OR NOT TO INVEST, THAT IS THE QUESTION
Cuba in its new stage: A SWOT analysis
Carlos Alberto Montaner *
Precisely today, Aug. 14, 2015, the Stars and Stripes will be raised
in Havana, formally reestablishing diplomatic relations between the
United States and Cuba, interrupted on Jan. 3, 1961, 54 years ago,
when Ike Eisenhower governed in Washington and Fidel Castro ruled in
U.S. President Barack Obama and his secretary of State, John Kerry,
are among many personalities who have requested lifting the economic
embargo imposed on Cuba by John F. Kennedy in 1962, in the midst of
the Cold War. German, French, Dutch and Spanish high officials have
passed through Havana recently intent on building bridges to the
The perception then is that Cuba, the largest of the 13 Caribbean
markets and the most populous island followed closely by the Dominican
Republic, is opening anew to international trade and international
For the purpose of brevity and objectivity, given the composition of
this audience, I am going to use the structure of the so-called SWOT
analyses to contribute to the business decision to either invest in
that market, abstain from doing so, or wait for more clarity or better
business conditions. My function will not be to recommend what should
be done but to place certain data and basic elements on the table of
decision-makers who will decide what should be done.
As you are aware, SWOT analysis lists positive Strengths, perceived
Weaknesses, current Opportunities and Threats ahead.
1. The thaw announced simultaneously by president Barack Obama and
general Raúl Castro on Dec. 17, 2014, and the various steps taken by
both governments towards “normalization” of relations, have created an
atmosphere of triumphalism, stacked with positive expectations over
Cuba’s economic future.
2. According to recognizably resourced surveys, support for Obama’s
measures comes from a significant majority of people in the United
States and inside Cuba, and there are reasons to believe a substantial
percentage of Cuban exiles also support them.
3. As part of that rapprochement, expectations are many foreign
companies will explore the feasibility of investing in the island.
Cuba’s human capital is remarkable: more than 800,000 university
graduates and a generally healthy and educated population.
4. The Cuban government, after 56 years of uninterrupted rule, appears
to be in solid control of the country, without any person or group
visibly challenging its authority with any possibility of success.
5. Following the election of Hugo Chávez to the presidency of
Venezuela in late 1998, this oil-producing country has transferred
vast resources to Cuba. Economist Carmelo Mesa-Lago estimates the
amount of aid at its peak reached over $13 billion per year.
6. A quarter-century after the disappearance of the Communist bloc,
the Castro government has shown to be, along with North Korea, the
exception to the norm: maintaining control without renouncing the
principles of Marxism-Leninism and single party rule, while cautiously
attempting to modify its productive apparatus.
7. In that spirit of “within-the-system reforms”, in April 2015 Raúl
Castro introduced what is known as The Guidelines, which outline his
government reforms, creating spaces for foreign investment and
“cuentapropistas", self-employed entrepreneurs.
8. The institutions with the most sizeable weight and greatest
visibility in Cuban society, the Armed Forces and the Assembly of the
People’s Power, appear to fully support the steps taken by General
Raúl Castro, in the direction of re-engagement with the United States.
9. Some foreign ministries in the European Union -such as the Spanish,
German and Dutch- look approvingly upon the situation, as does the
Vatican, which has participated in secret meetings to achieve an end
to the conflicts between Cuba and the United States. Pope Francis has
announced he will soon visit Cuba as a way to support the announced
10. Cuba exerts enormous influence on the ALBA countries and is
clearly the leader of what are known as "21st-Century Socialism
Nations": Venezuela, Bolivia, Ecuador and Nicaragua.
11. We must add to this list the sympathy and solidarity Cuba inspires
from the governments of Argentina, Brazil, Uruguay, Chile and El
Salvador. In sum, never before has the island been so favored
1. The government of Raúl Castro clearly does not want regime change
but seeks to improve the communist model initiated in 1959. According
to published statements, the intended prototype is neither Chinese nor
Vietnamese but Military State Capitalism where the government reserves
for itself the control over the nation’s 2,500 largest businesses,
capitalizing on them directly through its military apparatus or in a
controlling partnership with foreign capitalists. The Cuban people
will have no access to the means of production but only to small
service enterprises, e.g. private restaurants, barbershops…
2. Raúl Castro does not believe, as did Deng Xiaoping in 1992, that "to
get rich is glorious." Raúl and Fidel continue to believe capitalism
is a wicked expression of the worst human tendencies and despise those
who practice it. In Cuba, entrepreneurs are not encouraged but
repressed. Capitalists can be necessary under certain circumstances
but always under the strict control of the political police, so as to
prevent the people’s ideological contamination and thwart the excesses
capitalists are capable of. The government continues to maintain its
supremacy in central planning over the market and the virtues of
frugality and non-consumerism.
3. Entrepreneurs looking to evaluate country-risk before investing,
first check its Moody’s or Standard & Poor’s rating. According to
these risk-assessment evaluators Cuba stands in the "Most Dangerous"
column. There is a long history of delinquency or simply breach of
obligations and refinancing events which have eventually proved to be
useless. Havana has not been willing to pay because of a serious basic
quandary: Cuban society is highly unproductive due to the collectivist
system imposed upon it and because of the amount of, and the
priorities in, public expenditure set by the government.
4. The Cuban government lacks substantial reserves and generates
barely sufficient revenue to survive month to month. This determines
its lack of minimum resources to undertake major public works needed
and, therefore, requires international loans to meet them. This
presents a relevant problem because the government is not a
trustworthy credit subject.
5. Cuba has no impartial courts to which complainants may turn to deal
with a civil law controversy, much less a criminal case. There is an
absolute absence of legal defense in any instance of conflict with the
government or a state-owned business. The government, according to its
needs, persecutes, arrests or releases any citizen arbitrarily,
including foreign businessmen with whom it has engaged in a
controversy. In other words, the opposite of true Rule of Law.
Panamanian Simón Abadi, Chilean Max Marambio, Canadian Sarkis
Yacoubian, and dozens of others can testify to this.
6. Foreign businessmen in Cuba live under the "not-so-discreet"
surveillance of the Security apparatus, always on a paranoid search
for the mythical and sinister CIA agent. Most Cuban bureaucrats and
simple neighbors or potential friends dare not associate with foreign
businessmen for fear of losing the government’s trust or find
themselves under orders to submit written reports of every voluntary
or involuntary contact made with them.
7. Cuba has not solved the key problem of the currency. Officially,
the Dollar exchange rate is close to par to the Cuban Peso. In the
parallel market it is currently fixed at 24 Pesos to 1 Dollar. Cubans
are paid in Pesos but the government sells to them in Dollars, which
generates much unconformity and an overwhelming feeling of injustice.
8. Wages are critically low (about $24 a month), which determines the
practical inexistence of a potential market of 11 million consumers.
Cubans have the lowest purchasing power per capita in all of Latin
9. The banking system is insufficient and primitive. Dollar deposits
can be frozen at the government’s discretion, as in recent occasions.
10. Bureaucracy is excruciatingly slow and insecure. Functionaries
dare not make decisions and the instructions they receive are in many
11. The hiring of workers is done through a government-owned HHRR firm
which charges investors in Dollars and pays Cuban workers in Pesos. In
the transaction, the Cuban government pockets 94 percent of the wages
paid by the foreign, or foreign participated, employers. This practice
is contrary to international accords subscribed with the International
Labor Organization “ILO".
12. For over half a century, Cubans have been accustomed to stealing
from the State in order to survive, selling the product of the
pilfering on the black market. These habits have been carried over to
private enterprise, especially self-justified as Cubans have lived
under an intense propaganda campaign against capitalist exploiters.
They know socialism leads to disaster but they also believe capitalism
is a practice of voracious wolves.
1. The country needs to totally rebuild its infrastructures.
Everything is either obsolete or in ruins: running water and sewage,
power lines, bridges and roads, telephone lines, the Internet, houses
and buildings. Housing deficit is conservatively calculated at over
1.5 million units.
2. Land is fertile and well suited for local food production. Cuba
imports 80 percent of foodstuffs and consumables expended by people
and animals. The reverse ratio of pre 1959.
3. The sugar industry, the backbone of the Cuban economy prior to the
revolution with an average yearly production of 6 million tons, now
produces close to 2 million tons a year.
4. Tourism is a most promising area. The island, with its beautiful
and varied landscape, spread out through more than 1,100 islands and
cays on both coastlines is ideally suited for the development of
tourism hubs similar to Puerto Banús in Spain or Casa de Campo in the
5. Considering the number of researchers in the field of medicine,
relevantly underutilized, the country could potentially become a
valuable partner to major international pharmaceutical industries for
the development and production of new medical products and systems.
6. Given the prestige of its health system (presently more diminished),
Cuba could potentially rise as an excellent destination for medical
tourism establishing links with U.S. health insurance groups. Havana
is much closer to Key West than Miami to Orlando, Fla.
7. As soon as relations are truly normalized, travel restrictions are
eased and visitors to the Island multiplied, Cuba will become an ideal
retirement destination for tens of thousands of Americans and Cuban-Americans
with Social Security incomes averaging $1,800 a month.
8. Cuba, with a population of 11 million, presently welcomes roughly 3
million tourists a year. In very few years, it could host 11 million
tourists and achieve paradise rating. A few bold and smart developers
could transform the coastline of Cuba, nearly 4,000 miles long (roughly
1.25 times the Atlantic coastline of Florida), with 289 natural
beaches and 200 natural harbors, to become one of the top 10 tourism
destinations in the World. The Atlantic Coast of the US and the
Caribbean is home port to over one million motor yachts and sail boats
that could sail to Cuba and dock in existing marinas and those yet to
9. Should relations between the U.S. and Cuba continue to strengthen,
a foreseeable Free Trade Agreement would allow the island to export
without limitation to the U.S., the world’s richest market.
10. Thanks to its strategic geographic location, Cuba is an ideal hub
for distributing passengers and cargo by sea and air between North and
South America, and Europe.
11. As the Taiwanese did to China, Cuban-Americans could bring to Cuba
their business expertise and relations as well as capital they have
created, inserting the island into the commercial and entrepreneurial
world of the United States.
12. As in post-communist Eastern Europe, Cuba would quickly become a
paradise for the United States’ best known fast-food and business
franchises: MacDonald’s, Burger King, KFC, etc.
13. Same as would happen with retail store chains such as Zara, Corte
Inglés, Macy’s, Sears and the rest of the most renowned retailers and
1. A substantial part of the policy of reconciliation between Obama
and Castro is contingent on lifting of the US embargo. Although there
is great pressure by the White House and surveys show most Americans
want sanctions to end, there are no guarantees this will happen during
the current presidential term. Nor can anyone predict what will happen
to relations between both countries if the upcoming elections are won
by a Republican Party candidate. Two of the most prominent White House
contenders, Jeb Bush and Marco Rubio, have adamantly criticized
President Obama for his new Cuba policy and announced their intentions
to reverse sanctions relief should Human Rights and Freedom still
remain sequestered by the Castro regime.
2. Repealing the Helms-Burton Act of 1996 is one of the key
requirements for Cuba to approach the Inter-American Development Bank,
the International Monetary Fund or the World Bank to vitalize its
affiliation to those institutions. Lacking this prerequisite, the
Cuban Government will have no access to loans for the reconstruction
of the costly infrastructures the country needs. It should be a very
slow process and will take considerable time.
3. In great measure, Cuba depends on subsidies from Venezuela, but
Chavism is going through a difficult period that could lead to its
implosion and replacement by a government unfavorable to “The Cubans”.
The disappearance of Chavism in Venezuela would be an economic and
political catastrophe for Cuba. President Nicolás Maduro’s popularity
rating is below 20 percent today.
4. To this day, the Cuban regime’s political stability has depended on
the control exercised by Fidel and Raúl Castro. Fidel became 89 years
old yesterday and Raúl 84 in June. With their relief from power ends
the generation of the Revolution and a door is opened to younger
leaders, led by Raúl Castro’s chosen heir, engineer Miguel Díaz-Canel,
55. What will happen then? Will the regime be able to transmit
authority within the single-party communist model without the
caudillos who have up to now given shape and sense to the government?
Will there be an upsurge of uncontrollable ambitions by other
candidates, presumably young military officers, intent in seizing
command and control? Nobody knows. However, Cuban history has shown
its violent and bloody face when regimes become exhausted. They have
typically been replaced violently.
5. It will be quite risky to invest in properties confiscated from
their legitimate owners during the early years of the Revolution. Both
in the United States and Spain, there are organizations of aggrieved
plaintiffs ready to go to court in defense of their rights retaining
counsel to that end. Originally, victims of confiscation were
Americans or Spaniards but, with the passing of time, Cuban-Americans
and Cuban-Spaniards have come aboard claiming their property rights.
Legislators of Cuban provenance and ancestry are a force both in the
House and Senate of the United States and in the Spanish Parliament.
6. The Nicaraguan experience will probably apply in the Cuban scenario.
Nicaraguan exiles, infinitely less numerous and powerful than Cuban-Americans
and lacking representation by Nicaraguan-origin legislators in
Washington, managed to precondition U.S. aid to the solution of the
confiscations they suffered during the first Sandinista decade.
Predictably, grieved Americans and Cuban-Americans will manage to
paralyze U.S. aid and benefits to Cuba until their confiscated
properties are returned or compensation for the stolen properties is
7. Although there is a distinct possibility to profit in Cuba’s
tourism industry, it is unlikely U.S. hotel industry holding companies,
nearly all listed in Securities Exchanges and subject to U.S.
legislation and union pressure, will agree to collaborate with Cuban
counterintelligence facilitating clandestine recordings and covert
filming inside hotels as Meliá and other European hotel chains conduct
today, in violation of Cuban law which allegedly defends the
inviolability of privacy. American lawyers are mindful of the high
price paid by German companies who cooperated with the Nazis, e.g.
Volkswagen, Bayer et al.
8. Inasmuch as it’s not a question of investing in a country under a
dictatorship, but rather of partnering with a dictatorial government
to exploit the workers and the companies, it is very likely that, when
the opportunity arises, business people linked to the Cuban government
will be brought before a court with claims for the confiscation of 94
percent of their workers’ salaries through the Dollar/Peso exchange
fraud and other violations of ILO rules. Workers’ claims will be
enormous, and there are legal offices in the U.S. ready to file suits
on a success basis for a percentage of compensations eventually
9. Finally, two articles in the current Cuban Constitution describe
the inflexibly communist nature of the regime, resulting in a
permanent threat against foreign investors. Article 5: The Communist
Party of Cuba, Martían and Marxist-Leninist, organized vanguard of the
Cuban nation, is the superior leading force of society and the State.
Article 62: None of the freedoms recognized for the citizens can be
exercised against norms established by the Constitution and the laws,
nor against the decision of the Cuban people to build socialism and
communism. Violation of this principle is a crime punishable by law.
* Presented at the Business Council of Latin America "Annual
Conference: Latin America and International Trade in San Juan, Puerto
Rico on August 14, 2015.