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STRATEGY

Perestroika Continues

Will Cuba, post-Fidel, be ready for U.S. trade?

What will happen to Cuba's economy after Fidel Castro dies? The search for answers has intensified since July, when El Comandante transferred power to his brother Raúl amid reports about his deteriorating health. Philip Peters has been watching the new leadership for signs that it will liberalize the economy. A former State Department official in the Reagan and Bush I administrations, Peters is the resident Cuba expert at the Lexington Institute, a Washington, D.C., think tank. He recently spoke with Inc. reporter Sarah Goldstein.

How would U.S. companies fare if Cuba's economy opened up?
Even if the U.S. lifted its embargo, you always work with Cuba on Cuba's terms. You can't just buy land and build a hotel. That said, if Americans were only able to travel to Cuba freely, you would see some increase in trade.

How big is the market?
Cuba's not huge. There are 11 million people there, and the $40 billion economy is extremely centralized. The Internet, for example, is state-controlled and Cuba has no interest in expanding access.

What types of items would be in demand? I think the opportunity in the short term would be for people selling into specific niches of the Cuban market. That's what we've seen with the limited trade--roughly $400 million--that we do with Cuba today. [Limited trade began after a hurricane in 2001.]

For example, chicken legs are one of America's biggest exports to Cuba. Cubans like the legs, and American poultry farms have a surplus of them because Americans prefer white meat. Cuba also buys timber for telephone poles and chewing gum from the U.S. And since an open Cuba would mean a surge in tourism as well, I'd look for U.S. companies to supply furniture and accessories like robes and towels to Cuba's upscale hotels.

How likely is reform?
I think an economic opening is very likely. Raúl is not allergic to reform. In fact, he was behind a series of reforms in the 1990s that legalized self-employment, that allowed farmers to sell their surpluses, and that opened Cuba up to foreign investment. Plus, Raúl's government needs to earn political support, and there's no easier way to win support than by opening the economy.

Do exiles stand a chance of reclaiming assets lost in 1959?
There's no telling how Raúl will handle that question. For claimants who lost businesses, I think their best bet is to try to create joint ventures between their companies and the Cuban government. I have no idea what the terms of the arrangement would be, but that's one way to satisfy both parties. As far as lost property goes--and this is coming from someone who is a strong believer in property rights--my impression is that 50 years have passed and most exiles no longer expect to get their land back.

If you were advising Raúl, what would you tell him to do first?
There's untapped potential for entrepreneurship in Cuba, but it's hampered by the fact that the state takes more than a third of revenue from the average self-employed individual. Raúl could start by lowering taxes on this sector. He should also repeal one of the more repressive parameters that limits the career options for university graduates.

What's the current law?
Let's say you go to school to learn how to design software. When you graduate, the only employer you can make software for is the state. And the state does not allow you to make money on the side from your expertise. This goes for any field. If you are a licensed French tutor, you cannot teach French for anyone besides the state. You can drive a taxi or make pizza on the side, but you can't do anything in your profession. Cubans are well trained and well educated. But because they can't collaborate to develop products outside of work, there are few new ideas.

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Last updated: May 1, 2007




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