Cuba Part I - Communism, Capitalism & Optimism

October 9, 2018

La Habana Vieja, Havana, Cuba - @sdmarks

 

Havana - The embassy sits in a section of Havana that is relatively modern, or at least contemporary in the Cuban sense. Clean store fronts are popping up amongst early 20th century buildings whose frames resemble a period in time where Cuban high society mingled with U.S. socialites on holiday, but whose structures look worn and ravaged by time, famines and isolation.

 

“I left Cuba 10 years ago and returned a few months ago thinking there would be some change, but the reality is that very little has changed in 50 years,” said a lifelong diplomat on his second tour of duty in Havana, “but you have to be optimistic, while grounded in reality”.   That reality is a third world country which sits only 90 miles from the U.S., but is worlds away from the most economically prosperous country in human history.

 

A quick summary of modern Cuban history is as follows: Spanish imperialism then U.S. economic influence, Castro’s revolution followed by Soviet capital and influence, a deep depression after the breakup of the USSR, Venezuelan oil money that saved Castro, lifting of some U.S. economic sanctions and then a partial repeal of those sanctions under President Trump.

 

To understand Cuba, one must realize that the state controls everything.  While that may seem obvious on the surface, it’s hard to realize the impact until you’re on the ground.  The state regulates food, currency, business, investment and almost every aspect of Cuban life and this can be seen in its buildings and infrastructure.  

 

 

It’s fairly obvious that Cuba’s motivation for warmer U.S. relations was purely a cash grab: $50 for a single use U.S. tourist visa, 10% state tax on USD to CUC conversions, and tourist only services like taxis and buses.  The Cuban government, led by its aging patriarch Raul Castro, viewed any type of easing on international policy as a way to keep their antiquated communist system going in a globalized, technology-based world.  

 

While the old order is holding on to its power, generational change could lead to a collapse of the system.  The youth are connected not only through social media, but also to their families who now have multiple generations that have migrated to the United States.  This broader view of the world is critical for Cuban transformation just as it is in places like Venezuela and Nicaragua.  

 

 

A recent example is a crackdown on reggaeton music.  The law itself is a suppression of artist expression because the very nature of the music is subversive and the state knows that distribution through both hard copy and digital media could foment unrest.  Additionally, a constitutional reform is underway and the voices of Cuban university students are being heard on a number of issues, including personal liberties, private property ownership and more inclusive foreign policy.  

 

While walking through Old Havana it’s common to see high school kids listening to music with their friends while riding skateboards and using their smartphones.  What will this generation do in 5 years when they’re in university and have another half decade of exposure to social media, subversive art and U.S. tourism?

 

 

This was the very reason of President Obama’s policy towards Cuba and an easing of sanctions.  Give people access to individualism, connectivity through technology, more interactions with U.S. Americans and change will happen.  What the Obama administration pushed through was the ability for Cuban families to reunite, increase of flights from the U.S. to Cuba, cultural exchanges, improvement of infrastructure to handle these tourists, and telecommunications.  These were the same tactics that were used in Germany after World War II and in Eastern Europe during the Cold War.  This model works.

 

It’s not hard to imagine a future where 3-4M U.S. tourists travel annually to the island for a vacation or a long weekend.  Cancun, which is over Americanized, saw 3M US tourists enter the city in just the first quarter of this year.  Using Cancun’s tourist spending as an example, the economic benefit to the Cuban economy could be in the $5-6B USD range annually, which could help lift monthly wages from a dismal $30 a month to something seen in other tourist friendly Antilles.  Not to mention the infrastructure that needs to be built to support that economy of which U.S. investors, construction firms, and financiers could benefit.

 

Let’s hope that the hard liners on both the U.S. and Cuban side are a dying breed and a new generation of creative thinking leaders emerge and enact wholesale change.  In order to accelerate this change, the U.S. must be willing to open the door wider to its influence and allowing time to take its course.  The questions then arise: what does the future of Cuba look like? Is there a possibility for a representational democracy like the United States? Or a democratic-socialist hybrid? Will the revolution, in the words of Fidel Castro, “fight to the last drop of blood”?  Or will there be a bloodless coup?  

 

Part II:  The Future of Cuba & a Model for U.S. Investment – Coming Soon

 

For more information on current greenfield, venture, private equity or corporate investment opportunities in Cuba, the Caribbean or other parts of Latin America, please contact Emmersion for a complimentary consultation.

 

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