By Lawrence Gutman
Given the news of Raúl Castro’s visit to the Vatican and the licensing of U.S. ferry companies to sail for Havana, one can be forgiven for missing the announcement of a new Cuban golf course. Yet construction on the British-financed project in the resort town of Varadero will begin shortly. During a late-April visit to Havana, Lord John Hutton, Chair of the U.K. Cuba Initiative, discussed the new golf club as part of a $400 million investment in Cuban tourism, agriculture, infrastructure, and energy by thirty-two British firms. The capital will significantly expand a trade relationship that totaled $168 million in 2013 and sends about 150,000 British tourists to Cuba annually. “We arrived at the right moment,” Hutton remarked when asked about the timing of the investment.
As U.S.-Cuban diplomacy continues with broad international support—Pope Francis will visit Cuba and the U.S. this September, in part, to draw attention and lend momentum to the reconciliation process—foreign capital continues to enter Cuba from countries other than the U.S. Of course, this has been the case since Cuba’s alliance with the Soviet Union and its subsequent trade agreements with European, Asian, and Latin American investors in the 1990s and 2000s. The key differences today are that U.S. capital in Cuba is expected to increase substantially in the near term, and that investors from around the globe will find themselves in direct competition with the giant in Cuba’s backyard.
Since early 2014, Cuban policymakers have sought to incentivize foreign investment amid a Venezuelan economic crisis that’s threatened to push the Cuban economy into recession. In March 2014, when bilateral talks with the U.S. were secretly underway, Havana passed a foreign investment law that accelerated the approval process for foreign-funded projects, gave investors outside the energy sector an eight-year tax exemption, and reduced future taxes on foreign profits from 30 percent to 15 percent. In November, just one month before the announcement of restored U.S.-Cuban diplomatic relations, Havana published the Portfolio of Opportunities for Foreign Investment, a request for $8 billion in capital that identifies 246 development projects in industrial production, tourism, agriculture, and energy.
Inducements for foreign capital were initially met with skepticism abroad. A relationship with faltering Venezuela that accounts for 40 percent of Cuban trade was not viewed in a favorable light. Previous negotiations over large-scale construction projects had fallen through amid disputes over Cuban restrictions on foreign labor. Moreover, investors questioned how much independence they would have to execute projects under the auspices of a highly centralized state facing economic pressures without precedent since the collapse of the Soviet Union.
Yet these anxieties are being set aside amid larger concerns that building market share will be increasingly difficult once the U.S. embargo is lifted. As U.S. government and commercial representatives visit Cuba to establish ties with state officials, Latin American, European, and Asian representatives are expanding their portfolios on the island while the terms of investment are favorable and the investment space is ostensibly U.S.-free.
The near completion of the Mariel Free Trade Zone, a $1 billion deep water port and container terminal that received over $680 million from Brazil, has inspired confidence among investors concerned with Cuba’s inefficient transport infrastructure. China, Cuba’s largest creditor and second largest national trading partner (behind Venezuela), is deeply engaged with projects in nickel processing, oil rig construction, and seismic testing off Cuba’s northern coast. (Not to mention golf clubs at Varadero.) Canadian trade with Cuba exceeds one billion dollars annually. Just several days ago, French President François Hollande met with Fidel and Raúl Castro in Havana to encourage economic liberalization and urge the U.S. to lift the embargo (which, as Mr. Hollande well knows, will not happen overnight). The French delegation included officials from Pernod-Ricard, an exporter of Havana Club rum, and more French business officials will surely arrive on the island prior to the embargo’s repeal.
North Americans may yawn at the news of non-U.S. investment in Cuba, but many will be surprised to learn that 21st century Cuba is not necessarily the island of their memories or imaginations. Today’s Cuban economy is hardly reminiscent of the 1950s, when U.S. investors oversaw 80 percent of public utilities, 40 percent of sugar production, 90 percent of mining, and accounted for 25 percent of bank deposits. Some of the cars on Cuban roads today may be Chevrolets from the Batista years, but the busses were made in China in the 2000s.
What few in the U.S. fully realize is the extent to which foreign investment – especially, though not exclusively, from tourism—has affected the lives of ordinary Cubans. In 2014, Cuba received just over 3 million tourists—the highest number ever—including 900,000 from Canada, 530,000 from Europe, and 800,000 from Latin America and Asia. Beyond the creation of tourist districts in Havana and Varadero—and the daily arrival of sightseeing busses to cities like Santiago de Cuba, Santa Clara, and Trinidad—the steady flow of Europeans has driven the rise of a virtual shadow diaspora of Cubans who married and moved east instead of north. Almost one million Cubans have relatives currently living in Spain, Italy, France, Germany, the U.K., or Scandinavia, and photos of twenty- or thirty-something Cubans in Madrid, Paris, Stockholm, or Trentino are not uncommon on refrigerators in Cuban homes.
There is little question that the U.S. will play a defining role in Cuban economic activity moving forward. Unlike the 1950s, however, when over 75 percent of Cuban trade and investment was U.S.-based, North Americans will be buying, selling, and investing on much more crowded terrain. In the early 20th century, as North American capital swept across the island and Spanish colonial arrangements fell away, U.S. political cartoonists portrayed Cuba as untouched territory desperately awaiting U.S. capital (if not U.S. political supervision as well). The caricature was not accurate, but it resonated among U.S. audiences and helped lay the foundation for views of Cubans as hapless and in need of guidance from the north. North Americans may be unaware of the particulars of foreign investment in Cuba circa 2015, but they’ll become more familiar with them as they visit the island in greater numbers. U.S. investors have been on the margins of Cuba’s economy for the past half-century, and today’s political cartoonists will have a harder time portraying the island as an economic blank canvas.
Lawrence Gutman has conducted research on governance and foreign investment in Cuba as a Fullbright Hays Fellow and Tinker Foundation Fellow. He holds an M.A. in Latin American History from the University of Texas at Austin, and is based in New York. He tweets at @lawrencegutman.
[Photo courtesy of Wikimedia Commons]