Research Professor Kislaya Prasad recently visited Cuba to assess the business climate and prepare a trip for a group of academics. He offers his insights in the following Q&A.
How can Cuba overcome its well publicized obstacles and become a viable environment for business?
“It’s significant that U.S. tourism travel to Cuba is booming and Starwood Resorts just became the first US hospitality company to enter Cuba since the Cuban Revolution. The loosening of restrictions will continue to add to this trend. Restrictions on Airbnb also have just been relaxed, and commercial flights will recommence soon. Hospitality, one of the sectors in which the Europeans had been investing heavily already, will see some influx of capital. These are all significant developments. Though the business climate isn’t conducive to large-scale investments, signs point to a change. Much of the activity is happening at the level of really small enterprises — like homestays or paladars (restaurants). Visiting Cuba, I learned that many of the paladars had foreign partners and that relatives overseas have been investing in the refurbishing of homes of Cubans to make them fit for homestays. Such investments may seem small, but have the potential to make a difference. Moreover, they contribute to the creation of the post-revolutionary middle classes, who will in the long run become agents of change.”
Further Describe Cuba’s Looming Agents of Change
“[In a post-Castro Cuba] the Communist Party and its younger leadership will still be a significant force, but the hope is that as free enterprise — if not political openness — takes root, and reforms deepen, we will be on an irreversible course. Change will occur relatively quickly for a number of reasons: The fall in oil prices has significantly weakened Venezuela, which has been one of the main financial supporters of the Cuban government. So, the leaders are faced with the stark reality of a failed economic system, and realization that market-based reforms are the only way out.”
What are Cuba’s industries in waiting?
“Beyond hospitality and tourism, the reality of Cuba is one of crumbling infrastructure, which could be an opportunity for many companies. Automobile and farm machinery manufacturing also could take off, and Internet penetration is very low, so there also will be investments in that area. The country also has a very educated work force and health care is relatively advanced. US companies could locate there or through subsidiaries to take advantage of this talent — but much farther down the road.”
Describe Cuba’s Potential Impact on the U.S. Economy
The reality is Cuba is a small country (11 million pop.), and in dismal economic shape. Despite its proximity to the U.S., even a reforming Cuba will not have the level of trade that we have, for instance, with Vietnam. Cuba’s economic impact on the U.S. economy, therefore, will be very small, yet important locally to South Florida, which has a large Cuban-American community that cares deeply about the state of relations with Cuba. The opposition to any kind of engagement with the Castro regime was firmly entrenched within this community. There now appears to be a generational divide — with younger Cubans and more recent arrivals actually favoring greater engagement. This community has an important voice in Florida and US politics The U.S. embargo and its fraught relationship with Cuba has been unpopular in most of Latin America and I think it helps U.S. foreign policy in the region to improve ties with Cuba.
The University of Maryland’s Robert H. Smith School of Business Center for International Business Education and Research (CIBER) is leading a faculty development program to Cuba in May 2016. The goal of the program is to enable participants to develop a better understanding of the working of the Cuban economy within its broader historical, political and cultural context, to get a sense of the changes that are underway both domestically and in the context of the evolving US-Cuba relationship, and to appreciate the business prospects that have opened up. The program will also enable participants to develop connections with counterparts at Cuban universities.
Through business visits and speaking engagements with professionals, government representatives, and the higher education community in Cuba, the FDIB will explore topics of high current relevance, including:
- Investment laws and laws relevant to the formation of joint enterprises, repatriation, and labor;
- The currency and exchange rate system, Cuba’s debt and its relationship to international financial institutions; and
- Investment opportunities in tourism, pharmaceuticals, natural resources, agribusiness, etc.
Professor Prasad directs UMD’s CIBER in the Logistics, Business and Public Policy department at the University of Maryland’s Robert H. Smith School of Business. CIBER is funded by the U.S. Department of Education to increase U.S. competitiveness in the global marketplace by creating useful links between the business and academic communities on international business issues.