Tag Archives: Foreign Investment

Oficina Nacional de Estadisticas y Informacion, ANUARIO ESTADISTICO de CUBA 2016; SECTOR EXTERNO and CUENTAS NACIONALES

Attached are the Chapters of the ANUARIO ESTADISTICO DE CUBA 2015 on the National Accounts and the External Sector.  The Chapter of the ONEI Anuario on the External Sector includes information up to and including 2015, data that has not been available for the last few years.

These are not yet up on the ONEI web site but were sent by Dr. Jose Luis Rodriguez, Minister of  Economics and Planning from 1998-2009.

Attached here is the complete document.

ANUARIO 2016, CAPITULO 8:    onei-aec-2015-sector-externo

ANUARI0 2016, CAPITULO 6:   onei-aec-2015-cuentas-nacionales

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CANADA-CUBA ECONOMIC RELATIONS: AN UPDATE

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.

q1After 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.

r1

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.

r2 Tourism

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.

q2Canadian Enterprises in Cuban Joint Ventures

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.

r3Canada’s active development assistance projects in Cuba as of mid-2016 are listed in Table 3. The annual expenditures of these multi-year projects for 2014-2015 was $CDN 2.42 million, a very

 International Migration

 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.

 q3

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.

Bibliography

Citizenship and Immigration Canada.  http://www.cic.gc.ca/english/resources/statistics/facts2014/permanent/10.aspAccessed 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,

 

 

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THE SHERRITT–CUBA JOINT VENTURE: UNCERTAINTIES FOR BOTH PARTNERS

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.zzzzz3The 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.

 zz3

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?

 zzzzz2

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.”

[i] United States Geological Survey, Commodity Surveys, Nickel, 2016. http://minerals.usgs.gov/minerals/pubs/commodity/nickel/mcs-2016-nicke.pdf

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CUBA’S FAST-GROWING MARIEL TARGETS TRANSSHIPMENT CARGO

JOC, MAY 19, 2016

Greg Miller

Original Article: http://www.joc.com/port-news/international-ports/cuba-port-plans-be-transshipment-hub-after-us-lifts-embargo_20160518.html

Cuba’s Mariel container terminal has already planned its transformation into a major transshipment hub after theU.S. trade embargo ends, according to TC Mariel General Director Charles Baker.

In an address to the Caribbean Shipping Association Executives’ Conference held near Port Canaveral, Florida, Baker described surging growth at TC Mariel, its short- and long-term expansion plans and strategy to diversify beyond domestic cargo into transshipment.

The PSA International-operated terminal opened in January of 2014. Throughput at Mariel grew 35 percent in 2015, reaching 330,000 twenty-foot-equivalent units, and is up 29 percent year-to-date this year as a result of Cuba’s “booming” tourism trade, Baker said.

The container terminal has four gantry cranes, 2,296 feet of quay and a capacity of roughly 800,000 TEUs annually. In the next two to three years another 984 feet of quay will be added so that two neo-Panamax ships may berth simultaneously. Mariel’s channel, deep enough for Panamaxes at present, will be dredged to neo-Panamax depths by 2017. Over the longer term the terminal will add another 5,577 feet of quay and boost annual capacity to 3 million TEUs. There are also plans to add general cargo, dry bulk and roll-on, roll-off terminals to the port.

Much hinges on Mariel’s location in Cuba’s far northwest.

Skeptics of the port have argued that this location is unsuitable to transshipment because the east-west services that pass through the Caribbean on their way to the U.S. pass by Cuba’s southeast corner, near Guantanamo Bay. They believe the additional transit time to Mariel would be too great.

Baker, however, believes that Mariel can use its location to its advantage.

He said Mariel aims to be the first port of call for neo-Panamax container ships after passing through the Panama Canal to the U.S. East Coast, with feeder services providing direct connections from Mariel to Gulf Coast ports in Tampa, Florida; Mobile, Alabama; New Orleans, Louisiana; Houston, Texas and Altamira, Mexico.

“It will be a challenge to attract the bigger vessels (that will serve the region after Panama Canal expansion) to circle into the U.S. Gulf, because there would not be enough time in their schedules,” he said, explaining why carriers would prefer to use a hub to serve Gulf ports. Dropping cargo off in Mariel and feedering it to Gulf ports would also be more attractive to shippers, given “vastly improved” transit times, he said. “Today, to ship to Mobile, you’ll have to wait for the vessel to sail in and out of Houston and New Orleans before it gets there.

“When we talk to the carriers and the ports, they do recognize (the benefits of) our geography, but they also recognize very clearly that the U.S. embargo stands in the way of the opportunity we have here,” he said.

Although the embargo is the biggest hurdle to Mariel increasing its transshipment business, another issue is current U.S. law, which dictates that a vessel regardless of flag cannot call at a U.S. port within 180 days of calling in Cuba. This effectively prevents transshipment from Mariel because any vessel deployed for feedering would lose the flexibility to call in the United States for an extended period, and more importantly, mainline vessels cannot sail to final destinations in the United States after dropping off transshipment cargo (bound for non-U.S. destinations) in Mariel.

A repeal of that 180-day rule would be “tremendous” for TC Mariel, Baker said. “It would allow us to enter the international transshipment market.” Baker recently traveled to Washington, D.C., to meet with Congressional staffers and push for an end to the rule.

TC Mariel also benefits from its location within the enormous Special Development Zone of Mariel, or ZED Mariel. “This zone is very, very important and very high on the agenda for the Cuban government,” said Baker. “It has a special set of laws and regulations that are very advantageous to investors and it is the first part of Cuba that allows 100 percent foreign ownership. It is 465 square kilometers (180 square miles) in size, which is half the landmass of Singapore. It is probably the largest greenfield industrial development zone in the world — and it really is green. There is literally nothing there today,” he said, noting how rare it is to have a major port adjacent to a huge expanse where logistics, assembly, industrial and warehousing facilities can be developed without space restrictions.

Interest in ZED Mariel continues to grow and more investments are being made.

“There is a lot of European interest now because they have realized that if the embargo disappears, they will be facing intense pressure in a market where they’ve been well protected from U.S. exporters for the last 54 years,” said Baker. “Some of them are realizing that the way to maintain their market share is to plant themselves in Cuba (before the end of the embargo). They also realize that going forward, there will be a wonderful opportunity to export to the world’s largest consumer market, only 90 miles away.”\Mariel Port, Cuba zz zz1

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ASSOCIATION FOR THE STUDY OF THE CUBAN ECONOMY, PAPERS AND PROCEEDINGS OF THE TWENTY-FIFTH ANNUAL MEETING, JULY 30-AUGUST 1, 2015

ASCE: Cuba in Transition: Volume 25

Papers and Proceedings of the Twenty-Fifth Annual Meeting,  July 30-August 1, 2015

All papers are hyperlinked to the ASCE Website and can be seen in PDF format.

wwwPreface

Conference Program

Table of Contents

Reflections on the State of the Cuban Economy Carlos Seiglie

¿Es la Economía o es la Política?: La Ilusoria Inversión de K. Marx Alexis Jardines

Los Grandes Retos del Deshielo Emilio Morales

Preparing for a Full Restoration of Economic Relations between Cuba and the United States Ernesto Hernández-Catá

Economic Consequences of Cuba-U.S. Reconciliation Luis R. Luis

El Sector Privado y el Turismo en Cuba Ante un Escenario de Relaciones con Estados Unidos José Luis Perelló Cabrera

The Logical Fallacy of the New U.S.-Cuba Policy and its Security Implications José Azel

Why Cuba is a State Sponsor of Terror Joseph M. Humire

The National Security Implications of the President’s New Cuba Policy Ana Quintana

Factores Atípicos de las Relaciones Internacionales Económicas de Cuba: El Rol de los Servicios Cubanos de Inteligencia Enrique García

Entrepreneurship in Post-Socialist Economies: Lessons for Cuba Mario A. González-Corzo

When Reforms Are Not: Recent Policy Development in Cuba and the Implications for the Future Enrique S. Pumar

Revisiting the Seven Threads in the Labyrinth of the Cuban Revolution Luis Martínez-Fernández

La Economía Política del Embargo o Bloqueo Interno Jorge A. Sanguinetty

Establishing Ground Rules for Political Risk Claims about Cuba José Gabilondo

Resolving U.S. Expropriation Claims Against Cuba: A Very Modest Proposal Matías F. Travieso-Díaz

U.S.-Cuba BIT: A Guarantee in Reestablishing Trade Relations Rolando Anillo, Esq.

Lessons from Cuba’s Party-Military Relations and a Tale of “Two Fronts Line” in North Korea Jung-chul Lee

The Military, Ideological Frameworks and Familial Marxism: A Comment on Jung-chul Lee,“A Lesson from Cuba’s Party-Military Relations and a Tale of ‘Two Fronts Line’ in North Korea” Larry Catá Backer

Hybrid Economy in Cuba and North Korea: Key to the Longevity of Two Regimes and Difference Young-Ja Park

Historical Progress Of U.S.-Cuba Relationship: Implication for U.S.-North Korea Case Wootae Lee

Estimating Disguised Unemployment in Cuba Ernesto Hernández-Catá

Reliable Partners, Not Carpetbaggers Domingo Amuchástegui

Foreign Investment in Cuba’s “Updating” of Its Economic Model Jorge F. Pérez-López

Global Corporate Social Responsibility (GCSR) Standards With Cuban Characteristics: What Normalization Means for Transnational Enterprise Activity in Cuba Larry Catá Backer

Bienal de la Habana, 1984: Art Curators as State Researchers Paloma Checa-Gismero

Luchas y Éxitos de las Diásporas Cubana Lisa Clarke

A Framework for Assessing the Impact of U.S. Restrictions on Telecommunication Exports to Cuba Larry Press

Measures to Deal with an Aging Population: International Experiences and Lessons for Cuba Sergio Díaz-Briquets

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THE BUSINESS CASE FOR A SUSTAINABLE CUBA

Julia Sagebien

Huffington Post, MARCH 3 – April 13

Original HP articles: Business Case for Cuba

The Business Case for a Sustainable Cuba — Part 2: Leapfrogging Back to the Future

Posted March 3, 2016 | 10:27 AM

Contemplating the fate of a post-embargo Cuba has been a popular pastime for some time. On December 17, 2014, the day that the U.S. and Cuba simultaneously announced their rapprochement, the pastime broke out of the academic and policy…

 Continue Reading: Part 2: Leapfrogging Back to the Future

The Business Case for a Sustainable Cuba — Part I: Five Sectors Ready to Go

March 2, 2016 | 2:58 PM

The Cuba-U.S. commercial rapprochement reached its punto de caramelo (the tipping point where heated sugar and water alchemize into candy) during the week of February 15-19, 2016. Last week saw the visit of a high level Cuban delegation to Washington (received by an equally high level delegation of US counterparts),…

  Continue Reading: Part I: Five Sectors Ready to Go

 

So…You Want to do Business in Cuba? A Mini-Guide For U.S. Businesses, Social Entrepreneurs and NGOs

April 13, 2015 | 11:47 AM

Since the December 17, 2014 joint announcement by Cuba and the U.S.A. that the two nations were re-establishing diplomatic relations, there has been heightened interest in the US over the prospects of developing relations with the island nation. Opportunities between American and Cuban businesses, NGOs, cultural and sports organizations, and…

Continue Reading: Mini-Guide for U.S. Business in Cuba

 

Julia-Sagebien1

Dr. Julia Sagebien is an Associate Professor at the Faculty of Management at Dalhousie University and a former Full Professor at the University of Puerto Rico.

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NEW TALKS BEGIN WITH CUBA ON EXPANDING BUSINESS TIES

New York Times, FEB. 17, 2016

By JULIE HIRSCHFELD DAVIS 

Original Article: Expanding Business Ties

WASHINGTON — Top Obama administration officials will open a round of talks on Wednesday in Washington aimed at expanding business ties between the United States and Cuba, pushing forward on President Obama’s directive to seek normalized relations, even while the American embargo continues to bar most trade and commerce between the two nations.  The regulatory discussions, to be hosted by Penny Pritzker, the commerce secretary, and attended by Cuban officials and their counterparts from the departments of Commerce, State and Treasury, come after the signing in Havana on Tuesday of an arrangement allowing scheduled direct flights between the United States and Cuba for the first time in decades.

American carriers can begin applying to the Department of Transportation to offer the service — up to 20 scheduled flights per day to Havana and 10 to each of nine other international airports in Cuba. The pact aims to substantially increase travel between the two countries, which are

But even as Mr. Obama makes progress in his drive to forge closer commercial ties with Cuba, the process is hamstrung by sanctions that have left American businesses wondering what they are permitted to do. Rodrigo Malmierca, the Cuban minister of trade and foreign investment, said on Tuesday that he had heard from many American companies that want to establish businesses in Cuba but are ensnared in regulatory limbo, awaiting special licenses from the United States government.

“The problem that we face today is that many companies want to do business, but we need to create the conditions for them to access the Cuban market,” Mr. Malmierca said in Washington at an event hosted by the U.S. Chamber of Commerce.  He repeatedly said that Cuba welcomed American investment and would not “discriminate” against United States companies. “Lifting the blockade is essential to advancing this,” he said.

With the Republican-controlled Congress unlikely to lift the embargo soon, Mr. Malmierca called on Mr. Obama to do more unilaterally, including allowing the dollar to be used in transactions with Cuba, lifting the ban against imports of top Cuban products like rum and cigars and ending the prohibition against direct investment in Cuba.

Critics argue that with each move to foster better relations and American investment, the president is rewarding a dictatorial government that infringes on human rights and squelches democratic discourse.  But Mr. Obama, who has said he wants to travel to Cuba before leaving office, has argued that the best way to put pressure on the Cuban government is to expose its citizens to American values and ideals and through diplomatic channels re-established last year when embassies reopened in Havana and Washington.

This week’s technical talks are the second time since Mr. Obama announced the opening with Cuba in December 2014 that Ms. Pritzker and Mr. Malmierca have come together with officials from their governments to try to work out the complex details of harmonizing some aspects of their business regulations. Ms. Pritzker traveled to Havana in October to begin the discussions, which have been made even more labyrinthine on the American side by the statutory embargo.

The Obama administration announced last month that it was relaxing more restrictions on business with Cuba, including allowing United States banks to provide direct financing for the export of any product other than agricultural commodities, which are still walled off under the embargo.

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U.S. APPROVES FIRST FACTORY IN CUBA SINCE 1959

MICHAEL WEISSENSTEIN

HAVANA — The Associated Press

Original Article: U.S. Tractor Factory in Cuba

Globe and Mail, Toronto. Published Monday, Feb. 15, 2016 5:23PM EST

The Obama administration has approved the first U.S. factory in Cuba in more than half a century, allowing a two-man company from Alabama to build a plant assembling as many as 1,000 small tractors a year for sale to private farmers in Cuba.

The U.S. Treasury Department last week notified partners Horace Clemmons and Saul Berenthal that they can legally build tractors and other heavy equipment in a special economic zone started by the Cuban government to attract foreign investment.

Cuban officials already have publicly and enthusiastically endorsed the project. The partners said they expect to be building tractors in Cuba by the first quarter of 2017.

“Everybody wants to go to Cuba to sell something and that’s not what we’re trying to do. We’re looking at the problem and how do we help Cuba solve the problems that they consider are the most important problems for them to solve,” Mr. Clemmons said. “It’s our belief that in the long run we both win if we do things that are beneficial to both countries.”

The $5-million (U.S.) to $10-million plant would be the first significant U.S. business investment on Cuban soil since Fidel Castro took power in 1959 and nationalized billions of dollars of U.S. corporate and private property. That confiscation provoked a U.S. embargo on Cuba that prohibited virtually all forms of commerce and fined non-U.S. companies millions of dollars for doing business with the island country.

Farm Worker Plowing Field with a Team of OxenSome Competition for the Oxen. (Ploughing a field at Vinales)

Letting an American tractor company operate inside a Cuban government facility would have been unimaginable before Presidents Barack Obama and Raul Castro declared on Dec. 17, 2014, that they would restore diplomatic relations and move to normalize trade, travel and other aspects of the long-broken bilateral relationship.

Since then, Mr. Obama has been carving exceptions into the embargo through a series of executive actions, and his administration now says they allow U.S. manufacturing at the Mariel port and special economic zone about 48 kilometres west of Havana. One exception allows U.S. companies to export products that benefit private and co-operative farmers in Cuba. Mr. Berenthal and Mr. Clemmons say they will sell only to the private sector.

The Obama administration says it is eager to make the opening with Cuba irreversible by any future administration. Since the start of the year, the United States and Cuba have made a series of announcements that appear designed partly to create a sense of unstoppable momentum in their new relationship.

Cuba announced late last month that it would more than double the number of public WiFi access spots to more than 100 across the country this year and bring broadband Internet to a small number of Cuban homes, where it is currently illegal. Mr. Obama said in 2014 that Mr. Castro had promised to increase Cubans’ access to the Internet as part of détente.

On Saturday, Cuba announced it had returned a U.S. Hellfire missile it said was mistakenly shipped to Havana from Paris in 2014. On Tuesday, Cuba’s Transport Minister and the U.S. Secretary of Transportation will sign a deal authorizing the first regularly scheduled commercial flights between the United States and Cuba since shortly after the 1959 revolution.

The Oggun tractor plant, named after a god in Cuba’s syncretic Santeria religion, will assemble commercially available components into a durable and easy-to-maintain 25-horsepower tractor selling for less than $10,000, Mr. Clemmons and Mr. Berenthal said. The men believe they can sell hundreds of the tractors a year to Cuban farmers with financing from relatives outside the country and to non-government organizations seeking to help improve Cuban agriculture, which suffers from low productivity due mostly to excessive control of both basic supplies and prices by an inefficient, centrally planned state bureaucracy.

“I have two countries that for 60 years have been in the worst of terms, anything I can do to bring to the two countries and the two people together is tremendously satisfying,” said Mr. Berenthal, a Cuban-born semi-retired software engineer who left the country at age 16.

He met Mr. Clemmons, who is from Paint Rock, Ala., when they worked at IBM in the 1970s. They left to form a successful cash-register software company that grew to earn $30-million a year before they sold it in 1995 for a sum Mr. Clemmons says was “enough that I don’t have to work.”

Between their own capital and commitments from private investors, they say they have enough cash in hand to build the Oggun factory as soon as Cuba lets them proceed.

“Everything’s locked in,” Mr. Clemmons said.

Mr. Berenthal said they are optimistic they will also be able to export Oggun tractors to other Latin American countries, which have low or no tariffs on Cuba products, making them competitive on price. The men expect a 10-per-cent to 20-per-cent profit on each tractor.

For the project’s first three years, Mr. Clemmons and Mr. Berenthal say they will export components from the United States for assembly in Cuba. They hope to eventually begin manufacturing many of the parts themselves on the island. They said they expect to start with 30 Cuban employees and, if things go as planned, grow within five years to as many as 300.

Mr. Clemmons and Mr. Berenthal will publish all the schematics of their tractors online to allow Cubans and other clients to more easily repair their equipment and come up with designs for other heavy equipment based on the same frame and motor that the company, Cleber, can then produce at its Mariel factory.

The men already have plans to produce excavators, backhoes, trench diggers and forklifts, equipment badly needed across Cuba, where virtually all the infrastructure is crumbling after years of neglect and mismanagement and a lack of cash the government blames on the embargo.

“I think it’ll have a tremendous impact on their ability not only to help their economy but to set an example across the Caribbean and Latin America,” Mr. Berenthal said.

zzz

 Case – International Harvester sugar cane harvester, made in Brazil. The next step for Cuban agricultural machinery assembly?

z Cane-Harvester-October-1993-002Cuban-manufactured Sugar Cane Harvester Pausing on the Highway, November 1994.  Was this the last Cuban-made  cane harvester?Photo by Arch Ritter.

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ALTERNATIVE INSTITUTIONAL FUTURES FOR CUBA’S MIXED ECONOMY

Archibald Ritter                                                                                          

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.

Table 1 z zz

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”

zzzA 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

  • The “Hire or Fire after 90 days” rule may curtail job creation;
  • The 10% limit on contractual labor also may curtail job creation;
  • Governance may be impaired if uncommitted workers have to join.

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 zzzzA 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.

  • It would generate large and immediate revenue receipts for the Cuban government;
  • It would lead to large and rapid transfers into Cuba of financial resources; entrepreneurship and managerial talent; physical capital (machinery and equipment and structures); most modern technology embedded in machinery and equipment; and personnel where and when necessary;
  • The results would be rapid productivity gains, higher-productivity work and rapid GDP gains.

However, there would also be disadvantages such as:

  • Profits would flow out ad infinitum;
  • Income concentration: profits to foreign owners (e.g. the Walton family of Arkansas who practically own Walmart) and profits to oligopolistic domestic owners;
  • Oligopolistic economic structures would be damaging in the long run;
  • There would be a strengthened probability of lucrative employment and ownership for the civilian and military “Nomenclatura”;
  • Blockages or inhibitions to the development of Cuban entrepreneurship;
  • “Walmartization” of Cuban culture; dilution of Cuban uniqueness;
  • Further reduction of the potential for diversified manufacturing in Cuba (e.g. due to the  Walmart/China  mass-purchaser/mass-supplier symbiosis);
  • Probably a blockage of export diversification.

 OPTION 4: Pro-Indigenous Private Sector in a Mixed Economy

zzzzzA fourth possibility would be for Cuba to promote its own small-, medium- and larger enterprises in an open mixed economy. This would require

  • An “enabling environment” for micro, small and medium enterprise with a reasonable and fair tax regimen; an end to the discrimination against domestic Cuban enterprise (See Henken and Ritter, 2015, Chapter 7);
  •  The establishment of unified and realistic monetary and exchange rate systems;
  •  Property law and company law.

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;

  • The economy would be more competitively structured with all the benefits this generates;
  • It would encourage a further flourishing and evolution of Cuban entrepreneurship;
  • It would permit the development of a diversified range of manufacturing and service activities and also a greater diversification of exports;
  • It would provide a reduced role for the “Nomenclatura” of military and political personnel and their families that would otherwise gain from the rapid privatization of state enterprises;
  • It would decentralize economic and thence political power and reduce the power for government to exert political influence through economic control;
  • It would generate a more equitable distribution of income among Cuban citizens and among owners than Option 3;
  •  Profits would remain in Cuba;
  •  There would be a stronger maintenance of Cuban culture.

There would be some disadvantages with this approach.

  • There would be no massive and immediate cash infusion to Government from asset sell-offs.   Or is this an advantage?  [more effective use of in-coming revenues]
  •  Perhaps there would be a slower macroeconomic recuperation;
  • There would be slower inflows of technology, finance, managerial know-how – but more domestically controlled.

Conclusion

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. zzzzzzSo my bottom-line recommendations for current and future governments of Cuba would be:

  1. Utilize Cuba’s abundant resource — well-educated, innovative, strongly-motivated entrepreneurship — effectively, by further liberalizing the regulatory and fiscal regime for the indigenous micro-, small and medium enterprise sector, thereby also promoting Cuba’s indigenous economic culture;
  2. Use Cooperatives and “Coops of Coops” where possible;
  3.  Avoid “Walmartization” & homogenization of Cuban economy and culture by utilizing an activist policy towards direct foreign investment.

Bibliography

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

 

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THE LEADING CANADIAN EXPERT ON CUBA, MARK ENTWISTLE, FORMER AMBASSADOR TO CUBA, ON LATE-NIGHT CHATS WITH FIDEL, THE HARPER YEARS OF DIPLOMACY AND HOW TO DO BUSINESS IN HAVANA

RICHARD BLACKWELL

 The Globe and Mail Last updated: Friday, Jan. 29, 2016 2:52PM

Original: How to Do Business in Havana

When Mark Entwistle was Canada’s ambassador to Cuba in the mid-1990s, a knock on the door of his Havana residence might mean Fidel Castro was dropping by for a chat.

“He had a house that was maybe half a kilometre up from the official residence of the Canadian ambassador,” Mr. Entwistle said. “He used to stop by all the time. By himself. There would be a knock. It would be this big hulking figure, and he would ask if he could come in and say hi and have a gin and tonic. We’d talk in the backyard, we would talk in the living room. It was a quite remarkable thing. I kept pinching myself because … love him or hate him, he is one of the historic figures of our lifetime.”

Mr. Entwistle has parlayed his deep connections into a consultancy practice that helps Canadian and American companies prepare to do business in a Cuba increasingly open to foreign corporate involvement. His work with American firms has exploded since Dec. 17, 2014, the day U.S. President Barack Obama and Cuban President Raul Castro announced an unprecedented thaw in relations after more than five decades of distrust and detachment.

Mr. Entwistle is in a unique position to understand the subtleties of the change in U.S.-Cuban diplomatic relations. He spent years in Canada’s foreign service, with postings in Israel and the Soviet Union. He then served as spokesman for the department of external affairs and press secretary to prime minister Brian Mulroney, before being sent to Cuba as Canada’s ambassador from 1993 to 1997.

After 15 years running his own consulting firm, he teamed up in 2012 with former Onex Corp. executive Tony Melman, and former politician and Magna International Inc. executive Belinda Stronach, joining their merchant bank Acasta Capital. There, he runs the Cuban advisory arm – a division called Acasta Cuba Capital.

Mr. Mulroney describes Mr. Entwistle as “the leading Canadian expert on Cuba” whose combination of diplomatic and business skills gives him a unique perspective. As ambassador, he was a “sure pair of hands” with a “problem-solver bent,” the former prime minister told me in a brief phone chat. While Cuba is still somewhat archaic with a Byzantine political structure, “Mark is the kind of guy who can guide Canadian and American companies through these different layers of difficulty,” Mr. Mulroney said.

Indeed, Mr. Entwistle has a sophisticated and nuanced take on Cuba and its moves to open up relations with the United States. But I have to admit that his personal anecdotes are what grab my attention most during our three-hour lunch at Sassafraz in Toronto’s Yorkville area. I’m so captivated that by the time I finish my Arctic char and he polishes off his nine-spice roast chicken breast (him much later, as he is doing most of the talking), the restaurant – which had been packed and noisy – is completely empty.

Mr. Entwistle’s close relationship with Fidel, and the degree of access he had to the Cuban government when he was ambassador, was mainly a result of Canada’s unwavering support during the depths of the U.S. chill. “We were players in many ways,” he said. “That is not the case now. There are so many competitors, and now that the Americans have arrived it is sucking up all the oxygen.”

But during Mr. Entwistle’s time as ambassador it was not unusual to get a call in the middle of the night and be summoned to Fidel’s office. “He would ask questions … he was very interested in Canadian politics … what it was like living beside the United States.” Sometimes Fidel would come to the Canadian ambassador’s residence for formal dinners, especially if Pierre Trudeau – then long retired – was in town. Mr. Trudeau was “one of the very few people that I ever saw Fidel sit and listen to, in true listening mode, not interrupting [or] formulating what he was going to say next,” Mr. Entwistle said. “It was not a mentor role, because Fidel Castro would never have a mentor. It was as an inadvertent confident. It was personally very important to Fidel.”

As a former diplomat, Mr. Entwistle is hesitant to use harsh words, but he is unequivocal about Canada’s weak efforts to take advantage of our long-standing warm relationship with Cuba. “I think it has been squandered,” he said, although “it is not gone. It is still there. The Cubans, in a way, are waiting for us to come back.”

Aside from mass tourism, and the operations of Toronto-based mining giant Sherritt International Corp., “there is effectively no major Canadian [business] play in Cuba. Against the backdrop of history, of what we used to share together, the Cubans find it odd.”

Some, but not all of the blame, can be placed on the Stephen Harper government, which was leery of appearing to be too close to a communist regime, Mr. Entwistle said. The relationship “has never been hostile, even in the glacial period of the Harper years. It was just benign neglect. The relationship is in sort of an auto-pilot mode, with the exception of all our tourists, who drink the mojitos.”

With a new government in Ottawa, and the Americans ready to descend on Cuba, it is time for us to refresh the relationship and take advantage of an economy poised for takeoff, Mr. Entwistle said. “Canada has been gifted an asset, which is years of unbroken diplomatic relations. It is to this day recognized in Cuba. We get given space that we probably don’t deserve. We are given a hearing … But the goodwill has a half life [and] it has been ticking away for a long time.”

It may not be too late to take advantage of the relationship, but if Mr. Entwistle’s business in the United States is any indication, we need to get moving, and soon.

American business sees Cuba as a potential gold mine since the re-establishment of diplomatic relations and the lifting of some sanctions, he said. Havana is “humming and buzzing” with Americans ready to take advantage of the new relationship – but the U.S. trade embargo is still in place and it is unclear how the complex web of restrictions can be lifted without support in Congress.

Some potential U.S. investors are trying what Mr. Entwistle calls “crazy stuff” such as attempting to buy up beachfront property – even though it is owned by the state. But many others are making more cautious overtures.

The real game changer, he said, would be a further climb-down in travel restrictions, to allow general tourism from the U.S. – letting average Americans see the place for themselves. Some estimates suggest four million Americans would go in the first year after the ban is lifted – a tsunami of visitors Cuba could not handle at the moment.

Despite the U.S. business curiosity, Cubans are intent that a renewed domination of their economy by Americans will not occur, Mr. Entwistle said, and they are not prepared to revamp their political structures at the behest of the United States. Cubans are, psychologically, much more independent than they were before the revolution, he said. “They have discovered the value of their own assets, which they didn’t truly understand before.”

There will likely be some further political reforms after Raul Castro steps down as president in 2018, Mr. Entwistle said, including a move to a more representative government. But that will happen on Cuba’s own terms, and not in response to U.S. pressure. Indeed, he said, awkward U.S. efforts to use intelligence programs in Cuba to push for regime change – such as a recent attempt to get Cuban hip-hop artists to put anti-government content in their lyrics – is counterproductive.

In the meantime, Americans – or Canadians – who listen carefully to what the Cubans want in terms of economic development, and are patient in nurturing relationships on the island, could do very well there, he added.

Many Americans Mr. Entwistle takes to Cuba for the first time are “bug eyed” about what they see. “They have big saucer eyes, and they are usually quite nervous going in because they have been brought up believing it to be a prison camp,” he said. “Then they say ‘This a normal county. There are no tanks on the street.’ ”

Eventually, the American entrepreneurial instinct kicks in, Mr. Entwistle says. “The business guys’ antennas start bouncing like crazy. They say: ‘Oh my God … the opportunities here!’”

 z

Gary McMahon (IDRC), Ambassador Mark Entwisle, Francisco Leon, UN CEPAL) and Lourdes Tabares U de La Habana). at the inauguration of the Carleton University – University of Havana Masters Program in Economics, Havana, November 1993

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