by John S. Kavulich, guest columnist
For US businesses, normalizing US-Cuban commercial relations presents the prospect of 11.3 million consumers residing 93 miles south of Key West, Florida. Taken together, they make up a market where awareness of and preference for US brands are among the highest of any non-English-speaking country.
It is a market in the midst of a transformation.
An anecdote: Three years ago, a friend of mine who lives in Florida and has relatives in Cuba was asked to send a cellular telephone to Havana – any device, however old, would do. Last month, the friend received another request, for another cellular device. Only now, not just any cellular device will do. It must be a smartphone, an iPhone7.
However, US businesses should be wary: The Cuban government has – and will likely continue – to approach any full-on re-engagement with the US slowly and cautiously.
The government of Cuba will constrain the economic prosperity of its citizens if it perceives that re-engagement with the US government or US companies or US citizens will result in uncertainty in its commercial, economic and political control.
We often hear that the reason for the Cuban government’s limited response to the Obama Administration’s initiatives is “The Embargo.” Granted, there are statutory and regulatory impediments to a “normalized” relationship. However, the question for the government of Cuba is to what extent the Cuban people will be denied opportunities solely because not all bilateral issues have been resolved?
Thus far, the Cuban government has responded by focusing on those Obama Administration initiatives that will bring it revenue.
Road to Cuba for US exporters heads south
Ironically, US exports to Cuba have fallen since President Obama announced the course change in US policy toward Cuba. The most recent peak year for US exports to Cuba was 2008, with US$710 million in total exports. Last year was the worst, with only US$170.5 million in exports.
Even more ironically, given President Obama’s initiatives, these are primarily exports of food products and agricultural commodities. And the downward trend continues, with ag exports falling 10% during the first seven months of this year.
The reasons for the cumulative reduction in US exports to Cuba during the last 10 years? The list includes:
- Cuba’s lack of foreign exchange – largely due to commercial and economic decisions by the Cuban government;
- the financial largess of Venezuela’s and China’s governments, lessening the Cuban government’s interest in US products, regardless of cost, quality, or delivery considerations;
- re-emergence and/or continuation of import relationships (based on barter, substantial credits – i.e., terms other than the US cash-in-advance requirement) with the governments of Brazil, Canada, Argentina, Vietnam, Mexico, Spain, Canada, Russia, Iran, New Zealand, and France, among others;
- Cuba’s preference for purchasing products from government-controlled entities (which provide more favorable payment terms and less publicity when those terms are not honored).
There are also deliberate efforts by the Cuban government to frustrate trade with the US in order to motivate US businesses, industry organizations, and elected representatives to push for changes in US policy toward Cuba. These have enjoyed some success, although their effectiveness has lessened.
There are measures – regulatory changes and new legislation – the US can take to open up commerce in both directions between the two countries. But the clock is ticking: President Obama’s term in office ends January 20, 2017. President Castro is retiring February 24, 2018. How much can or will be done before the first deadline? How much must be deferred until after new administrations assume leadership in both countries?
Granted, President Obama can change regulation, not statutes – but it is beginning to look like the current administration may not wrap up the list of regulatory fixes that would enable direct commercial dealings between US sellers and Cuban (largely government) buyers. See our blog for more on this.
It’s easy to believe that we have everything that Cuba needs and everything that Cuba wants and that Cuba has the money to pay for everything. It is not that simple. The road to Cuba for US exporters will be a long journey, not a quick errand. Being inspired is the easy part; being rationally aspirational requires diligence and patience.
About John S. Kavulich
John S. Kavulich is President, US-Cuba Trade and Economic Council, Inc., the most widely sourced business organization within the US focused on the Republic of Cuba. Kavulich is also Editor-in Chief of the organization’s Economic Eye on Cuba.
This article is adapted from his presentation at the Datamyne-NEXCO-sponsored conference, Preparing for Trade with Cuba, held October 13, 2016, in Miami. You can download the transcript of John Kavulich’s full presentation, which includes more Cuban market data as well as analyses of foreign direct investment and infrastructure development.
The opinions expressed in this article are those of its author and do not purport to reflect the opinions or views or Descartes Datamyne. In addition, this article is for general information purposes only and it’s not intended to provide legal advice or opinions of any kind and my not be used for professional or commercial purposes. No one should act, or refrain from acting, based solely on this article without first seeking appropriate legal or other professional advice.