Cuba Business Report
By: T.K. Hartill
I recently sat down for a conversation with James Williams, President of Engage Cuba in Washington, D.C.
Engage Cuba is the bi-partisan non-profit organization representing business and private companies working to endtrade and travel restrictions against Cuba. They are a deeply committed organization involved in lobbying Congress to lift the embargo. Their prime focus is U.S.-Cuba legislative advocacy.
We met at the Engage Cuba offices in Washington to discuss Cuba and issues surrounding the U.S. embargo. Currently there are several bills in the House and Senate: S. 299/HR 664 Freedom to Travel to Cuba Act, S.491 Freedom to Export to Cuba Act of 2015, S. 1049 Agricultural Export Expansion Act of 2015, S. 1389/HR 3055 Cuba DATA Act, S. 1543/HR 3238 The Cuba Trade Act of 2015, and H.R. 3687 Cuba Agricultural Exports Act.
Cuba Business Report: Do you think that in this election year there will be anymore progress towards lifting the embargo? Do you think it’s going to happen this year?
James Williams: Just within the past few months, we made history when a majority of senators cosponsored the S.299 Freedom to Travel to Cuba Act. Then, the Senate Appropriations Committee in June passed four pro-engagement Cuba amendments. An amendment to allow American farmers to extend private financing for the export of agricultural commodities to Cuba passed by a vote of 22-8. An amendment to end the travel ban on Cuba then passed by voice vote. Additional amendments passed by voice vote to allow for the exportation of telecommunication services and the refueling of planes at Bangor Airport for international flights en route to or from Cuba.
We believe that this momentum in the Senate is indicative of a general atmosphere on Capitol Hill to fully normalize U.S.-Cuba relations. While there is still work to be done in the House of Representatives, the historic compromise last week in the House Financial Services Committee to find a long-term solution to provide credit for the export of agricultural commodities to Cuba is a promising sign of progress. Although the timeline for lifting the full embargo is uncertain, the wind is clearly behind our back in our effort to put an end to the half-century-long failed U.S. policy toward Cuba.
Engage Cuba’s Work with US business:
Let’s discuss the first steps for a corporation that’s interested in opening up shop in Cuba. What’s the first thing they have to do? The common knowledge is that a corporation should begin the process of investigating now and not later.
The Cuban Embassy in Washington plays a pivotal role for U.S. companies that wish to explore business opportunities on the Island. We bring members of our Business Council to the Embassy and we develop proposals for our members to travel to Cuba to explore corporate ventures. Once a business delegation is approved to travel to Cuba, Engage Cuba works with the Embassy to develop an official agenda for the company and provides briefing materials prior to the trip. Engage Cuba staff accompany the business delegation throughout the trip to assist with logistical and content matters. We believe that corporate engagement is a vehicle to mobilize the business community in support of our legislative strategy to lift the embargo.
Even though the embargo still restricts economic activity in Cuba, it is important for U.S. companies to begin conversations now with their Cuban counterparts to prepare for the inevitable day when the embargo is lifted.
In your view, which US sectors are most ready/prepared to start doing business in Cuba?
There is no shortage of interest from the business community for a change in U.S. policy toward Cuba. Some of the sectors that are particularly invested in seeing an end to the embargo are the agriculture, telecommunications, construction and hospitality industries. There is interest, too, within biotech and pharmaceutical sector, as well as renewable energy.
It has been fascinating to see a complementary relationship between various business sectors operating in Cuba. For example, Starwood, a member of Engage Cuba’s Business Council, just began operating the Quinta Avenida Hotel in Havana under its Four Points by Sheraton brand. Another Engage Cuba member, Stonegate Bank, enable its MasterCard credit card for use in Cuba, becoming the only U.S. credit card that will work on the island until more financial institutions agree to authorize transactions in Cuba. The ability for U.S. travelers — some of whom might stay at the Quinta Avenida — to use the card in Cuba will alleviate some of the burden for travelers who typically must carry cash to Cuba.
Does Engage Cuba feel optimistic at this point in time that it will become easier for US businesses to open up in Cuba this year (being an election year)?
We are in a moment of presidential electoral politics that most pundits would have not predicted: the presumptive candidates from both the Democratic and Republican parties are in favor of normalized relations with Cuba. Although businesses will likely maintain a degree of caution in their approach toward Cuba, they can bet that the progress in U.S.-Cuba relations will continue rather than backtrack under the next administration, whoever that president might be.
Engage Cuba works with American Agribusiness. Credit issues are a hindrance to increasing US agriculture exports, (Cuba being a natural market for US AG). US agriculture exports are down for the fiscal year 2014 and 2015. What’s the short term solution to increasing US agriculture exports to Cuba, or is there a short term solution?
The U.S. used to be the number one supplier of agricultural goods to Cuba, but has fallen to #5 behind the EU, Brazil, Argentina, and Vietnam as of the end of 2015. U.S. policy that prohibits the extension of credit for U.S. agricultural exports to Cuba makes U.S. products less competitive, even though there are some that still go to Cuba in spite of the restrictions (such as poultry, and very recently, soyoil). The U.S. agribusiness community has been very active in trying to stimulate congressional action on these policies–which is the only way that they can be changed. Different states (like Arkansas and Louisiana) and commodity groups (like rice and wheat) have been seeking engagement and greater ties with Cuba, but all is contingent on policy change. In the near-term, if U.S. products are more competitive (through the ability to extend credit), the U.S. would be able to recapture lost market share relatively quickly.
On the Cuban Side of Things
Does Cuba appear to have any preferences in terms of which sectors of US business should invest first? Is Cuba offering any preferential treatment to certain sectors? Which sector has the easiest entry for US businesses in Cuba?
Cuba has a portfolio of investment opportunities that is revised annually and contains a variety of projects for which they are seeking foreign direct investment (FDI) in sectors ranging from agriculture to manufacturing glass bottles. Given the current influx of visitors to Cuba and the strains that places on the hospitality sector, Cuba has an immediate need for hospitality infrastructure (i.e. hotels). In addition, there are increasing needs in the energy sector due to a loss of oil supply from Venezuela, hence Cuba’s priority of investment in renewable energy projects.
There is no such thing as “easiest entry” for U.S. businesses in Cuba, given the complex regulatory environment on the U.S. side and the bureaucratic approval process on the Cuban side. That said, some important approvals we have seen are within the hospitality sector, such as hotel management and cruise ships sailing; finance agreements like that of Stonegate Bank; and several entertainment projects like the filming of Fast & Furious 8.
How interested /responsive is Cuba to US corporations doing business in Cuba?
Cuba is very interested in securing investment from U.S. companies. The Embassy in Washington has been overwhelmed with requests for business meetings and travel to Cuba. Indeed, Cuba is well aware that the more concrete, tangible ties there are between Cuba and the U.S. business community, the more permanent the current normalization process will be.
Companies from other countries are already well-established in Cuba. Will American companies be able to compete with these companies and do you think American companies possess any competitive advantages?
American companies will absolutely be able to compete with foreign entities. American firms are some of the best in the world–no matter the competition–and that will hold true in Cuba, too, once the embargo is lifted. Even with restrictions, American media and brands that make their way onto the island are very popular. American companies have the advantage of proximity, cultural affinity, and a shared history–albeit a tumultuous one. The ties that bind the Cuban and American people permeate the embargo, and once that barrier is removed, commerce and exchange will flow freely.
Where do you feel the greatest problems/sticking points lie for Americans once they are established in Cuba or is it a smooth process once they obtain a license from the US government?
Obtaining a license from the U.S. is only part of the process; there are necessary approvals on the Cuban side as well. Cuba is a new market for many American companies, and some of the challenges that are common in other emerging markets will surely be present in Cuba as well. Cuba has an advantage of excellent human capital, which is not common in most emerging markets, but there are some factors, such as lack of internet connectivity, that will make doing business difficult (or at least different) in the short-term.
Let’s hope the upcoming talks in September yield positive results. James Williams, thank you.