U.S. business relations with Cuba seem to have one speed: Slow
A Tampa company that’s in negotiations to open a warehouse outside Havana that would stock food, wine and other products needed in Cuba’s growing tourism industry is hopeful it will eventually get the green light, but Cuban officials have made it clear that the government will be its partner and it could take some time.
In the 16 months since Cuba and the United States announced they had begun the process of normalizing relations, there’s been a flurry of interest from American companies eager to sample the formerly forbidden fruit of the Cuban market, but as many are finding, navigating Cuban law, policy, priorities and the multiple agencies necessary to win approvals can be tricky.
Getting U.S. approval for a project that’s an exception to the embargo or that falls within a series of new rules on trade with Cuba that the Obama administration has been issuing since the rapprochement began is just the beginning of what can be a long, winding road.
Tim Hunt, the lawyer for Tampa-based Florida Produce, said he’s optimistic the firm might get a draft term sheet back from the Cubans by the end of the month after what he describes as a “very good meeting” recently with Cuban officials. They told him they would get back to him on a potential Cuban partner for Florida Produce, a veteran of exporting food to the island.
“It seems it’s going to be a very, very slow-moving process,” Hunt said. Florida Produce first presented its plan for a wholesale distribution center, stocked with legal U.S. exports, to Cuban authorities in October.
“Our idea gives Cuban companies, restaurants and hotels an opportunity to buy products as needed. We think we have a compelling argument,” Hunt said.
John Kavulich, president of the U.S.-Cuba Trade and Economic Council, says it also has been slow going for the seven New York companies that accompanied Gov. Andrew Cuomo on a trip to Cuba in April 2015. Four of the companies — Cayuga Milk Ingredients, Chobani Greek Yogurt, Pfizer and Regeneron — have reported no exports to Cuba in the intervening year, according to Kavulich.
The U.S. Office of Foreign Assets Control authorized the use of U.S.-issued credit cards by Americans in Cuba a year ago, but MasterCard, which was also on the Cuomo trip, said it is up to each bank to decide whether cardholders will be allowed to use their cards on the island. Another company that went on the trip, Infor, didn’t provide follow-up information, and JetBlue is awaiting a decision from the U.S. Department of Transportation on its bid to offer commercial air service to Cuba.
Most of the companies that have found a degree of success so far are in the tourism and telecom businesses — both priorities for the Cuban government. Emphasizing how important tourism has become, Cuban leader Raúl Castro said last week: “Each hotel inaugurated is another factory that generates within our border much-needed export income for our country.”
On the eve of President Barack Obama’s visit to Cuba in March, Starwood Hotels & Resorts announced that it had signed deals to operate Havana’s iconic Hotel Inglaterra and the Hotel Quinta Avenida, located on Havana’s prime Fifth Avenue, with Cuban government partners. It also has signed a letter of intent to convert Havana’s Hotel Santa Isabel into a member of its “The Luxury Collection.”
After renovations, the hotels will reopen and the names of American hospitality brands will appear in Cuba for the first time in more than five decades. Starwood already has listed the Four Points by Sheraton Quinta Avenida, with a May 30 opening, and the Inglaterra, with a July 1 opening, on its website, but neither hotel is bookable yet.
Marriott International, which is also trying to swing its own hotel deal in Cuba, is currently in the process of merging with Starwood in a deal that would make Marriott the world’s largest hotel company.
Airbnb, the San Francisco in-home-stays booking company, also has found success in Cuba. It launched there in April 2015 with 1,000 listings. That has grown to 4,000 listings, and guests from all 50 states have stayed in accommodations in Airbnb’s Cuba network, said Brian Chesky, chief executive and an Airbnb co-founder.
“Cuba is the fastest-growing market ever for Airbnb,” said Chesky, who took part in an Entrepreneurship Summit during Obama’s visit. It’s also a profitable market for the company.
There also have been a few telecom deals signed for roaming and direct connect, but so far Google, which has offered to bring high-speed Internet to Cuba, has had to content itself with a small-scale demonstration in Havana.
Google products such as Cardboard and Chromebooks are on display and visitors can try out high-speed access. Such efforts, Google said, “demonstrate what might be possible in the future.”
Richard Feinberg, a professor of international political economy at the University of California, San Diego, and a senior Latin American fellow at the Brookings Institution, also sees the Cuban government as a reluctant partner for U.S. companies. “In my view, the Cuban government is self-embargoed. The United States cut a significant hole in the embargo [with its new regulations that allow more trade and commerce with Cuba], but the Cubans are largely saying, ‘No, not until the whole embargo is lifted.’
“There has been some progress in the business relationship,” he added, “but we’re still in the early innings before there is a fully normal commercial relationship.”
Feinberg said the Cubans also “need to rethink their preference for only wanting to do business with big, big, big groups. That is wrong-headed.”
But even being a big company doesn’t necessarily guarantee success.
On March 22, the same day Obama gave an historic speech to the Cuban people, Carnival Corp. signed an agreement with the Cuban government for its Fathom line to begin cruise service from Miami to Cuba on May 1. It was considered a coup — the first time a cruise line would offer service from the United States to the island in more than 50 years.
But an outcry about a long-standing Cuban policy that bars anyone born in Cuba from entering or leaving the island by vessel and two lawsuits by potential passengers who had tried to book the cruise and were excluded prompted Carnival to reconsider.
It said it would delay the Fathom cruise until a change in Cuban policy. That came Friday and the Fathom cruise will leave as originally scheduled.
“U.S. companies are eager to take advantage of new opportunities in Cuba without fully understanding Cuban laws and how they are interpreted,” said Andy Gomez, a Cuba scholar. “Carnival serves as a good example of how vague Cuban laws can be. Sometimes they’re not even laws, but guidelines left to the interpretation of the Cubans.”
Castro said as much during last week’s Seventh Congress of Cuba’s Communist Party when he was talking about hundreds of economic guidelines approved during the previous party congress.
Some of these guidelines have been difficult to implement, he said, because some Cuban officials thought that all that was needed was to create a document “sending it from one end of the country to the other.” During follow-up, he said, “We saw that everyone had applied the policy in their own way.” He advocated more training and more frequent updates.
Kavulich isn’t particularly optimistic about the prognosis for new business deals, especially those involving Cuba’s nascent private sector, after analyzing the discussions at the party congress. “Those in the newly reconstituted middle class, and their relatives abroad, should be prepared for a walk instead of a jog or run to implement changes to the commercial, economic and political structures in Cuba,” he said.
“For United States companies, there will continue to be limited opportunities to provide products and services which earn revenues for the government of the Republic of Cuba, specifically relating to tourism,” he said. “However, the importation of products and services that will require expenditures — and assist with further developing a middle class — will be marginal.”
Cuba isn’t opposed to private enterprise, but it must be a complement to socialism and state-run businesses, Castro said during the party congress. And it’s clear the Communist Party doesn’t want private businesses to get very large either.
A guideline that states “concentration of property will not be allowed” in the non-state sector will be amended to include the phrase “nor of wealth,” Castro said. “The private company will operate within well defined limits.”
This story was originally published April 22, 2016 at 4:30 AM with the headline "U.S. business relations with Cuba seem to have one speed: Slow."