CUBA. WILL THE BUSINESS DEVELOPMENT HYPE PAN OUT?

There has been a great deal of media hype about the potential for American companies to do business in Cuba.  And, that is especially the case here, in South Florida–at what I call ground zero for dealing with Cuba.  But, the question is: can the potential business ever match the hype?

Keep in mind that, as the U.S. Trade Embargo has kept our businesses from trading with the island nation for 54 years, there were no such constraints on Canadian and European businesses.  But the only real business that they have developed has been in the tourist industry.  Why is that?

Economically, Cuba’s population is 11.27 million, with a Gross Domestic Product (the basic measure of economic activity) of $68.23 billion, for a per capita GDP of $6,054.  Those numbers pale in comparison with any developed nation, and especially those of the U.S.  Our 316.86 million population generates a GDP of $16.77 trillion, and that GDP equates to $52,616 per capita.  So, why would a business allow itself to be distracted by tiny Cuba?  Corporations are supposed to earn a profit for their stockholders, not engage in Nation-building.

Its also important to realize that Cuba’s economy has been stuck in the middle of the past century.  Its legal system is not up-to-date with today’s global economics, their financial markets have barely evolved and, true to the ancient mercantile system, the economy is managed, from Top-Down, by the Castro Regime.  Changes are only approved if they meet the government’s plans.

Key to the Cuban economy is a dual-currency system, which only makes sense in authoritarian socialist regimes.  If even then?  The average Cuban is paid in Cuban Pesos (CUPs), and he or she makes purchases in that currency.  Foreign businesses and the tourism industry, however, use Convertible Cuban Pesos (CUCs), which trade at parity with the US Dollar.  It takes 25 CUPs to equal one CUC.  This creates a headache for foreign businesses.  So, why this convoluted system?

The average Cuban earns approximately $20.00 per month–yes, $20.00.  The dual system provides him or her with low cost, subsidized necessities, as the government choses; however, it also means that the Cuban masses do not have the money to buy certain luxuries, such as:  smartphones; PCs; sophisticated communications equipment; etc.  This dual system enables the government to reap the higher-valued convertible pesos, while paying the Cubans, who actually perform the labor, with the lower-valued ordinary pesos.  That’s a WIN-WIN…but, only for the Castro Regime.

Given the amount of property that Fidel Castro confiscated, both from ordinary Cubans and foreign and domestics businesses, when he came into power, it’s no wonder that Canadian and European businesses were not willing to make capital expenditures on the island.  Also, until some significant legal agreements are worked-out between Cuba and the U.S, I just don’t see that situation ending anytime soon.

Let’s review the landscape for foreign companies doing business in Cuba.  The ordinary Cuban people do not have any money to afford their products and services.  Foreigners are limited in their travel, and contact with the ordinary people is frowned upon, and probably under surveillance.  Due to the dual currency system, you know that only corrupt party officials are benefitting from any business.  And lastly, as we have already seen, the Castro Regime continues to blame all of its problems on Yankee Imperialism.  So, why bother?

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