"To Invest or Not Invest in #Cuba", by Blogger Montener -Translated to English, with Comments


Blogger Carlos Alberto Montener has posted an interesting analysis of investment in Cuba post thawing of U.S. and Cuba relationship. The date of the blog is January 14, 2015, the day the U.S. flag was again raised at the newly reopened Embassy in Havana.

[Photos are from Cuba Libre Today personal archives]



A building near El Prado.  Not an unusual site

This is a translation (by Google and me) of excerpts of his article [Brackets indicate our additions or comments]:

1. A thaw was announced simultaneously by Presidents Barack Obama and Raul Castro on December 17 2014, describing various steps taken by both governments in the direction of reconciliation, have created an atmosphere of triumph about the economic future of Cuba full of good expectations.
2. According to polls, a majority of U.S. citizens support the measures in the United States and in Cuba, and there are reasons to believe that a substantial percentage of Cuban exiles also support them.
Don't walk under balconies.  You never know what will fall when

3. As part of that approach, it is expected that some or many foreign companies may explore the possibility of investing in the island, utilizing the remarkable human capital available in Cuba. Cuba has over eight hundred thousand university graduates and a generally healthy and educated population.

4. The Cuban government, after 56 years of continuous exercise of power, seems firmly in control of the situation….

5. Following the election of Hugo Chavez as President of Venezuela in late 1998, the oil-rich country has transferred to Cuba huge amounts of resources. …

6. After a quarter century of the disappearance of the communist bloc, the government of the Castros, along with North Korea, has proved the exception to the rule, in that they have maintained control without sacrificing the principles of Marxism-Leninism and single party rule, although cautiously trying to modify its productive apparatus.

7. In the spirit of "reforms-within-a-system", in April 2010 Raul Castro introduced what is known as Guidelines, which outlined the main points of the reform, creating opportunities for foreign investment and "employment".

…….
Opportunities

1. The country needs to rebuild its infrastructure almost entirely. Everything is obsolete or in ruins: the aqueducts and sewers, power grids, Internet, bridges and roads, telephone communications, homes and buildings.
This building is on El Prado, a prime walking street.


2. There is much fertile ground for local food production. Cuba imports 80% of food consumed by people and animals. Before 1959, the proportions were reversed.

3. The sugar industry, which before the revolution was the backbone of the economy, producing six million tons per year on average, has been reduced to two.

4. Tourism is a very promising field. The island has dozens of beautiful beaches, [many of which already have all-inclusive resorts at which Europeans and others have enjoyed for years; there are quite a few pristine, available beaches on which newer, more up-to-date, elegant resorts could be built.]


5. Considering the number of researchers in the field of medicine, today totally underutilized, Cuba could be the perfect partner of major international pharmaceutical industries, both to develop new medicines and to produce them.

6. Given the prestige (now somewhat diminished) of its health system, Cuba, potentially, is a great place for medical tourism and to establish links with American insurance systems. [Havana is very close to Florida]. [currently, while the doctors are skilled and plentiful, there are virtually no modern medical facilities, instruments, etc., but as the author says, with investment, that could change. We at Cuba Libre Today have been inside hospitals, polyclinics and pharmacies in Havana and are familiar with the lack of instruments.]

2012 When more little businesses were allowed to open.
7. By the time relations are actually normalized, and travel is facilitated and significantly increased, Cuba will become an ideal place for retirement tens of thousands of Cuban-Americans and Americans who receive a monthly average of US $1,800 US dollars.

8. Cuba receives about three million tourists a year and has eleven million inhabitants. In a few years, it could receive eleven million tourists and achieve the classification of paradise. A few bold and intelligent developers could transform the Isle of Pines, south of Cuba, into a Caribbean Mallorca. Mallorca, in the Mediterranean, which receives 20 million tourists every year. The United States has 300,000 luxury yachts that could visit Cuba and refuel at sea there and think.
2012. New Business.


9. If relations between the U.S. and Cuba continue to deepen, it is possible to provide a Free Trade Agreement that would allow Cuba to export without restriction to the richest market in the world.

10. Due to its geographical position, Cuba is an ideal place to distribute sea and air freight as a hub to North and South America.

11. Cuban-Americans, as happened with Taiwan concerning China, Cuba could transfer its expertise in business, relationships and capital they have created, which would integrate the island into the commercial and business world of the United States.

12. The country, as happened in post-communist Europe, would be the paradise of the most popular American franchises of fast food: MacDonalds, Burger King, KFC, and so on.

13. So could the department store chains: Zara, Corte Ingles, Macys, Sears and the rest of the best known establishments.



Weaknesses

1. The government of Raul Castro does not want a regime change; rather he wants to “improve” the communist model launched in 1959. According to the statement made and published, the expected pattern is not even the Chinese or Vietnamese, but a ‘Military State Capitalism’, where the Government retains control of the 2500 largest companies in the country, which operate directly through the military apparatus or in partnership with foreign capitalists. Cubans do not have access to the means of production, other than small service companies (paladares, [dwellings that offer rooms for rent], hairdressers, etc.).

2. The government of Raul Castro does not believe, as Deng Xiaoping proclaimed in 1992 that "to get rich is glorious." Raul and Fidel still believe that capitalism is an evil expression of the worst human tendencies and despise those who practice it. In Cuba, entrepreneurs are not encouraged, but repressed. Capitalists can be circumstantially necessary, but always under the strict control of the political police to prevent ideological contamination of the people and the excesses they are capable of happening. The government continues to maintain the supremacy of central planning on the market and the virtues of frugality and non-consumption.

3. If an employer wants to assess country risk before investing in any place, review Moody and Standard & Poor. According to these companies’ risk assessments, Cuba appears in the most dangerous zone. There is a lengthy history of default or just default and refinancing of obligations that have subsequently proved futile. They could not afford them due to a serious problem: Cuban society is very unproductive because of the collectivist economic system imposed on it and because of the size and priorities of public spending decided by the government.

4. The Cuban State lacks substantial reserves and has barely enough income to survive month to month. This determines that it has few resources to undertake large public works that are needed, and thus will require international loans to face them, which becomes a serious problem because of its lack of reliable credit.

5. not exist in Cuba impartial courts which go to settle a civil dispute, much less criminal. There is an absolute legal helplessness in any conflict with the government or a state enterprise. The government, according to their needs, aims, arbitrarily imprisons or frees any citizen, including foreign entrepreneurs who have entered litigation. In other words, the opposite of a genuine rule of law. That circumstance can testify, among dozens of people, the Panamanian Simon Abadi, Max Marambio Chilean or Canadian Sarkis Yacoubian.

6. The foreign businessmen residing in Cuba living under the "not-so-discreet" surveillance of the security forces, always in search of the mythical paranoid and sinister CIA. Many Cubans and simple potential friends or neighbors officials dare not linked to foreign employers for fear of losing the confidence of the government, or are required to report in writing on each voluntary or involuntary sustained contact with them.

7. Cuba has not solved the important problem of the currency. Officially, the dollar is changed approximately alongside the Cuban [convertible] peso (the pesos used by tourists, although there is an additional 20% surcharge on exchanging U.S. dollars – still, as of our visit to Cuba last week – although the exit tax has disappeared]. In the parallel market [pesos cubanos, which is the peso earned by workers and used in bodegas to purchased necessary items with the ‘libreta’, ration book) is 24 pesos for 1 dollar. Cuban peso charge, but the government will sell in dollars, which generates a large dissatisfaction and an obvious sense of injustice.

8. The salaries are very low (about $ 24 monthly), which determines the absence of a potential of 11 million consumers. Cubans have the lowest purchasing power per capita in Latin America. [The lowest paid receive $10 per month; college educated young person with 3 – 5 years in the workplace, $17; professors with years of experience, $25 - $35; computer technicians with 10 or more years experience, $35 - $40; Doctors are now receiving additional benefits, and may earn $50, plus extra benefits.]

9. The banking system is inadequate and primitive. Deposits in dollars, as has happened in the recent past, can be frozen at the discretion of the government.

10. The bureaucracy is slow and uncertain. Officials are hesitant to make decisions and instructions are sometimes contradictory.

11. The hiring of workers is made by a state company that charges investors in dollars, but pays the workers in pesos cubanos. In the transaction, the Cuban state gets 94% of salary. This practice violates international agreements signed with the ILO.

12. For over half a century, Cubans have come to steal from the state to survive, selling on the black market things they steal. These habits are transferred to the private sector, especially because they have lived under intense propaganda campaign against the capitalist exploiters. They know that socialism leads to disaster, but believe that capitalism is an activity of hungry wolves.


[We at Cuba Libre Today have long thought that the companies that could do very well at the outset are paint companies and other household supply companies. Of course, everyday people who work for the government, as opposed to taxi drivers and others who can obtain tourist money, still doesn't have money to buy paint and things like that, but those who operate paladars and casas particulares do.  I have a relative who has constant problems with the toilet.  I offered to bring replacement parts.  She said, "you don't understand, the toilets here predate replacement parts. And we cannot find toilets, even if we have the money."]

Threats

1. A substantial part of the policy of reconciliation between Obama and Raul Castro depends on the lifting of the embargo. Although there is great pressure from the White House and polls show that most Americans want the sanctions to be removed, there is no guarantee that will be achieved during the current presidential term. Nor can anyone predict what will happen to the relations between the two countries if the next election the Republican candidate wins. Two of the most prominent, Jeb Bush and Marco Rubio, have criticized President Obama for his new Cuban policy.

2. The cancellation of the 1996 Helms-Burton law is one of the key requirements for Cuba to approach the IDB, the IMF, or the WB. Without these credits, which require membership of these bodies by Cuba, the island will not have access to loans to rebuild the costly infrastructure that the country needs. It is a very slow process that will take a long time.

3. Cuba relies heavily on subsidies from Venezuela. The current Cuban president still follows the ideals implemented by Chavez, goes through a bad time which could lead to its destruction and replacement by an unfavorable "Cuban" government. The disappearance of “Chavismo” in Venezuela would be an economic and political catastrophe for Cuba. Today's President Maduro’s popularity is below 20%.

4. The political stability of the Cuban regime until now has depended control of Fidel and Raul Castro. Fidel has just turned 89 and Raul in June reached 84. With them the generation of the revolution is liquidated and given way to more young people, led by the heir chosen by Raul Castro, the engineer Miguel Diaz-Canel, 55. What will happen then? Can the regime transmit authority to a new chosen person within the one-party communist model without the warlords who until now have given shape and meaning to the government? Will uncontrollable ambitions of other candidates, presumably young soldiers, determined to take over arise? Nobody knows. Cuban history, however, has seen bloody and violent regime takeovers.

5. It will be very risky to invest in properties that were confiscated from their rightful owners in the early years of the revolution. Both the United States and Spain are willing to go to court to defend their rights and have hired lawyers for this. Originally, the victims of the confiscations were American or Spanish, but over time have been added Cuban-Americans and Hispanic-Cuban. U.S. Congress and the U.S. Senate and the Spanish Parliament have legislated regarding this. 

6. ……. Predictability is that Americans affected, along with Cuban-Americans, may try to cripple any help or intended benefit from the U.S. to Cuba until Cuba returns the properties that were theirs or they are compensate for the properties.

7. Although there is a clear possibility of making money in Cuba in the tourism sector, it is difficult for the U.S. hotel industry, almost all present on the Exchange, subject to American law and union pressure, to collaborate with Cuban counterintelligence facilitating eavesdropping and covert filming inside the hotel facilities, like today at Melia Hotels and other European chains, violating even Cuban law itself that supposedly defends the inviolability of privacy. American lawyers are very clear about the high price they had to pay the German companies that were associated with Nazism, as with Volkswagen and Bayer.

8. If one invests in a country associated with a dictatorial government that exploits workers and businesses, it is very possible that when the opportunity arises, these businesses linked to the Cuban government will be charged in court for the confiscation of 94% of salary by changing dollars for weight and other violations of the rules of the International Labour Organization. The claims of the workers will be heavy and there are American firms willing to file them for a percentage of what will eventually be received.

9. Finally, two articles of the Cuban Constitution outline the nature uncompromisingly communist regime and become a permanent threat against foreign investors. Article 5: The Communist Party of Cuba, ‘Martiano’ [following Jose Marti], and Marxist-Leninist, which is vanguard of the Cuban nation, is the highest leading force of society and the state. Article 62: None of the freedoms recognized for citizens can be exercised contrary to the provisions of the Constitution and the laws, nor against the decision of the Cuban people as to the construct of socialism and communism. Violation of this principle is punishable.

The blog, in Spanish, is located at http://www.elblogdemontaner.com/invertir-o-no-invertir-en-cuba-esa-es-la-preguntacuba-en-su-nueva-etapa-analisis-foda/

[Finally, we at Cuba Libre Today acknowledge the Weaknesses and Threats stated by Mr. Montaner, but we are very optimistic for great improvements in the Cuban economy as the result of the recent and hopefully upcoming changes. Investment on a small scale makes sense. We are also sure that large American companies, like those discussed in the article, WILL happen.  I saw business people form the U.S., probably making inquiries about investment, on my last trip to Holguin, Cuba, a week ago.] 

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