Francisco A. Laguna & Wojciech Kornacki
The Republic of Cuba (República de Cuba) has been undergoing dramatic changes since the December 2014 announcement by President Obama that the United States would seek to normalize diplomatic and trade relations with this largest Caribbean country. Once all the US trade embargos are lifted, Cuba will be a very lucrative market of 11.3 million individuals, full of unexplored business opportunities for countless US companies. As of February 2015, a bipartisan group of Senators has already introduced a bill to allow US companies to do business with Cuba.
Background on Cuba
Cuba is slightly smaller than Pennsylvania. It is located 90 miles from Florida. In 2014, its population was estimated at slightly over 11.3 million. The population is fairly young, and highly educated. Almost 50 % of the population is between 25 to 54 years of age. Only 10 % of the population has access to the internet. Its political and economic center is its capital, Havana, with over 2 million inhabitants. While the Cuban population may be eager to enjoy Western products, it does not have the disposable income required to acquire them; however, opening trade with Cuba may soon change that. In addition to the ending of the US embargo, Cuba will have to make major changes in its domestic laws to fully benefit from the increased trade. One of the recent changes is the Cuban government move to allow individuals to open their own businesses.
Current US Embargo on Cuba
After the 1962 Cuban missile crisis, the US imposed a trade embargo on Cuba. Over time, the US passed a number of laws reinforcing the sanctions, including the Helms Burton Act and Cuban Democracy Act, which made specific references to improving human rights and democracy in Cuba.
As of today, the Cuba trade embargo is still in effect, however some changes have been made to improve the flow of information and goods. Travel restrictions have been eased under certain circumstances. The Department of Commerce has also amended its rules to allow the export of certain items to the Cuban private sector.
Currently, a group of legislators has introduced a bill called the Freedom to Export to Cuba Act of 2015 to remove US trade restrictions. The bill makes no references to human rights, and many business groups are expected to support it.
Business Intelligence on Cuba
The GDP of Cuba in 2011 amounted to $68.23 billion. Since the December 2014 announcement, Cuba’s business has begun to grow. Currently, there are approximately 250,000 entrepreneurs in Cuba who are eager to expand (and profit from) the Cuban economy. Due to low income, and high level of skill and education, many US businesses may be attracted by the Cuban workforce. To promote that interest, the Cuban government has been inviting numerous businesses to discuss different opportunities in Cuba.
Immediate and Long Term Business Opportunities
In all sectors, except perhaps education, Cuba needs major investment. Over 50 years of the US embargo have negatively affected the Cuban economy. Cuba’s target figure for foreign direct investment is $2.5 billion. Tourism, telecommunications and many other sectors of the Cuban economy may offer billions of dollars in business opportunities. Once the embargo is removed, Cuba will have to undertake major reforms, similar to those adopted by Poland or Czech Republic after the end of the Cold War.
The change is coming and business opportunities with it. It is yet unclear what conditions the Cuban government will impose on foreign direct investment from the United States. Issues like tax incentives and repatriation of capital will affect US corporate and individual investors alike. Other countries, especially Spain, have already made significant investments in Cuba, especially in the tourism sector. In addition, as Cuba / US relations develop, it will be interesting to see how that affects the country’s relationship with Venezuela, currently Cuba’s largest trading partner and, more importantly, its source of oil.
TransLegal can answer your questions concerning investing in Cuba.