Normalisation with Cuba The thrill of the thaw American business is eager to cross the Florida Strait, but obstacles remain Apr 11th 2015 MIAMI From the print edition IN THE late 1950s, when the Fabulous Rockers were hitting the big time, their hometown of Ybor City, near Tampa, Florida, was like Havana today: run down, its hand rolled cigar industry an historic relic. In those days, the place to be was not Tampa or Miami, but Havana, which for Florida bands was as tantalising as Las Vegas. They never made it. In 1959 Fidel Castro s revolutionaries took power. Less than two years later Dwight Eisenhower imposed an embargo, and And they're off, again most ties were severed for the next 54 years. The band s members did not give up on their dream. On May 15th they hope to fulfil it by headlining at the celebrated Hotel Nacional, on the seaside Malecón in Havana. We re very excited, says Manuel Fernandez, who plans to lead 60 ageing groupies to Cuba to hear the band, now called the Ybor City Rockers. It s monumental. Rock gigs are not the only opportunities that have been opened up by President Barack Obama s dramatic announcement on December 17th that restrictions on travel to and trade with http://www.economist.com/node/21648006/print 1/5
Cuba would be eased. Lawyers, travel executives, bankers, farmers and tech moguls, among them Google s top brass, are heading to the island to scope out business opportunities in a postembargo future. Their excitement has mounted further with the approach of the Summit of the Americas in Panama City on April 10th and 11th, where Mr Obama and Raúl Castro, the Cuban president, are expected to meet for the first substantive discussions between American and Cuban leaders in more than 50 years (see article (http://www.economist.com/news/americas/21648015 region will start put pragmatismahead ideology dealing united states) ). Although the mood is giddy, the obstacles to trade and investment remain formidable. The December 17th agreement opened a chink in the trade blockade: it allowed more Americans to visit Cuba without special permits, enabled them to spend more money there and to send more remittances. It also permitted banks and telecoms firms to take steps toward operating in Cuba. The State Department s designation of Cuba as a sponsor of terror subjects the country to sanctions that terrify banks. It is likely to be taken off the list soon. But the embargo still forbids most American trade and investment, and can only be removed by Congress. Before it is lifted, lawyers say, at least some of about $7 billion of claims by American citizens and companies that lost property after the revolution needs to be paid. On the Cuban side, the state still controls vast tracts of the economy, including foreign trade, banking and law. A dual currency system is proving difficult to dismantle because of a lack of hard currency. Inefficiencies and arbitrary decision making can make doing business in Cuba a nightmare. One foreign businessman active in the country says investors stay away because some have been jailed without due process. That, he believes, even explains why there is so little Chinese investment. Three types of American business are seeking entry into Cuba, by three different routes. The first are mom and pop entrepreneurs, mostly Cuban Americans who have a personal stake in the island s development. They have been active in Cuba all along, visiting relatives and putting cash (illicitly) into their fledgling enterprises. The easing of the embargo has given such business a boost. Many small scale merchants can be found in Hialeah, a Miami suburb. As Carlos Loumiet, a Cuban American lawyer at Broad and Cassel in Miami, puts it, Hialeah, not downtown Miami, is the economic engine for what is happening in Cuba. Amid the suburb s boxy houses are stores whose fortunes are tied to the island, such as travel agencies and remittance firms. A vast warehouse called Ñooo Que Barato!! ( Holy Shit, It s Cheap!! ) sells uniforms in Cuban school colours at $10, along with shoes, underwear and perfumes that are often bought by the pound and smuggled into Cuba in duffel bags known as worms. Among the hottest items, says the store s owner, Serafin Blanco, are $3.99 bags of http://www.economist.com/node/21648006/print 2/5
flints for mending old lighters; they easily escape detection by Cuban customs officials. Fabián Zakharov, a Russian born Cuban in Hialeah, imports parts for Lada cars from Russia. His customers take them to Cuba in suitcases to help friends and relatives fix up their old bangers. Easier travel will drum up new business for private guesthouses, restaurants and other small enterprises that have opened up after a cautious liberalisation by Cuba s communist government. Their financial backing comes largely from remittances from the United States. Some see the spur to ground level go getting as the cleverest part of Mr Obama s strategy. It bolsters independent entrepreneurs, who are likely to be supporters of the dialogue between the United States and Cuba and of the reforms that may flow from it. This is being driven by grassroots capitalism there and here, Mr Loumiet says. But the embargo, and Cuba s entrenched suspicion of enterprise, sets limits. The Castro government still makes it almost impossible for most private firms to import supplies or to receive foreign investment. Mr Zakharov says his business suffered recently because duties on car parts have soared. In Cuba owners of private restaurants, or paladares, complain that the government tries to stop them from importing such items as exotic spices a deliberate attempt, they say, to keep them from flourishing. The second type are bigger businesses hoping to piggyback on greater travel and information exchanges. In February Netflix, which lets you stream films over the internet, said it was launching its service in Cuba. Although the company cautioned that few Cubans have broadband connections or access to credit cards, people returning from Cuba say that some wily locals have subscribed to Netflix and turned their homes into informal cinemas to defray costs. In February IDT Corp, a telecoms company based in New Jersey, pulled off a surprise deal establishing the first direct connection between an American company and Etecsa, Cuba s state telecoms company. Talks had gone nowhere for much of the previous four years. Direct charter flights to Cuba started in March from New York and New Orleans, adding to dozens a week from Miami and Tampa. Ferry operators are talking to American and Cuban authorities about relaunching direct ferry routes from the Florida Keys, but that may take time. American immigration officials worry that the vessels will bring an influx of illegal immigrants. Cuban officials fear a surge of illegal imports. This month Airbnb brought the sharing economy to Cuba by offering American visitors rooms in private homes. That is allowed under the new American rules because it supports microbusinesses. The third route, taking the biggest American brands into Cuba, is the most difficult. Cuban officials shudder at the thought of a McDonald s in downtown Havana. American airlines are keen to start scheduled flights to Cuba, but first the two countries need to sign a new air service http://www.economist.com/node/21648006/print 3/5
agreement. In negotiating that, lawyers say, Cuba will want to ensure that its own aircraft are not seized in the United States as forfeit for American property confiscated during the revolution. That may prove as tough as lifting the embargo. Hotel owners also want to enter a Caribbean paradise on America s doorstep, not least because the embargo has given foreign resort Jamming with the Rockers tomorrow? operators, such as those from Spain, a headstart. Pedro Freyre of Akerman, a Florida based law firm, calls mass tourism the Willy Wonka golden ticket. Yet he notes that while the embargo exists there is no scope for the sort of joint ventures that Spanish, Canadian and other hotel chains have entered into. Even if there were, Cuba lacks the energy, food and infrastructure to support millions of American tourists. Overshadowing all potential business relationships is the embargo s ban on the provision of credit. American banks give Cuba the widest berth. Until Cuba is removed from America s list of sponsors of terrorism, there is no way an American bank can touch a Cuban bank, says Fernando Capablanca of the Miami based Cuban Banking Study Group. Even American firms allowed to trade with Cuba under the embargo, such as grain exporters, are often thwarted because they cannot obtain letters of credit. The hurdles are not stopping lawyers from preparing for what may lie ahead. Law firms have drafted Iranian specialists into their Cuba teams to advise on a post sanctions future. The Florida Bar is planning to send a team of international lawyers to Havana in May to learn about Cuba s judicial system. Some have contacted Spanish, Canadian and Brazilian lawyers to find out about their experiences in dealing with their counterparts on the island. We have heard http://www.economist.com/node/21648006/print 4/5
horror stories, says James Meyer of Harper Meyer, a law firm. The enthusiasm in the face of obvious pitfalls suggests an element of blind faith. If we don t see the Cubans move towards a more liberal foreign investment and trade regime, you will see a lot of this excitement disappear, says Ricardo Herrera of Cuba Now, a pro Cuba advocacy group. Yet progress, though slow, is probably unstoppable. The Cuban government may become so dependent on American dollars as a substitute for reduced aid in the form of subsidised oil from crisis ridden Venezuela that it will have little choice but to continue to reform. The Obama administration has craftily raised expectations to such a degree that backsliding now seems unthinkable, visitors say. Mr Herrera tells the story of a Cuban couple who, after Mr Obama s announcement in December, put away their condoms and for the first time set about trying to have a baby. For some older Cubans, the thrill of the thaw will come from the Ybor City Rockers. From the print edition: The Americas http://www.economist.com/node/21648006/print 5/5