The Next Emerging Market?
August 8, 2014
When talking about potential business opportunities in Cuba for Americans the question may arise: "Why have any legal or business focus on a small country that is subject to the longest United States embargo in history? The answer: like most U.S.-based perceptions about Cuba may at first seem obvious-let's not because it's not worth it! However, like most U.S. views of Cuba today, that answer would be based on a lack of current information and a reliance on old stereotypes.
No less of a business leader than the President of the U.S. Chamber of Commerce, Thomas J. Donahue, has called for increased trade with Cuba and an end to the Cuban embargo. In fact, the Chamber has called the U.S. embargo of Cuba "the biggest foreign policy failure of the past half century and should come to an end." 1 The Chamber's reasons are obvious.
Cuba represents the largest market in the Caribbean and the closest untapped market for U.S. business. Cuba is 90 miles from Florida, and next to Canada and Mexico, no other potential large market is closer. If Cuba were a state of the U.S., it's 11. 5 million people population would make it the eighth most populous state and essentially tied in population size with Ohio. With a land area of 42,426 square miles, Cuba is slightly larger than Ohio and nearly equal in size to Pennsylvania.
Cuba has a well-educated population with a literacy rate of nearly 100 percent, one of the highest in the world. Moreover, in the United Nations Human Development Index 2, Cuba ranks 59 out of 185 countries and ahead of countries such as Panama, Mexico, Costa Rica and China.3
Even with the embargo in place, Cuba receives more than 2 million tourists per year from around the world. U.S. law permits the sale to Cuba of food and agricultural products, including commodities and branded food products. In 2013, U.S. companies sold nearly 350 million dollars in food and agricultural products to Cuba.4 This is a significant drop from 2008 when total U.S. agricultural sales to Cuba were 710 million.5 However, a failure to make political progress on the embargo and for the U.S. to lessen its no credit/cash only requirements for Cuban food sales has caused Cuba to look to other markets for its food needs. Cuba imports 80 percent of its food requirements and without the embargo, the U.S. could significantly increase agricultural and food sales to Cuba.
Similarly, U.S. law technically permits the sale of medical equipment, medical instruments, medical supplies and pharmaceuticals to Cuba. However, red tape in U.S. regulations make such sales so difficult that virtually no one bothers. Nevertheless, authorized exports to Cuba in the medical field during 2013 amounted to slightly more than two million dollars.6
On the import side, U.S. law widely permits the importation of Cuban art, films and written materials to the U.S. However, no other Cuban-origin products are allowed to enter the U.S. Cuba's major agricultural exports to other countries are sugar, citrus, fish, cigars and coffee. Cuba also has significant mineral deposits in nickel, iron ore, copper, chromium and possibly untapped important petroleum reserves off its coasts.7 All of these products could be imported to the U.S. absent the embargo.
For a number of years Cuba has been developing an important medical and pharmaceutical industry. As noted by the World Health Organization, "the [Cuban] Government has made a major investment in biotechnology" with key focus on cancer treatments and vaccines.8 Cuban medical products are prohibited in the U.S. despite the fact Americans could benefit from their availability. Currently, efforts are underway in Congress to allow the importation to the U.S. of a Cuban treatment developed for diabetic foot ulcers. Heberprot-P, developed by the Cuban Center for Genetic Engineering and Biotechnology has been patented in more than 30 countries and has been used to treat thousands of patients.
Travel to Cuba by Americans is permitted for educational and cultural exchanges, professional research, humanitarian and religious reasons or to attend international professional conferences. However, all permissible travel to Cuba is highly regulated and controlled by the U.S. government. Moreover, no business development or tourism travel is allowed by U.S. law absent specific authorization by the U.S. government.
U.S. business losses resulting from U.S. policies towards Cuba are admittedly difficult to quantify. Nevertheless, estimates range from 1.2 billion dollars per year9 to more than four billion dollars per year.10 Moreover, the embargo increases the cost to Cuba forcing it to purchase and trade with countries that are not its geographically natural market. More significantly, the prohibition on the use of any financial institutions with U.S. ties essentially shuts Cuba out of the international financial markets and forces Cuba to rely on allies either at odds with the U.S. or too big for the U.S. to do much about. An end to the U.S. embargo would greatly assist Cuba's economic development and increase Cuba's ability to do business with U.S. companies.
The pro-embargo forces in the U.S. are dying off and younger Cuban-Americans now favor trade and normalizing U.S. relations with Cuba. U.S. businesses, just like the United States Chamber of Commerce, increasingly see that the only accomplishment of U.S. policy towards Cuba has been to shut out the U.S. from one of its natural markets.
Most significant for U.S. business interest, Cuba is changing its economic model to allow more non-governmental employment and entrepreneurship. In addition, Cuba has enacted a new foreign investment law and a created an incentive laden enterprise zone surrounding the Port of Mariel. While the U.S. sits on a failed policy, Brazil, China, Canada and other countries trade with Cuba and take advantage of increasing Cuban opportunities in sectors such as tourism, mining, real estate development, bio-medical fields and other services.
Right now Brazil is investing nearly a billion dollars in working with Cuba to build one of the largest container ports in the Caribbean at Mariel. Is Brazil preparing for something in Cuba that we in the U.S. should be focusing on? The obvious answer appears to be "yes."
- Congressional testimony of Adrean Rothkopf, vice-President of Western Hemisphere Affairs, U.S. Chamber of Commerce, April 26, 2009.
- Human Development Index (HDI) is a composite statistic of life expectancy, education, and income indices used to rank countries into four tiers of human development.
- United Nations Development Report, 2013.
- U.S.-Cuba Trade and Economic Council, Economic Eye on Cuba, April 2014.
- In 2004 the United States Geological Survey estimates were a mean of 4.6 billion barrels of oil (BBO),a mean of 9.8 TCF of natural gas (8.6 trillion cubic feet of associated-dissolved gas and 1.2 TCF of non-associated gas), and a mean total of 0.9 billion barrels of natural gas liquids for the three AUs. : U.S. Geological Survey, “Assessment of Undiscovered Oil and Gas Resources of the North Cuba Basin, 2004,” (February 2005). http://walrus.wr.usgs.gov/infobank/programs/html/factsheets/pdfs/2005_3009.pdf. Adapted by CRS.
- World Health Organization, Cuba-battling Cancer with biotechnology, January 30, 2013
- Remarks of U.S. Chamber of Commerce to United States House of Representatives, Ways and Means Committee, Subcommittee on Trade, April 29, 2010.
- Cuba Policy Foundation, various reports addressing losses in agriculture, energy, other trade and jobs. http://www.cubafoundation.org/why-2.html