Cuba: A Market Worth a Second Glance?

By: Benjamin Glick

With diplomatic ties betweCubaimageen the U.S and Cuba now reestablished, many believe it isn’t long before the almost 56-year-old embargo is lifted with limited market expansion to follow and full liberalization in the near future.

Although American industries like tourism and agriculture would benefit from open markets in Cuba, the country’s entrenchment in Marxist ideology and its contentious history with the U.S. it’s unlikely sweeping reforms will come overnight, if ever.

Despite this, steps are being made to encourage democratization and to expand free enterprise.

Anticipating the effects of liberalization on its domestic industries and the threats it may pose to the current regime, the Caribbean nation is experimenting how to cope with the demands of global capitalism while balancing its revolutionary ideals.

This is not to say there aren’t opportunities in the island nation, even before further government policies are made, but the first to learn how to interact with – or, at least, be aware of – this new economy reality may find it worth the effort.

Tourism

Even before hospitable market policies were made available in the country, U.S. tourism was already making headway into Cuba.

With miles of unspoiled coastline, well-preserved architecture, streets clogged with classic automobiles and an inviting tropical climate, it could be said tourism is in the country’s DNA.

It cannot be denied that as one of the country’s largest industries, tourism will be one of the biggest factors in the inaugural Cuban economy – generating $2 billion annually.

With the ease of travel restrictions by the Obama Administration in 2015, projections are already yielding much higher than expected results.

According to Reuters, Cuba received a record 3.52 million visitors in 2015, up 17.4 percent from the year before. American visits, not counting hundreds of thousands of Cuban-Americans, rose 77 percent from July 2015 to January 2016 when they were expected to grow by 50 percent.

Investors looking for a market with a high growth potential need look no further than here.

Healthcare: “An untapped market”

Future investors going in with the mindset or expecting an undeveloped banana republic will be surprised to find many matured native industries as well as a healthy and skilled workforce.

A unique feature of Cuba’s economy is its home-grown healthcare sector. Created partly by the U.S. embargo and partly by Marxist ideology, the heavily subsidized Cuban healthcare system has resulted in one of the highest doctor to patient ratios, and one of the lowest infant mortality rates in the world – lower on average than the U.S. and Canada.

Cuban healthcare is so developed, comparatively speaking, that Cuban doctors are routinely sent around the world to undeveloped countries in what has been termed Cuban Medical Internationalism.

According to the 2015 United Nations Development Programme’s Human Development Report, Cuba ranked the country 67th in the world, earning the country a “high” in terms of human development.

In spite of economic pressures, Cuba also ranks high globally in GDP, 64 out of 193 countries. However, most of this wealth is concentrated within the country’s ruling class, with much of the country relying on government allowances.

Hand-in-hand with Cuba’s medical industry is its pharmaceutical industry. Medicaments make up 10 percent of the Cuban economy and will likely play a vital role in the future Cuban economy.

Experts in the industry have described the Cuban pharmaceuticals as an “untapped market” for U.S. drug manufacturers wishing to gain access to an industry with industrial and research capability. In other words, there would be little overhead for U.S. investors to contribute.

However, as many industries are for the most part established, forming courteous, not necessarily competitive relationships with these already present activities will be integral to the new Cuban economy.

Oil, Manufacturing, and Agriculture

Cuba also has the potential of becoming a key oil exporter. Refined petroleum has nearly tripled from 2009 to 2013, and further explorations of the area may expand production in the coming years.

Other areas of interest include a dormant market for machines and parts that, according to Observatory of Economic Complexity of MIT, currently makes up a quarter of import demand, about $1.61 billion.

The next largest market in Cuba is for vegetable products. Including wheat, corn, rice and soybeans, the market is valued at $791 million and makes up 12 percent of its total imports.

When observed on a graph the Cuban economy has remained stagnant since the late 1980s and the fall of the Soviet Union. However, there is a significant uptick in economic activity approaching 2013 as relations between Cuba and the United States normalize.

Workers’ Cooperatives

In a unique attempt to decentralize his country’s planned economy, Cuban President Raul Castro implemented a preemptive series of reforms in 2011 to expand the power of workers’ cooperatives.

Designed to protect domestic industries and pursue Marxist ideals of worker empowerment, cooperatives are businesses or other organizations that are owned and run jointly by its members, who share in profits. Existing since the start of the revolution, they’ve been expanded to play more vital role in Cuba’s economy. And so far, Cubans seem to like them.

Cooperatives allow the Cuban government to retain nominal control over private enterprise while continuing to imbue revolutionary thought; but allows market freedoms otherwise unavailable under communist rule.

Once reserved only for farm workers, cooperatives have expanded to include everything from taxi services and hair salons to large Cuban industries like agriculture, and are expected to include all or most facets of economic activity as time goes on.

If Cuba is destined to open up again to U.S. markets, and if the revolution is to survive the Castro dynasty, these employee-run enterprises will need to know how to interface with future stakeholders and vice versa.

While lucrative areas may exist in the near future, venture capitalists looking to cash in on a quick and dirty return may find impending Cuban markets disappointing, but for those looking to make long-term investments into the pint-sized people’s republic may find a lasting, and profitable, partnership.

As a nation isolated from the U.S. as much by politics and derisive history as it is by the 100 mile stretch from Havana to Key West, this may be the area where the two countries can again find common ground.

Overcoming diplomatic silence has taken half a century to address, so full market liberalization, many experts say, may take longer and be more difficult to implement as the country comes to grips with 21st-century global capitalism.

While an aged and inefficient government as well as a contentious history keeps Cuba from completely embracing Western-style democracy and capitalism, a relatively high GDP, a high human development index and robust economic growth makes Cuba fertile ground for future development.


Benjamin Glick is a student assistant at the Van Andel Global Trade Center. He has written for the Grand Valley State University student newspaper, The Lanthorn, and is double-majoring in English literature and journalism.

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