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Cubans, American Businesses Hurt by U.S. Embargo

by Alf Nucifora

Infra-structurally, Cuba is a mess. Once proud streets and avenues lay potholed and crippled with dying trees and pitted sidewalks. Leaded gas leaves its mark in the horribly polluted air, eroded buildings and monuments and the blackened landscape. Havana reeks of decay. Buildings, unpainted for decades (big opportunity for Sherwin-Williams), lend a fifties air. The good news is that eighty to ninety percent of Cubans own their own apartment or house. The bad news…they can't rent or sell, at least not officially. And mongrel, stray dogs everywhere, a by-product of the Soviet pullout in 1993. Starving Cubans had a choice, feed themselves or feed their pets. The pets lost.

Yet, from an economic standpoint, things are beginning to look up. The economy has been on the up-tick since 1994 with a latest gain of 5.6% in 2000. Government policy is firmly rooted in a shift in production from goods to services. That means less reliance on the traditional exports of raw sugar, nickel, tobacco and seafood and heavy concentration on tourism and emerging industries like biotechnology.

The ill-conceived Helms-Burton Act and the Torricelli Amendment, both aimed at placating the politically powerful, right wing, Cuban-American lobby and preventing any U.S. trade with Cuba, are failing miserably. The rest of the world is capitalizing on American petulance. 700 foreign companies do business with Cuba, 51 from Canada alone. Of the 140 countries doing business, Spain, Canada, Italy and France claim the lion's share.

Tourism is the budding, 800-pound gorilla, a $2 billion industry with an 18% annual growth rate. And most of those dollars come from heavy spending Europeans and Canadians. Those visitors stay in 35,000 rooms in 227 hotels, the majority 4 or 5 star, with approximately 20% built, managed and run by European chains. Even factoring in a continuation of the U.S. blockade, 80% of Cuba's tourism potential remains untapped with 6 million visitors projected by 2010 (vs 1.8 million in 2000 and 300,000 in 1990). Naturally, the $11 billion needed to fund that growth will come from Europe, Canada and Latin America, not the U.S..

Bottom line, The U.S. embargo combined with the disintegration of the Soviet Union has forced Cuba to very gradually move from a strict, centrally planned economy to a more market-driven one. As a result, the U.S. dollar has been legalized with 50%-70% of the economy projected to be dollar-driven within the next five years. Foreign direct investment by companies such as Unilever (consumer goods), Castrol (petroleum), Italcom (telecom) and Sol Melia (hotels) is on a dramatic rise as Cuba continues to be dependent on foreign import of oil, consumer goods and spares. Retail, however, is stymied. Government ownership and control of the retail environment results in excessive mark-ups, heavy taxing and non-existent competition in every category except the personal sector, comprised of street and market vendors, (who primarily peddle arts and crafts and home-grown produce), craftsmen and small café and restaurant proprietors many of whom conduct business out of their homes.

Real estate development is dominated by the Spanish and Italians who have entered into joint ventures to build apartment and condominium projects. Surprisingly, foreigners can buy residential property although the wisdom of that action is open to question given the government's heretofore unwillingness to recognize private ownership and its previous predilection to expropriate private property at will.

So what does it all mean for the U.S.? Economically and politically America is clearly on the losing end. U.S. investment in tourism, hotels, automobiles and consumer goods represents a shamefully lost opportunity. Cubans crave American products as was evidenced by the pervasive presence of well known brands… Microsoft, Revlon, Tommy Hilfigger, Pepsi-Cola, Coca-Cola and even the Kentucky Wildcats and the New York Yankees. From the Cubans point of view, they estimate annual export losses to the U.S. of $90 million in cigars alone and $1 billion in tourism activity. Ironically, 200,000 Americans visit Cuba legally, (60% Cuban-Americans), and contribute $800 million in annual remittances to the Cuban economy.

From a political standpoint, the U.S. position is inconsistent if not irrational. America has trading relations with Vietnam, and commercial relations with China. Even archenemy North Korea is subject to U.S. friendly feelers. Dealing with dictatorships has never given this country much cause for concern e.g., Batista, Somosa, Pinochet, Suharto, etc. Someone needs to remind Congress that the Cold War is over and the West won. The Cubans are ready to negotiate without pre-condition. Remember, there are no restrictions placed on Americans visiting Cuba by the Cuban government. The ban is entirely U.S.-driven. But that won't happen until one of two events occurs… either Castro dies (he's already survived 10 U.S. Presidents) or Congress develops the political spine to ignore the powerful Cuban-American lobby in Florida. As it is, the U.S. government subsidizes a small group of anti-Castro combatants to the tune of $80 million annually with our hard-earned tax dollars.

Unquestionably the embargo is hurting the U.S. as much as it hurts Cuba. As the political hard liners on both sides duke it out, the center gets hurt…the average Cuban citizen and the average American businessperson. In the meantime, the window is closing. Now is the time to normalize relations before the Europeans completely shut the U.S. out. Ultimately it will be the business community that will force the change. American agricultural and pharmaceutical interests have tried and lost. But they'll be back, and like McCain and Feingold, eventually they'll succeed.

What must Castro do in return? First, deal with the reparations issue. Cubans who had their property confiscated during the Revolution deserve fair and equitable compensation for the loss, at today's value. Next, convert the current political dictatorship to some form of participatory democracy even if it's Democratic Socialism. Unfortunately that change is probably stalled until Castro's death. Move the majority of the economy from a central-planned to a market-driven model. And allow more freedoms for the average Cuban…open access to international television and communications, the Internet and foreign travel. Most importantly, let Cubans enjoy the right and the freedom to own, to acquire, to earn and to build without government interference or control. They deserve no less.

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