipeline network, and a 30 Kilometer pipeline to Havana (Sherritt International, Annual Report, 1997, 13).
Sherritt invested CDN $215 million for the construction of two integrated gas processing and electrical generation systems. The natural gas feedstock previously had been flared and wasted. Commissioned in mid-2002, these operations had a combined capacity of 226 megawatts and generated a significant proportion of Cuba’s electricity. At the same time they reduced sulfur emissions, a potential problem especially at the Varadero site, which is adjacent to the hotel zone. By 2007, installed electricity generation capacity had been further increased to 375 mega watts, following an 85 MW expansion that came on stream in early 2006.
In February 1998, Sherritt acquired a 37.5 percent share of Cubacel, the cellular telephone operator in Cuba for $US 38 million, but this was resold. “Sherritt Green,” a small agricultural branch of the company, entered market gardening, cultivating a variety of vegetables for the tourist market. Sherritt also acquired a 25 percent share of the Las Americas Hotel and golf course in Varadero and a 12.5 percent share of the Melia Habana Hotel, both of which were managed by the Sol Melia enterprise but these also have been divested. By 2010, Sherritt’s Cuban operations were large and growing. Gross revenues reached CDN $1,040 million in 2008.
III. Energy Costs, Transport Costs and Potential Relocation
However, there are a number of clouds on the horizon for Sherritt. First, Cuban nickel concentrate is transported by ship to the east coast of Canada and then overland to the Alberta refinery. This makes some sense economically when energy prices are low. So far, the existence of the refinery there has compensated for high transportation costs. However, if – or when –transportation costs rise with higher energy prices or when full normalization with the United States occurs or when the existing plant reaches the end of its useful life, would a different location become more attractive? Energy sources are also available in Venezuela as well as the Gulf of Mexico region of the United States or could be transported to Cuba itself in future. At some point it will likely make sense to relocate a refinery to a locale closer to the nickel ore body.
So far, Cuba is tied to the Canadian location through its 50% joint ownership of the Alberta refinery. But would Sherritt relocate the refinery to a lower-risk Cuba at some time in the future, or to the post-embargo United States or a post-Maduro Venezuela? Perhaps. However, Alberta will continue to have competitive energy prices and low risk to compensate for its locational disadvantage for some years to come.
IV. “Helms-Burton” Status of the Mine Properties.
The second possible problem for Sherritt is that the Moa mine and the concentration plant are “Helms-Burton” properties for which there are US claimants. What would be the current value of the Using the US FCSC interest rate of 6% per year of non-payment, the 2016 compounded value would be a whopping US$ 2,054.6 million. Obviously there will be a negotiations problem for this and all other such claims.
Resolution of the compensation claims issue with full US-Cuba normalization may require Sherritt and the Government of Cuba to negotiate some sort of compensation package for the original US owners. In one scenario, the US claimants would simply take over the Cuba-Sherritt operation in Cuba. But this would not be reasonable because at this time, the refinery for Cuban nickel is in Alberta and it is jointly owned by Cuba. My guess, however, is that Sherritt, the Government of Cuba and the US claimants will negotiate an arrangement that will be reasonable for all parties.
In any case, the claim of US interests on the mine property generates ambiguities and uncertainties and will be problematic at some time in the future. Sherritt International may well be one of the few economic interests that perhaps could lose from US-Cuban complete economic normalization. A resolution of the property claims issue may turn out to be very expensive for Sherritt. .
V. “Nickel Pig Iron”
A technological advance in the production of “Nickel Pig iron” (NPI), a substitute for refined nickel-steel alloys for some uses where high quality is less necessary. “Nickel pig iron” may well have already captured a portion of the nickel market for low quality alloys. In future, it may reduce the demand for nickel thereby placing downward pressures on nickel prices. This will likely reduce and Cuba’s foreign exchange earnings and Sherritt’s revenues and profits from nickel exports in future.
As illustrated in Chart 2, nickel prices spiked in the boom of 2003-2007 – helping to generate a period of relative prosperity for Cuba – then declined in the recession of 2008. What is striking at this time is that in real inflation adjusted terms, the price of nickel in 2015 and 2016 is pretty much where it was in the 1990s. A number of factors are contributing to this of course, especially the growth rate deceleration in China reducing the demand for nickel. Is “nickel pig iron” also contributing to weak demand for nickel at this time? What will be its impact in future?
Source: United States Geological Survey, Minerals Information, Nickel: Statistics and information., various years. The “real” or “inflation adjusted” price is the US consumer price deflator.
In conclusion, Sherritt has had a great run in Cuba, contributing to improved nickel production and exports, higher foreign exchange earnings for Cuba and high revenues and profits for itself, especially in the 2004-2014 decade. The future may be less brilliant for both with the uncertainties of resolving the property claims issue and a possible slow=down in international demand for nickel generated in part by “nickel pig iron.”
By Archibald R. M. Ritter
June 7 2016.
Complete Article Here: A Futute in Manufacturing? June 7 2016
Cuba has experienced a serious “de-industrialization” from which, by mid-2016, it had not recovered. The causes of the collapse are complex and multi-dimensional. The consequences include job and income loss, the loss of an important part of its economic base, the loss of much of the potential for export expansion and diversification, and rust-belt style industrial and urban decay. Can Cuba recover from this collapse? What can be done to reverse this situation?
I. THE COLLAPSE OF MANUFACTURING, 1989-2014
II. CAUSAL FACTORS ANE CONSEQUENCES
III. THE “LINEAMIENTOS” ON MANUFACTURING
IV. WHAT MIGHT BE THE SUCCESSFUL MANUFACTURING SUB-SECTORS IN FUTURE?
V. A POLICY ENVIRONMENT FOR THE PROMOTION OF MANUFACTURING
Does Cuba have a future in manufacturing? There are some general comparative advantages as well as dis
–advantages for manufacturing that Cuba is facing as of mid-2016. First, the disadvantages:
.But Cuba also has important advantages:
So, does Cuba have a future in manufacturing?
The answer is “Yes” – if policy reforms are significant and expeditious regarding further enterprise liberalization and taxation and if successful monetary and exchange rate reform lead to currency convertibility. (However, I am a pathological optimist.)
A broad-based industrial revival for Cuba is possible but will be difficult.
By Arch Ritter, March 14, 2016
Tourism has been the spectacular growth sector for Cuba since the beginning of the “Special Period” in 1990. Tourist numbers have increased 10-folds in the quarter-century from 1990 to 2015, as illustrated in Chart 1. Foreign exchange earnings from tourism have increased correspondingly. Canada has been by far the largest source of tourists. Indeed, Cuba’s best friend throughout the “Special Period” has been the Canadian winter.
Now with full normalization of U.S. – Cuban relations “en route,” huge prospective increases in U.S. tourism will have major impacts on Canada but also perhaps on other Caribbean tourist destinations. What might these impacts be?
The Coming U.S. Tourism “Tsunami” to Cuba!
Full normalization of U.S. – Cuban relations in time will bring unrestricted travel for U.S. citizens to Cuba. This will lead to a deluge of US visitors. Among the varieties of U.S. tourists would be the following:
One can only guess at the future volumes of U.S. tourists to Cuba. One could imagine it quickly doubling the 2015 Canadian level (1,300,092 tourist arrivals) and then redoubling again to 5.2 million and then beyond, as Cuba’s capacity to accommodate more tourists expanded. The total number of tourists then could reach about 8 million by 2022 – or many more if tourism from other countries also increases and does not get “squeezed out.” (However, U.S. “curiosity tourism” will peak and then subside over the next four or five years following complete normalization.)
This would perhaps lead to an increase Cuba’s total foreign exchange earnings from tourism to about $US 8.0 to 9.0 billion by 2022, up from the estimated level of $US 2.98 billion in 2015 (extrapolating from ONE’s 2014 statement of tourism earnings and 2015 total numbers of tourists.) This would replace the foreign exchange earnings and the semi-obscured subsidization that Cuba has been receiving from Venezuela which looks totally unsustainable at this time.
The expansion of tourism is great news for Cuba, and will lead to
The downside is that success in the tourism sector may reduce the urgency of reviving the manufacturing sector which is still operating at close to 50% of the level it had achieved in 1988 before the economic meld-down.
Will “El Cheapo” Canadian Tourism be Squeezed Out?
Will the increase in U.S. tourism to Cuba crowd out the Canadian tourists who constituted 37% of all tourists to Cuba in 2015%. Maybe. But U.S. “curiosity tourism” will most likely focus on Havana and the historical areas of Cuba rather than the beaches so that the Canadians at the beach resorts would not be pushed out for some time, at least mot physically!
Most Canadian tourists head to the beach with a package tour – going to Havana or another city on a day’s excursion. For this reason, they have been sometimes derided as “el cheapo” tourists who spend as little as they can in the Cuban economy. There may be some truth in this, but most other tourists also are in similar package tours. If prices were to rise significantly with the influx of U.S. tourists, one could expect that some Canadian tourists would switch to other Caribbean destinations. This could indeed happen to some extent, especially if the winter-time “sun, sea and sand” tourism from the United States increases greatly.
Chart 3 Tourist Arrivals, Major Caribbean Countries, 1995 – 2013
Source: United Nations World Tourism Organization, Annual Report 2014, p.6. http://www.e-unwto.org/doi/pdf/10.18111/9789284416899, Accessed February 29, 2016
Will Other Caribbean Destinations Lose Out to Cuba?
There has been some fear that other Caribbean tourist destinations would lose when U.S. citizens start flocking to Cuba. This indeed is a legitimate fear.
A glimpse at the past 25 years suggests that the impacts on other Caribbean destinations in general may be mixed. A glance at Chart 3 indicates that some other major destinations, including the Dominican Republic, Jamaica and the other “Caribbean Small States” in general have been able to withstand the growing competition from Cuba and have continued to expand significantly in terms of tourist arrivals over the 1995-2013 period. The expansion of tourism in the Dominican Republic is especially notewortheyPuerto Rico is the major exception along with The Bahamas. Both have lost its shares of tourist arrivals and of revenues in the brief 2010-2014 period as indicated in Table 1. Surprisingly, Cuba increased its share of tourists in the region, but its share of tourist revenues actually declined.
There is one reason for optimism with respect to the other Caribbean destinations. Much of the prospective U.S. tourism to Cuba will not be of the “sun, sea and sand” variety, but will be of the other varieties especially “curiosity tourism.” But what most of the other Caribbean Islands offer is a beach “escape-from-the-winter” holiday. They may therefore be less vulnerable to a tourism “shifting to Cuba” effect.
A small compensation will be that if Canadians are squeezed out of tourism in Cuba with the onslaught of U.S. beach resort tourists, they will likely go to other Caribbean destinations. However, there is also great affection on the part of many Canadians for Cuba as a tourism destination, and the return again and again and again!
Furthermore, international tourism generally has been growing steadily in the post-World War II period and there is little likelihood that this will cease unless the world enters a deep and prolonged recession. Tourism in the Caribbean generally has been increasing steadily as well. The overall expansion of tourism in the region should help compensate for any diversion of U.S. tourists from the other Caribbean islands to Cuba.
Will the Maya Riviera be hit with a diversion of U.S. tourists to Cuba? This may well happen to some degree. However, the Mexican Yucatan region is a highly attractive tourist waterfront destination with other major attractions. A beach holiday can be combined with archaeological tourism with a visit to the ancient Maya cities of Uxmal and Chichen Itza (both World Heritage Sites), Tulum, to less well-known but quite incredible Calakmul (another World Heritage Site) and Kohunlich and innumerable smaller sites. As well as this is the Colonial legacy in many small towns as well as Merida and Campeche (still another World Heritage site.) In the long term, the Yucatan should certainly be able to hold its own.
The Zika Virus Risk to Cuba’s Population and Tourism
While it is not known whether or not the Zika Virus, linked to birth defects elsewhere in Latin America, has arrived in Cuba, there can be no doubt that it will. If, as seems increasingly certain, the Zika virus is primarily transmitted by the female Aedes aegypti, then pregnant women in Cuba would be at grave risk. This would likely have a major impact on the tourist sector and the Cuban economy generally – as well as tourism elsewhere in the Caribbean and tropical parts of the world, as suggested by the accompanying map.
Cuba has had long and reasonably successful experience in containing the dengue virus that has affected many people and also the rarer Chikungunya virus, a disease that causes fever and severe joint pain. Both are also spread by some branches of the Aedes aegypti mosquito. This has been achieved with frequent fumigation of homes, public and buildings and clean-up of stagnant waters that are the breeding grounds of the mosquitos.
Source: Wikipedia, Zika Virus, accessed February 29, 2016
Note: Global Aedes aegypti predicted distribution. The map depicts the probability of occurrence (blue=none, red=highest occurrence).
On February 23, a public program was announced to deal with the potential problem. This involves:
Judging from recent reports from Cuba these programs have been implemented quickly and people are already adjusting their behavior to eliminate the mosquito vector of the disease and in their normal living arrangements (using mosquito nets at night for example.)
Cuba’s public health system is very strong and its actions already seem to be determined and serious. Cuba will probably be able to deal with the mosquito and the disease very effectively. Obviously effective action is imperative to protect Cuba’s people and future generations.
What will be the effect on Cuba’s tourism and its tourism-dependent economy? Already there are concerns on the part of young women and especially of course pregnant women regarding travel to Cuba. This will undoubtedly have an impact, very minor one hopes, on Cuba as well as on the rest of the countries in the region. But it is probable that Cuba’s public health system will minimize and hopefully eliminate the problem. If so, tourism will not be affected that seriously.
In summary, if managed wisely, Cuba can look forward to greatly expanded and economically beneficial tourist boom with full normalization of relations with the United States. This may generate some collateral damage for Canadian tourists who may face a crowding out and pricing out effect, but this will likely be modest and would likely benefit other Caribbean countries. Within the Caribbean region, some countries may feel pressure from the diversion of U.S. beach resort tourists, but most of the bigger destinations have held their own in the last few decades and will continue to do so.
A question mark and potential risk for the tourist sector – and more importantly for the whole population and for future generations in Cuba and many tropical regions is the Zika virus. This will likely hit Cuba in time if it has not already. But resolute policy, education and action have begun to deal with Zika. Cuba’s past successful programs for controlling the dengue virus should facilitate rapid and effective action against Zika.
With respect to tourism in summary, the positive economic impacts of the coming U.S. tourism tsunami should far outweigh any possible effects of the Zika virus, which will likely be successfully controlled.
Cuba’s Best Friend of the 1990s: The Canadian Winter
Cuba’s Best Friend of the 2016 Onward: The Curious American Tourist !
February 1, 2016
Since 2010, Cuba has been implementing a redesigned institutional structure of its economy. At this time it is unclear what Cuba’s future mixed economy will look like. However, we can be sure that it will continue to evolve in the near, medium and longer term. A variety of institutional structures are possible in the future and there are a number of types of private sector that Cuba could adopt. Indeed it seems as though Cuba were moving towards a number of possibilities simultaneously.
The objective of this note is to examine a number of key institutional alternatives and weigh the relative advantages and disadvantages for each arrangement. All alternatives include some mixture of domestic or indigenous private enterprises, cooperative and “not-for-profit” activities. foreign enterprise on a joint venture or stand-alone basis, some state enterprises (in natural monopolies for example) and a public sector. However, the emphasis on each of these components will vary depending on the policy choices of future Cuban governments.
The possible institutional structures to be examined here include:
1. Institutional status-quo as of 2016;
2. A mixed economy with intensified “cooperativization”;
3. A mixed economy, with private foreign and domestic oligopolies replacing the state oligopolies;
4. A mixed economy with an emphasis on indigenous small and medium enterprise.
Option 1. Institutional Status-Quo as of 2016
The institutional “status quo” is defined by the volumes of employment in the registered and unregistered segments of the small enterprise sector, the small farmer sector, the cooperative areas, the public sector, and the joint venture sector, plus independent arts and crafts and religious personnel. The employment numbers are mainly from the Anuario Estadístico de Cuba together with a number of guesstimates, some inspired by Richard Feinberg (2013). The guesstimate for unregistered employment in the small enterprise sector may seem exaggerated. However, a large proportion of the “cuentapropistas” utilize unregistered workers and a proportion of the underground economy does not seem to have surfaced into formally registered activities. These employment estimates by institutional area are presented in Table 1 and illustrated in Chart 1, which also serve as a “base case” for sketching the other institutional alternatives.
The current institutional status quo has a number of advantages but also some disadvantages. On the plus side, adhering to the status quo would avoid all the uncertainties and risks of a transition. It would maintain the possibility of “macro-flexibility,” that is the ability for the central government to reallocate resources by command in a rapid and large scale fashion. However, in view of the numerous “macro errors” made possible by a centralized command economy (the 10 million ton sugar harvest of 1970, the “New Man” endeavor, shutting down half the sugar mills), “macro-flexibility” may be a disadvantage. There are major advantages for the Communist Party in maintaining the institutional status quo in the economy, namely enabling political control of the citizenry (a disadvantage from other perspectives) and continuing state control over most of the distribution of income (also a disadvantage from other perspectives). The approach also helps foster good relations with North Korea (I am running out of advantages).
There are also major disadvantages. The centralized planned economy and public enterprise system generates continuing bureaucratization of production; continuing politicization of state-sector economic management and functioning; continuing lack of an effective price mechanism in the state sector and continuing perversity and dysfunctional of the incentive structure. The result of this is damage to efficiency, productivity and innovation.
OPTION 2. Mixed Economy with Intensified “Cooperativization”
A second alternative might be to promote the authentic “cooperativization” of the economy in a major way. This would involve permitting cooperatives in all areas, including professional activities; opening up the current approval processes; encouraging grass-roots bottom-up ventures; providing import & export rights; and improving credit and wholesaling systems for coops.
This approach has a number of advantages. First, it would strengthen the incentive structure and elicit serious work effort and creativity on the part of those in the coops. This is because worker ownership and management provides powerful motivation to work hard and profit-sharing ensures an alignment of worker and owner interests. This approach would generate a more egalitarian distribution of income than privately-owned enterprises. Cooperatives may possess a greater degree of flexibility than state and even private firms because their income and profits payments to members can reflect market conditions. Perhaps most important, democracy in the work-place through effective and genuine coops is valuable in itself and constitutes an advantage over both state- and privately-owned enterprise. [Workers’ ownership and control proposed in Cuba’s cooperative legislation is ironic and perhaps impossible since Cuba’s political system is characterized by a one-party monopoly. On the other hand it may help propel political democratization.]
The “second degree cooperatives” or “cooperative coalition of cooperatives” called for in the cooperative legislation is particularly interesting as it may permit reaping organizational economies of scale (a la Starbucks, McDonalds, etc. ) for small Cuban coops in these areas.
An emphasis on cooperatives would help to maintain ownership and diffused control and profit-sharing among local citizens, thereby promoting greater equity in income distribution.
But cooperatives also face difficulties and disadvantages. First, are they really more efficient than state and private enterprises? Generally speaking, cooperatives have passed the “survival test” but have not made huge inroads against private enterprise in other countries over the years. Perhaps this is because the “transactions costs” of participatory management may be significant. Personal animosities, ideological or political differences, participatory failures and/or managerial mistakes may occur. And for larger coops, complex governance structures may impair flexibility.
Second, Cuba’s actual complex co-op approval process is problematic and creates the possibility of political controls and biases. Certification of professional cooperatives is unclear. Also, the hiring of contractual workers is problematic
Finally, what will be the role of the Communist Party in the cooperatives? Will it keep out of cooperative management? Will Party control subvert workers’ democracy and deform incentives structures?
OPTION 3. Wide Open Foreign Investment Approach A third possibility would be to open up completely to foreign investment. This would involve a rapid sell-off of state oligopolistic enterprises to deep-pocket foreign buyers such as China, the United States (in due course), Europe, Brazil, or elsewhere. The buyers might be the Walmart’s, Lowes, Subways, or Starbucks of this world, wanting to acquire major access to the Cuban market. This is a strong possibility if existing state oligopolies (e.g., CIMEX and Gaviota) were to be privatized in big chunks. The policy requirements for this approach to occur would be rapid privatization plus indiscriminate direct foreign investment and takeovers by large foreign firms.
This approach does have some advantages.
However, there would also be disadvantages such as:
OPTION 4: Pro-Indigenous Private Sector in a Mixed Economy
A liberalization of micro-, small and medium enterprise would also be necessary to release the creativity, energy and intelligence of Cuban citizens. This would involve open and automatic licensing for professional enterprises; an opening up for all areas for enterprise – not only the “201”; permission for firms to expand to 50 + employees in all areas; creation of wholesale markets for inputs; open access to foreign exchange and imported inputs; full legalization of “intermediaries” ; and permission for advertising.
This approach has some major advantages:
Oligopoly power would be more curtailed compared to Option 3;
There would be some disadvantages with this approach.
Most likely, Cuban policy-makers in the government of Raúl Castro, the government of his immediate successor, and future governments of a politically pluralistic character will design policies that ultimately will lead to some hybrid mixture of the above four possibilities. I of course will have little or no say in the process. However, my personal preference would be for an economy resembling the structure in the accompanying chart, with a large “indigenous” private sector, a significant cooperative sector, of course a large public sector for the provision of public goods, a small sector of government-owned enterprises, and a significant private foreign and joint venture sector. So my bottom-line recommendations for current and future governments of Cuba would be:
Feinberg, Richard E., Cuba’s Economic Change in Comparative Perspective, Brookings Institution, 2013
Oficina Nacional de Estadísticas, Anuario Estadístico de Cuba, 2014
Ritter, Archibald and Ted Henken, Entrepreneurial Cuba, The Changing Policy landscape, Boulder Colorado: Lynn Rienner, 2015
By Arch Ritter
The people of Canada just changed governments, voting out the Conservatives under Steven Harper and voting in The Liberal Party of Justin Trudeau. It was a hard-fought campaign, with the Liberals coming from a distant third place and gradually moving to first place by means of great campaigning, good policies, steadily improving leadership and a widespread dissatisfaction with the government of Steven Harper. The win by the Liberal party represents generational change, the installation of a new team to form the government, new energy and intellectual entrepreneurship, and a new and improved rapport with the Canadian people.
How great it is to be able to “Throw the Rascals Out”!
The results of the election are illustrated graphically below.
“Old Regimes” in time become mired in their sense of entitlement, self-importance, paralytic conservatism, sclerosis, irrelevance, entrepreneurial lethargy, and intellectual exhaustion.
The regime of the Castro dynasty in Cuba continues to block any opening to an authentic pluralistic and participatory democracy. This is most likely largely because it fears that it would be voted out of office and lose its monopoly of political power and the perquisites of power. How nice it must have been for President Fidel Castro and now his brother Raul to know that they would never have to fight a free and fair election and that they would never wake up the next morning out of office and out of power – despite their long series of policy screw-ups.[i]
But whether Raul’s regime likes it or not, an opposition, though tightly or almost totally repressed at this time, will strengthen. Movement towards genuine participatory democracy will only intensify. Generational change will come.
If Raul Castro were truly interested in the long term health of Cuba – and his own historical “legacy” – he himself would make moves towards such political pluralism. Unfortunately, this is improbable though perhaps not impossible
[i] Recall Fidel, 1970: ” We have cost the people too much in our process of learning. … The learning process of revolutionaries in the field of economic construction is more difficult than we had imagined.” Speech of July 26, 1970, Granma Weekly Review, August 2, 1970
PAN-AMERICAN GAMES: THE REAL RESULTS.
By Arch Ritter
Being a numbers junkie, I follow the Pan-American Games results – and those of the Olympics – with keen interest. However, I am always bothered by the commonly-used scoring systems that rank countries either but the total number of medals won, or the number of gold medals won. Obviously these rankings are biased to the more populous and the wealthier countries and are therefore not all that valid. The bigger and wealthier countries such as the US and Canada can develop expertise in all the rarer and expensive sports like water-skiing, water boarding, sailing, and equestrian. Big countries like Brazil and Mexico, both reasonably well-off and with huge population bases can be expected to do well also.
One surprise outlier is always Cuba, which with its relatively small population achieves a strong medals ranking, coming fourth in these games
But the real winners have always seemed to me to be the small Caribbean Islands with minuscule populations in some cases, yet with some medals to their credit.
REAL PAN-AMERICAN GAMES RESULTS
So I decided to recalculate the rankings of countries with respect to the Pan-American Games results. According to my system, explained below, the real winners are:
10. Canada (78; 69; 70)
22. United States (103; 81; 81)
24 Brazil (41; 40; 60)
The complete spread-sheet on which these rankings are based is here: Pan-American Games Real Results. You can play with them and re-calculate the rankings any way you like.
It is interesting that even using a population adjustment and Human Development Index adjustment, Cuba still performs exceptionally well, ranking 6th in this system despite a population of about 11.6 million. Congratulations to Cuba. But congratulations also the Bahamas (#1) and the other Caribbean countries that make the top 9. The countries with large populations such as the US, Brazil and Mexico obviously don’t do so well with this measurement arrangement.
The revised rankings here are based on three adjustments to the raw medals data. First, a weight of “3” is given to gold; “2” to silver and “1” to bronze, generating the “weighted” results on the attached table. Second, the “weighted” results are recalculated on a per million population basis, leading to the “Per Capita” Ranking. Third, the “Per Capita” Ranking results are discounted by the UNDP Human Development Index, leading to the Final results and the HDI-adusted Ranking in the last column. The HDI adjustment was made to compensate for the unfair advantage that better-off countries possess, (with higher income levels and better health systems) that can afford to invest in expensive sports programs.
REAL RESULTS Spreadsheet: Pan-American Games Real Results