American Businesses Hoping to Cash In On Cuba

CNBC.com
| 26 May 2010 | 01:03 PM ET

American industries of all kinds—from travel and telecom to construction and energy—would be poised to profit if the 52-year trade embargo with Cuba were lifted. Among the first businesses to cash in would be those involved with tourism, most experts agree.

“I believe U.S. travel and tourism companies will be the first to benefit,” said Larry Register, president of the Cuba Business Bureau consulting firm.

“The travel sector already is getting prepared for what might happen,” said Kirby Jones, president of the U.S.-Cuba Trade Association.

In fact, the U.S. travel industry already has seen a significant growth in Cuban tourism, even with the embargo still in place.

President Obama, who has called for “a new era” in relations with the island country, lifted nearly all restrictions on Cuban Americans' travel there in April, 2009. This year, more than 20,000 Cuban-Americans travel to their homeland each month, compared to 9,000 before the restrictions were lifted. The Bush Administration had allowed only one visit per person every three years.

Last week, the U.S. agency that enforces Cuba sanctions approved 42 new travel and other service providers, allowing them to do business with Cuba. There were no such approvals last year.

If travel restrictions to Cuba were lifted for all Americans, first-year projections suggest that 800,000 to 1 million Americans would visit, said Jones, whose Alamar Associates consulting firm staged a U.S.-Cuba tourism summit in Cancun earlier this year.

“There were 120 people there,” Jones said. “All major travel-sector tour operators came to meet with Cuban officials to discuss the potential of doing business and how it might be done.”

Cuba began developing its tourism industry after the 1989 collapse of the Soviet Union, which had granted Cuba billions of dollars in annual subsidies. Last year, more than 2.5 million tourists visited Cuba, mostly from Europe and Canada. Tourism is now Cuba’s biggest source of foreign income.

Jones, who has advised U.S. companies on Cuba since 1974, is not optimistic about an outright end to the Cuban trade embargo. But he thinks a piece of legislation moving through Congress may serve much the same purpose.

House Agriculture Committee Chairman Collin Peterson, D-Minn., is sponsor of a bill that would eliminate some of the cumbersome restrictions faced by farmers who have been selling food to Cuba since 2001.

The Trade Sanctions Reform and Export Enhancement Act of 2000 lifted part of the trade embargo, allowing the sale of food and medical supplies to Cuba’s 11 million people. Since then, a steady flow of U.S. corn, cattle, wheat, rice, apples, cereal and soybeans has made its way to Cuba, which must import 70 percent of its food.

But the reform bill mandated that Cuba had to pay cash upfront for all transactions—allowing no credit. It further stipulated that both parties to any transaction had to use a bank in a third country, disallowing any direct dealings between U.S. and Cuban financial institutions.

Even with those restrictions, U.S. exports to Cuba reached $710 million in 2008, before the global recession forced the cash-poor island to cut back 26 percent last year to $528 million.

Peterson’s bill would do two things. First, it would allow direct transactions between U.S. and Cuban banks. Farmers have long been complaining that the forced use of another foreign bank adds needless cost and prevents expansion of their business.

The second part of the bill is more controversial. It would lift the travel ban for all U.S. citizens, so the resulting increase in tourism would help Cubans generate the cash they need to buy more U.S. goods.

“They’re within 10 votes of getting this passed in the House,” Jones said. “I’ve been following this issue for 35 years and I’ve never seen anything like this. They’re not quite there yet, but it’s closer than it’s ever been.”

A lifting of travel restrictions would sound the death knell for the embargo, Jones believes.

“Right now, most U.S. companies cannot buy or sell goods with Cuba,” he said. “But the validity of having a trade embargo when a million Americans are going there every year loses all sense of logic. I can imagine the head of John Deere thinking to himself,. ‘I can’t sell tractors down there, but my son can go for spring break?’ The embargo would begin to be dismantled.”

Jones envisions an American tourism influx that would lead to ATMs, U.S. cellphone coverage, and airplane maintenance facilities.

“There are any number of areas that will be opened up if there is free and open travel to Cuba,” he said.

Travel and tourism may top the list of business sectors that would benefit from a lifting of the Cuban trade embargo, but they’re followed closely by mining, oil, telecommunications, construction supplies—and virtually everything else.

“Who wouldn’t want to do business in Cuba? They need everything.” said George Harper, an attorney whose Miami firm often deals with Cuban trade ssues.

“You name it—construction, road building, services of all kinds, banking insurance,” added Harper, who was born and raised in Cuba. “It’s an absolute gold mine for any company that wants to expand.”

Beyond travel, the two biggest sectors with potenital for doing business in Cuba are mining and energy, experts say.

Cuba’s nickel deposits are the third-largest in the world and represent its second most valuable export behind sugar. There are no nickel deposits in the United States, which imports imports all of its nickel, mostly from Canada and Australia. It’s is used widely as an alloy, much of it in the production of stainless steel products.

Copper, chromium, and cobalt also are mined in Cuba, with lesser quantities of salt, lead, zinc, gold, silver. Immense iron reserves have not yet translated into much production.

In 2004, the U.S. Geological Survey estimated that drilling off the coast of Cuba could yield 5 billion barrels of oil or more. The Brookings Institute has said that Cuban oil reserves are "equal to major fields in Alaska people want to drill."

Senators Lisa Murkowski, (R)-Alaska, and Mary Landrieu, (D)-La., drafted legislation last year that would lift the trade embargo enough for U.S. oil executives to do business in Cuba, but the bill has languished. In the meantime, a multitude of other countries have moved in.

“Cuba has entered into quite a few partnerships to aggressively explore their coast,” said Jones, of the U.S.-Cuba Trade Association. “Canada, the UK, Spain, Norway, Brazil, Russia, Malaysia, Vietnam, Venezuela – all are partnering with Cuba to get at its oil.”

The United States still has a huge advantage over other countries because of its proximity to Cuba, even if it’s late to the game. Transportation costs over 90 miles of water would be miniscule when compared to Asia or Russia.

"We feel that a greater reliance on American technology to develop their resources could have a positive influence on the Cuban culture," said Robert Dillon, spokesman for Murkowski. "American companies are the best equipped and experienced to deal with offshore drilling like this, and we feel that American oil workers are missing out."

U.S. infrastructure companies stand to gain if the trade embargo is ended or loosened, said Register of the Cuba Business Bureau. “There is need for building supplies, highway development and building renovations.”

Another area worth exploring “right now” involves U.S. telecommunication firms,” Register added.

When it eased travel restrictions, The White House also announced it would exempt U.S. telecommunications companies from the trade embargo. Companies like Verizon , Sprint and AT&T could bring better phone and internet service to the island to “promote the freer flow of information,” a White House statement said.

But the Cuban government rejected such an arrangement. An executive of the government-owned telecommunications company, ETECSA, said two obstacles would first need to be removed. The U.S. froze $160 million in ETECSA funds in 1996, and they want it back. And the agreement that forces Cuba to pay U.S. companies through third countries—the same obstacle the Peterson bill would address—would need to be rescinded.

“It may seem like the Obama administration has expanded communication possibilities,” said ETECSA exec Vivian Iglesias. “But we know that unless restrictions like the (Cuban Democracy Act) and others that have been tightened since 1992 don’t change, there can’t be any normal communication.”

“The causes that led to the theft of our funds are still in place,” she said. “If those restrictions don’t change, that prevents direct communication between the United States and Cuba.”

In October 2009, a small Miami company, TeleCuba Communications Inc., announced it had obtained U.S. permission to lay fiber-optic cable to the island, but the Miami company admitted it has not yet received permission from Cuba.

While U.S. efforts are stalled, an Italian joint venture that began 12 years ago has developed a widespread cellphone system. Italy now owns 27 percent of ETECSA. Venezuela is spending $63 million to build an undersea fiber-optic cable across the Caribbean that is expected to be completed next year.

Business opportunities may abound in Cuba, but many impediments remain before U.S. firms can take advantage.

“I don’t think the embargo will be lifted in my lifetime,” said Cuban-born Harper, the Miami attorney. “But I’m 67. Maybe in my children’s lifetimes.

“I think the Castro boys will find a way to keep it in place,” he continued. “The embargo has been a good friend of theirs. There are few other things they can rally the Cuban people behind. It would be very difficult to keep control over people if there’s a free flow of information.”


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