It’s been less than five months since President Obama issued an executive order that normalizes relationships between Cuba and the U.S.
And despite the initial excitement and, in some circles, furor over lifting the 50-year embargo, the pace of change has been slow for businesses looking to invest in Cuba. That’s likely to change in the year ahead--particularly with new developments, such as removing Cuba from a list of state sponsors of terrorism.
“So far there have been nominal opportunities,” says Maria Contreras-Sweet. The head of the Small Business Administration, who recently visited Inc.'s office in New York, referred to the agency's plans to help small businesses take advantage of opportunities in Cuba. “The big opportunity is around the idea that as a nation we can begin to export our values.”
In the first quarter of 2015, tourism to Havana increased 15 percent, and 29 percent for U.S. citizens compared to the same quarter a year ago, says Philip Peters, president of the Cuba Research Center, in Arlington, Virginia.
One such company that’s benefitted from the loosening of the embargo is 50-employee Cuba Travel services, based in Cypress, California. The charter company has operated direct flights from the U.S. to Havana since 1999. But in March, in response to the new opening, it added a once-weekly flight from JFK airport in New York. And those flights, which cost $850 for a round trip ticket, have been operating at capacity.
“Our demand has been pretty high, especially for the summer months when the kids are out of school and there are more travel opportunities,” says Emily Sanchez, the company’s director of marketing.
Meanwhile, in February, telecommunications giant IDT Corp. became the first company to strike an official deal with the Cuban government for direct long distance services between Cuba and the U.S.
And there are potentially much bigger opportunities ahead, as laid out by Cuba’s Ministry of Foreign Trade in a letter to foreign investors, which it released toward the end of 2014. Cuba said it is seeking $2.5 billion in foreign investment annually for 250 projects worth nearly $9 billion, including opportunities in oil exploration, tourism, agriculture and food, and infrastructure, including highways and bridges, telecommunications networks, and e-commerce.
The majority of the capital Cuba is seeking, however, will be deployed through joint ventures and other partnerships, it said. Only three percent is slated for direct foreign-owned investment, based on the 2014 report. Following more normalized relations with the U.S., those numbers may change and increase, regional experts say.
Another big issue is that much of the rest of the world has already arrived at Cuba’s shores. In fact, during our multi-decade standoff with the island state, Cuba has actively sought investment from countries including Brazil, China, Canada, Russia, Spain and Venezuela. China and Venezuela are Cuba’s biggest trading partners today, exporting billions of dollars worth of goods and services each year to the island.
“American companies are going to have to see how they can compete,” says Peters of the Cuba Research Center.
Meanwhile, experts such as Seth Kaplowitz, a specialist in international business law and finance lecturer at San Diego State University, worries about China’s influence, in particular through its Asian Infrastructure Investment Bank. The recently formed financial institution is meant to deploy some of China’s $4 trillion in reserves for infrastructure improvement in Asia. Some experts see the bank as potential alternative to the International Monetary Fund and World Bank, staked in large part by the U.S. Its capital is also likely to be put to work in Cuba.
While countries such as Britain, Australia and Germany have signed on to participate in the bank, the U.S. has not. “Cuba is ready to be connected to the world,” Kaplowitz says. “It is stupid for the U.S. not be part of China’s infrastructure bank.”
Peters adds that given Cuba’s prior history with the U.S., which backed the Batista regime before Fidel Castro, it’s unlikely to become overly-reliant on its neighbor to the north.
For its part, in December, the Obama administration loosened some of the travel restrictions that kept U.S. citizens from visiting Cuba, expanding 12 categories under which travel is permitted, through an executive order. It has also said it would participate in partnerships that will help Cuba improve its aging Internet and telecommunications network. U.S. banks are now permitted to operate correspondent accounts in Cuba, which should facilitate commerce in the years ahead. (Already Mastercard and American Express have announced plans that U.S. citizens will be able to use their credit cards soon in Cuba.)
That doesn't mean there won't be roadblocks ahead. Some politicians have suggested they may attempt to stymie relations by asserting Congressional authority under the Helms-Burton Act of 1996, which formalizes U.S. sanctions and forbids foreign companies from trading with formerly U.S. owned businesses in Cuba. But they could be swayed, as national business groups with typically conservative perspectives, such as the U.S. Chamber of Commerce, have wholeheartedly endorsed lifting the embargo.
"Having long advocated for an end to the economic embargo on Cuba, the U.S. Chamber looks forward to working with the U.S. Congress and other key stakeholders to fully realize the potential of our bilateral economic relationship," Myron Brilliant, the Chamber’s executive vice president and head of international affairs, said in January.
And like it or not, that economic relationship is likely to strengthen in the coming months, experts say.
“If I were a business owner doing any form of international trade, I would still be very optimistic [about Cuba] and would be prepared to jump in when the time is right,” Kaplowitz says.