The Economist: Bye-Bye Embargo

Foreign investment in Cuba

Bye-bye embargo?
Nov 22nd 2007 HAVANA
From The Economist print edition

http://www.economist.com/world/la/displaystory.cfm?story_id=10180002

Getting ready for a post-Castro bonanza


THE American businessman at this month's international trade fair in Havana was full of excitement about the communist island's investment prospects as its long-serving president ails. “It's a perfect storm,” he enthused: “Fidel will soon be gone, and a Democratic president will be in the White House. Bye-bye embargo!”

Few of the foreign investors who have spent years struggling to make money in Cuba, caught between American trade restrictions, communist bureaucracy and preferential deals for key allies such as China and Venezuela, see it quite so simply. But even the most jaded are wondering whether things might be looking up. Hopes have been raised by news of a huge deal in the making. It could be the shape of things to come.

After two years of negotiations, plans are moving forward for Dubai Ports World, a partly state-owned company in the United Arab Emirates, to invest $250m in converting the decrepit port in Mariel, just west of Havana, into a modern container facility. A formal feasibility study has been commissioned.

The choice of Mariel, one of the closest points in Cuba to the United States, is significant. The port is best known as the setting for a massive boatlift in 1980 when, over a period of six months, 125,000 Cubans set off in flimsy rafts as Fidel Castro turned a temporary blind eye to those wanting to leave his poor one-party state. They were picked up and taken to the United States by a flotilla of American yachts.

Mariel appeals to international port operators for the same reason—its proximity to the United States. “This deal isn't just about getting goods to Cuba,” said one analyst who had studied the project. “It's about getting into the US market.” American ports are close to capacity, and environmental restrictions make any big expansion of existing terminals unlikely. In a post-embargo world, Mariel, which is expected to be open for business by 2012, would be a well-positioned hub. Goods could be transferred from the big container ships arriving at the port to smaller vessels which could then reach dozens of harbours in the southern United States.

Dubai Ports World refuses to comment on the deal. But there can be little doubt that the company is eager to gain a foothold, if not actually in the United States, then as close as possible to it. Last year it was forced to abandon plans to operate six big ports in the United States after Congress expressed security concerns. Although the United Arab Emirates is considered a close American ally, two of the hijackers involved in the September 11th 2001 terrorist attacks were UAE nationals.

Does Cuba's acceptance of the Mariel project mean that the country's top brass is beginning to plan seriously for the day when the American embargo might end? That might appear premature, given that the Bush administration has explicitly ruled out unrestricted trading with a Cuban government under Raul Castro, Fidel's brother and presumed successor, and that only one American presidential candidate (Chris Dodd, a Democratic outsider) has called for a complete end to the embargo.

All the same, there is evidence that Cuban officials do believe that the days of the bloqueo (as they refer to the embargo) are numbered. The Cuban ministries that deal with foreign investment, known by their Orwellian abbreviations of MINVEC and MINFAR, have recently been putting the word out to foreign investors that tenders are welcome for a raft of projects. Theme parks, super-yacht marinas, golf courses, even airlines—all apparently geared to a future American market too—feature prominently on the list.

An end to the embargo could provide a bonanza to investors with assets in Cuba that would appeal to American corporations. The paltry returns from, say, a share in a Havana hotel would be dwarfed by the value that could be realised by selling that stake to an American hotel chain. “That's the game plan,” admitted one Havana-based businessman. “But,” he added, “so is patience.”