New York businesses are in a Cuban state of mind

 

Knowledge@Wharton

 

Gov. Andrew Cuomo of New York was the first governor to lead a trade mission to Cuba since the Obama administration embarked on a thawing of relations with the U.S. On the trip with him was Howard Zemsky, president and CEO of the Empire State Development Corporation and commissioner of the New York State Department of Economic Development. Zemsky was there to plant seeds that could grow into future business opportunities in Cuba for New York companies.

 

At the recently held 2nd Cuba Opportunity Summit in New York, Zemsky stopped by the show on Wharton Business Radio, which airs on SiriusXM channel 111. He talked about his first impressions of Cuba and the nationís changing business landscape. Zemsky was a keynote presenter at the conference, which was organized by Knowledge@Wharton, Whartonís Lauder Institute and the Momentum Event Group.

 

An edited transcript of the conversation appears below.

 

Knowledge@Wharton: You were on the trip down to Cuba with Gov. Cuomo last year. What was that experience like?

 

Howard Zemsky: It was fabulous. The energy in Cuba and the excitement about turning the page on the next chapter of the Cuban economy and the relationship with the U.S. is palpable. We had a lot of companies that came, we had a lot of organizations that came, like SUNY [the State University of New York system] and the Roswell Park Cancer Institute. So we covered education, we covered a number of different industries ó agriculture, technology, pharmaceuticals, life sciences, financial services, a lot of things that New York State is strong in. And the people just couldnít be more excited. Even the ministers in government were very excited. It was very interesting.

 

Knowledge@Wharton: What is clear from the way you just went through all of those areas is that this is such a multifaceted event. Itís not just one or two pieces that youíre trying to build out; there are so many tentacles to this whole operation.

 

Zemsky: Oh, absolutely. You think about the New York economy and the different industries that weíre strong in. We wanted to start planting seeds. This is the gestation cycle. From the time you show up in Cuba to the time youíre doing a lot of business ó itís not immediate, letís put it that way.

 

And just like all sales, youíre planting seeds, and you harvest those over time. Especially when youíre dealing with Cuba, which is still a single-party system, not a free-market system. Even the financial system is underdeveloped; the infrastructure is underdeveloped. So it was the opportunity to do [a few] things ó one [is to] be the first state to lead a trade mission to Cuba, which I think is important for New York.

 

Like I said, New York has represented economic and political opportunity for people all over the world for a very long time. I think thatís really an important part of who we are as a people and as a state. And it was an opportunity to plant seeds economically. And youíre starting to see some of the benefits of that, whether itís with JetBlue or Infor or Roswell Park, which now has a collaboration with Havanaís Center of Molecular Immunology.

 

Itís all good. We continue to have interest from New York companies, and we continue to match-make for New York companies with the corresponding entities in Cuba.

 

ďYou think about the New York economy and the different industries that weíre strong in. We wanted to start planting seeds.Ē

 

Knowledge@Wharton: When you were getting ready to make the trip down there last year, what was the process like? Because obviously, youíre also having to deal with the federal government. There are things you can do, things you canít do. What is that relationship like when youíre trying to put that together? Even now, weíre seeing changes in the relationship almost daily. The doors arenít fully open, but they sure feel like theyíre going to be open in the next couple of years.

 

Zemsky: I think where this relationship is going is clear. How long it will take to get there is really, in my mind, the only question mark. Obviously, our trade mission followed on the heels of President Obamaís announcement toward normalizing relations with Cuba. Congress hasnít acted on that at this point. They havenít followed suit yet ó but there will be a day.

 

In the meantime, of course, there are things that he can do as president, and there are things that we can do as a state, and there are certain industries that there are fewer restrictions on, like agriculture. And there are fewer restrictions on health and life sciences and education. So weíre pursuing all of those opportunities. And thereís a need in Cuba, letís be perfectly honest, thereís a real need.

 

If you look at their economy, they import 80% of their food; they have tremendous trade deficits. Their principal sponsors over the years have been Russia and Venezuela, whoíve had real economic problems of their own.

 

They have seen firsthand some of the positive impacts of privatization and entrepreneurship. They need to be more productive: They need to grow more of their own food, they need to import less, they need to be more self-sustaining. And they need to open up their borders. Americaís the largest economy in the world. Think about the tourism opportunity for Cuba ó tourism is the No. 1 industry.

 

Knowledge@Wharton: And all of that tourism has been from countries other than the U.S.

 

Zemsky: Yeah, exactly.

 

Knowledge@Wharton: You would obviously expect that with flights getting up and running from the U.S. in the near future, weíre going to see an influx of travellers to Cuba, once you donít need a government-approved reason to go to Cuba.

 

Zemsky: So true. Itís going to be so great for Cuba, easing those restrictions. I think now, technically, you can really go if youíre part of a group. That, I think, will continue to be loosened. I canít believe how many people I have met in just the last few months who have said they have gone to Cuba.

 

Knowledge@Wharton: At the [previous] Cuba Summit, we interviewed a couple of gentlemen from Alabama who recently got approved by the State Department to build a tractor factory in Cuba. Iím sure youíre seeing some of the businesses here in New York State taking advantage of similar types of opportunities.

 

Zemsky: Absolutely. You just saw Verizon ink a deal in Cuba for technology infrastructure. Youíre going to see more; this is going to open up. Itís 50 years since the embargo. Fifty years. Who is really still wringing their hands over events from 50 years ago? Think about how much has changed in the world with Russia and the Soviet Union, and the way economies have changed around the world, and philosophies of economic development. This is a place that is sort of locked in time; that is inevitably going to change.

 

Knowledge@Wharton: When you had the opportunity to go down there, what were the feelings you got from the Cuba people, in terms of building these relationships?

 

Zemsky: Believe me, they are aware of the fact that life could be better. They have no resentment toward America or Americans that I can tell, or over the tensions that have existed. They just want to talk about the future. Thatís really it. No one really wants to talk about what happened in the 1960s.

 

Knowledge@Wharton: Is there still a little bit of wariness from some of the companies that you deal with in the state of New York about the government? Because the fact is, itís still the Castro family that is running the operation. Itís obviously quite a bit different.

 

There has to be a little bit of hesitancy when you are talking about making these types of investments.

 

Zemsky: Oh, absolutely, and itís hard to make them. I mean, itís not easy to do business, really, with the government. They move in a different time frame than New Yorkers are accustomed to. Itís a very different process. Itís interesting: When youíre talking about life sciences, youíre putting American scientists with Cuban scientists. When youíre talking about education, we had Cuban educators with New York educators. But when you are talking about commerce, you have businesses, and across the table from businesses are government officials.

 

So this isnít business to business, so to speak, itís business to government. Itís very different from what most businesses are accustomed to dealing with: It has a different time frame, it has restrictions and itís in a country where financial and physical infrastructure isnít up to what you would call 21st-century standards in any way, shape or form.

 

Culturally, itís very different. Youíre planting seeds, but it takes time.

 

ďThe world is knocking on Cubaís door and they are opening it ó slowly, but itís opening.Ē

 

Knowledge@Wharton: Just seeing that firsthand, were you taken aback a little bit by just how different their life is from what weíre used to?

 

Zemsky: Yes. And the fact that it is just 90 miles from the United States ó I mean, this isnít like the other side of the world, this is right off the coast of Florida.

 

Of course, when you get there, even though youíve all heard the stories of how itís like Ė the 1950s and 1960s cars ó you are struck immediately by the fact that you have never seen such a collection of old automobiles in your life. Itís an immediate visual reminder that youíre almost in a different time, in a sense, somewhere that things havenít really changed that much in 50 years in terms of its infrastructure and things of that nature. The Cubans, I think, are ready to change. Our president obviously is; our governor is. And most importantly, the people of Cuba, I think, are.

 

Knowledge@Wharton: The fact is, though, that weíre at a point where ó if you take the political climate in Washington D.C. out of play ó things can get done. That has to feel very promising for you and the businesses that want to be involved from New York State. You probably have so many businesses coming to you saying, ďHey, listen, when you make your next trip down to Cuba, we want to be in on that.Ē

 

Zemsky: Yeah, thatís right, and we connect those businesses.

 

Knowledge@Wharton: Itís not just one or two segments where thereís a big need?

 

Zemsky: No, weíre connecting industries here in New York with the opportunities in Cuba. Weíre able to facilitate those contacts and connections, which is important. And you are right, we have companies all the time saying, ďHey, next time you do a trade missionÖĒ ó we just this week literally connected New York businesses in the hospitality business and the agriculture business and others with their Cuban counterparts.

 

Knowledge@Wharton: You mentioned Verizon, Marriott and Starwood Hotels.

 

As weird as it sounds, the Rolling Stones are going to play a concert in Havana. I think we take it for granted, but these are all pieces to this puzzle.

 

Zemsky: Yeah, absolutely. It feels to me like thereís an inevitability about it. I think ever since the governor led his trade mission, there have been countless states that have followed suit. The world is knocking on Cubaís door and they are opening it ó slowly, but itís opening.

 

Knowledge@Wharton: The fact that Verizon now has their deal, and we know that the airlines are getting set up there, the hotel industry Ö Are there one or two segments that you still see where there hasnít been a relationship build-out to the point where it needs to be at this moment?

 

Zemsky: Well, there are a lot of industries where there are opportunities. The financials, for example. You think about New York and you think about some of our strengths in financial services. Cuba has a gaping hole in their financial services industry. So for companies like MasterCard, there will be great opportunity.

 

For the airlines, there will be great opportunity. For agriculture producers, the same. We do a fair amount of business now in America with Cuba; they import a lot of food. But there are opportunities for New York companies, because any infrastructure at all that you can imagine is an opportunity. All types of professional services ó hospitality, you name it.

 

ďThey have no resentment toward America or Americans that I can tell, or over the tensions that have existed. They just want to talk about the future.Ē

 

Knowledge@Wharton: Is that what makes New York state such a good fit for this, from your perspective? You have the banking industry, which is very important here in New York City. But you go an hour west or north, and thereís so much agriculture that can be called on, as well.

 

Zemsky: Look, New York state is big in agriculture, New York state is big in life sciences, weíre big in financial services, weíre big in manufacturing in a lot of industries, so we brought representatives from those industries and institutions to join us. And I think every person felt the trip was really very worthwhile. And that was a whirlwind trip, like, 24 or 26 hours.

 

Knowledge@Wharton: Is another trip planned for your delegation to go down there?

 

Zemsky: Yes. Thereís not a date right now, but I wouldnít be at all surprised to return with a number of companies. In the meantime, I think weíre doing a good job with the relationships we developed to connect those businesses, without leading another trade mission. But stay tuned on that.

 

Knowledge@Wharton: President Obama [visited Cuba recently]. How important is that visit for this whole process? Because all of this groundwork has been done over the last year, or year plus.

 

Zemsky: Iím sure thereís been a lot of groundwork. This tripís probably been in the planning for a long time, ever since he announced his desire to normalize relations with Cuba over a year ago.

 

Knowledge@Wharton: You did bring up an interesting point a little while ago ó that all of this is happening, yet you have to be mindful of the people who are already there, who have been living there for decades and not going over the edge. You have to work within their system, to some degree.

 

Zemsky: Oh, absolutely. This is not a free market system. This is a controlled, single-party system, and the government still views America with some caution, still views free enterprise with some caution. All of these things are challenges.

 

Knowledge@Wharton: When you think of Cubaís place in the Caribbean [region], with this build out potentially happening, it has the opportunity, in some respects, to become the King of the Caribbean. With their industry, if they can build this out over the next few years, they could be a feeder for all of the other islands in that region.

 

Zemsky: Right, thatís actually correct. Thereís a huge opportunity for Cuba. I think there are about 11 million people in Cuba ó itís a bit larger than the Dominican Republic, itís many times larger than Puerto Rico. And itís very well positioned geographically as a gateway to the Caribbean.

 

Knowledge@Wharton: Can you believe how far this has come in little over a yearís time?

 

Zemsky: No, itís great. I just canít believe how many people I have met who just came back from Cuba. Itís just become the place to go, and so many states are leading delegations.

 

Knowledge@Wharton: How much conversation goes on between yourself and some of the other states that are leading delegations down there? Talking about not only what you saw, but maybe future partnerships that maybe two states will be able to put together, with the Cuban government in a specific sector.

 

Zemsky: Truthfully, weíre more focused on servicing the businesses in New York state than we are on working collaboratively with Indiana, [for example,] but just as a matter of prioritization because weíre getting so many inquiries and there are so many opportunities. Yes, weíve had some inquiries about what the protocol is, and weíre happy to share that information. And we do, because Ö our governor was the first governor to lead a trade mission. So we have been helpful to other states, helping them understand what the protocols are and how we did that.

 

ďItís clear that one of the legacies for President Obama is going to be this normalization of relations with Cuba.Ē

 

Knowledge@Wharton: The protocols are obviously very important, because these companies know almost nothing about doing business in Cuba. Some of them may have cursory business with the island, but thatís basically it. They are brand new to this operation.

 

 

Zemsky: Absolutely. You know, New York is ó relative to other states, I think  ó a very international state. Think about all the different dimensions to New Yorkís relationship with the world: Weíre accustomed to doing business internationally; weíre accustomed to foreign-direct investment; weíre accustomed to international tourism; weíre well positioned to do international commerce.

 

Knowledge@Wharton: I know this is tough to estimate, but how quickly can this process build out? Obviously, the embargo is one thing, but there are ways seemingly to work around it. How quickly do you see this train moving down the tracks in the next few years?

 

Zemsky: Well, I think realistically, this takes two to tango. Youíve got the executive branch in the form of President Obama, whoís actually obviously leading the charge federally to normalize relations. You have Congress that has obviously not been ready, willing and eager to make those changes and follow suit. And then, youíve got a Cuban government that has obviously gone through some transition, even within the same family, but is still a single-party system.

 

Tell me how quickly the Cuban political system will change, tell me how quickly the Cuban economy will adopt more of a hybrid, free market, controlled market model. Tell me how quickly Congress will follow suit and follow the president, and those will, you know, be determinant to some extent on how long it will take.

 

But I still think of it and look at it as, itís not a question of if, itís a question of when. And the answers to those questions will answer the when.

 

Knowledge@Wharton: And itís one of those rare occasions where itís too far down the tracks now to be stopped. This is going to continue to roll.

 

Zemsky: I think itís clear that one of the legacies for President Obama is going to be this normalization of relations with Cuba, and putting that debate and that history behind us. Itís clear Gov. Cuomo endorses that approach, and endorses engagement over isolationism, and I think it was important for him to support the president in his approach. So itís all good.

 

 

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