Investing in Cuba: Havana does
not mean business
Slepko, The Motley Fool
Consumer goods in Cuba are a somewhat different story than telecom providers
due to the differing nature of their products which require less
physical infrastructure (or government approval). Anglo-Dutch Unilever
(NYSE: UL) and Swiss Nestle (NASDAQOTH: NSRGY) and their brands are
establishing themselves as premium high-quality options and connecting
with consumers ahead of American competitors.
As long-time Cuba trade consultant Kirby Jones of Alamar
Associates observes, “Nestle’s bottled water, ice cream, and candy
as well as Unilever, especially its cosmetics joint venture, are
already in Cuba in a big way.”
However, in a demonstration of how a planned economy is terrible at
planning, just as Cuba is preparing to open up its new port facilities,
government officials are running out a long-established Israeli-Panamanian
juice processor, imprisoning Commonwealth executives for paying
workers bonuses, and refusing to renew the successful fifteen year
arrangement with Unilever. Earlier
this year, Unilever figured that since it bears all the costs and
responsibilities it should have a 51% share in its Cuban operations.
The previous 50-50 split has proven quite lucrative for the
Cuban state and has served as a reliable way for authorities to
recapture convertible currency it allows into the domestic economy.
If recent history is any guide, it is likely that Unilever will be sent away
if it does not concede – at least for awhile.
In 2005, Canada’s Sherritt International which had been
developing Cuba’s mining and energy sector since 1992, was “bought
out” by the Cuban government (though it never fully received the
compensation it was promised). Shortly,
thereafter the company returned and has become Cuba’s largest
foreign investor. Although
its newer oil and gas operations are 100% owned by Sherritt, its
metals and power subsidiaries are 50-50 and 33-67 Sherritt-Cuba
ventures. In a new twist
on an old story, there has been a purge of Cuban officials connected
to Sherritt in recent months, though explanations vary depending on
the faction commenting. Regardless,
Sherritt’s interests in Cuba are likely doomed regardless of the
current shuffle – and should the shift occur in the next of years,
the company’s other sources of revenue are unlikely to sustain the
enterprise in its current form.
Experience seems to indicate that while Cuba’s leadership is willing to do
just about anything to secure energy resources which the Havana
politburo believes holds the key to their longevity, outside of
petrochemicals, commercial brinksmanship is a precedent likely to be
repeated (at least in Cuban officials’ minds).
Unfortunately the communist mandarins have learned the wrong
lessons and fail to realize that Cuba is an insignificant concern for
Unilever, whereas at the time they were teaching Sherritt a lesson,
the Canadian miner's entire salvation lay in Cuban nickel (and even
now, over half of Sherritt's soul is a wholelly-owned subsidiary of
Havana despite it now being Canada's domestic coal king).
Yet Ponces on the other side of the Florida Strait are equally deluded.
From statements that have been made (most amusing is former US
Congressman Lincoln Diaz-Balart’s belief he will be Cuba’s next
president) it is clear many still live in the delusional Fantasy Land
sub-division of Orlando and believe that the death of Fidel (and Raul)
will result in a fully-formed, fully-realized market democracy
springing forth. Cuba is not Estonia - and despite all the loonies
invested, Cuba is certainly not going to be the next Canada.
Post-Brothers Castro, there are three likely scenarios for the island:
1. Cuba is Cuba - A narco-mafia state of crony capitalists, a modern update
on the pre-Castro Batista regime.
2. Cuba is Ukraine - A painfully slow (and likely to fail) transition to a
liberal republic along the lines of what is taking place in Burma/Myanmar
currently, and which will yield a result much like Ukraine’s current
3. Cuba is Vietnam - Another decade of communist authoritarian rule (especially
should larger reserves of oil be found) that eventually makes
reluctant common cause with the more forgiving/indifferent/apathetic
newer and younger Cuban-Americans - effectively a long-delayed
Assuming current trends hold and the US let’s its loudest portion (though
increasingly the smallest part) of the Cuban-American community loose
on a campaign of revenge and re-appropriation whatever scenario begins
to shape up will be forced to rebuff American advances to stay
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