All eyes are on Cuba as an investment opportunity for U.S. companies. And with travel and trade restrictions relaxing this year the question becomes — is Cuba Ready? For each potential deal, a number of factors and risks need to be assessed. But as the small island nation strives to join the world trade community, Cuba is likely to become a favorable investment destination.

At the recent Summit of Americas in Panama, more definitive discussions related to business regulations between the U.S. and Cuba took place at the first meeting between the presidents. Both agreed to reopen embassies in Havanna and Washington. And President Obama committed to review Cuba's status on the list of countries that sponsor international terrorism. Removal from this list would free Cuba to bank and do business with the U.S.

5 Key Factors for Investment

When companies look to invest globally, they typically consider five key elements: workforce availability, infrastructure development, political stability, a business-friendly tax code, and attractive incentives. How does Cuba fare in these areas?

According to the National Office of Statistics of Cuba, 71 percent of the 11.1 million population is between 15 and 64 years old. Surprising to many, the Cuban labor force is the highest educated labor force in Latin America. Over eighty percent of college-age Cubans in 2011 enrolled in postsecondary education, compared with 75 percent in Argentina, 71 percent in Chile, and 29 percent in Mexico, according to United Nations statistics.

The average Cuban wage is 471 CUP — approximately $20 per month. And Cubans are eager for a better paycheck. Housing and food are subsidized, and there is no cost for health care or education. Nevertheless, there is pent up demand for higher salaries.

With foreign investment in mind, logistics infrastructure that is critical to meet expectations for new business has been developed. Through funds mostly from Brazil, the newly expanded deep-water Port of Mariel has replaced the Port of Havana as the major port for trade in Cuba. The port office opened the Special Development Zone Mariel (ZEDM) and has a website in English and Spanish on “How to Invest” and at www.zedmariel.com.

To entice business development, changes to the Cuban tax structure and incentives for foreign investment were implemented last year.

The Port of Mariel is only 45 minutes from the Havana airport. And the new four lane highway to the Port of Mariel’s trade office is lined with semi-trailers passing through gates, waiting to load cargo containers sitting on the docks.

While the logistics piece is in place through the airport, highway, and seaport corridors, internet for business commerce in Cuba is sorely lacking. Internet that is available is complicated by weak infrastructure and tight government controls. Only about 5 percent of Cubans have access to the internet.

To meet various demands, an underground service was developed called “Paquete Semanal” (Weekly Packet), that allows many Cubans without internet service to obtain information on a daily basis. This, however, is not a sustainable communications method for business.

The wide open internet market in Cuba can be viewed as yet another business opportunity for U.S. companies. During the week of March 23rd., U.S. diplomats met with Cuba’s state run telecommunications business, ETECSA, to discuss infrastructure development options.

Missing Critical Factors

The remaining three driving factors for FDI, however, are unknown and represent a risk that should be balanced against potentially profitable investment opportunities in Cuba.

Will the political climate stabilize as Raul Castro plans his departure in 2018 and new leadership comes into power? Will the tax structure for foreign investment become business-friendly and stay that way? Will Cuba offer incentives that attract investment over other low-cost countries?

In The Spotlight

When Raul Castro announced he would leave the Presidency in 2018, he appointed Miguel Diaz-Canel as First Vice President. It is assumed that Diaz-Canel will be Cuba’s next president, but the issue has not been officially addressed. Diaz-Canel is a trained engineer who has a strong background in government, education, sports and biotechnology.

Although it is not clear whether or not Diaz-Canel’s leadership would create a stable political environment, he is well respected in educated circles. He is said to be business savvy and understands the need for sound infrastructure. Diaz-Canel was recently quoted as admitting that the development of Cuba’s internet is essential to the growth of business and trade both domestically and around the world.

In an effort to entice business development, changes to the Cuban tax structure and incentives for foreign investment were implemented last year. The new law allows for 15 percent tax less start-up and investment costs — a attractive offer for companies looking for a location offering both low-cost labor and a low tax structure. However, without a recent history of production experience and tax enforcement, the actual cost and degree of difficulty of doing business in Cuba is yet to be determined.

If Cuba follows global foreign investment trends, more aggressive global companies undoubtedly will take action and incur the risks based on the benefits of low-cost labor and available market share. And, as new industries and businesses demonstrate profitability over the next several years, others will surely enter the market.

Is Cuba ready? For many companies, the answer is yes. And for those willing to take a risk and invest, a number of opportunities may present themselves sooner rather than later.

Share

Judy Kruger
About The Author Judy Kruger
Judy Kruger is Vice President of Operations USA for Grupo Prodensa, a large start-up services firm headquartered in Monterrey, Mexico. She also is a principal global strategy consultant with Vanguard Sales Solutions, LLC. and holds a law degree from Thomas M. Cooley Law School.




www.prodensa.com.mx


Talkback (5)

  • Guest (Den)

    Permalink

    The banking infrastructure, technology, and legal enviornment needs significant modernization.

  • Guest (Rosecolin)

    Permalink

    As a number of older institution may shrivel and die with altering technologies and method that obsoletes their reason or method, this is totally not the urn with the Swiss bank organization Explain More Detail about MyAssignmentService.com.

  • Guest (Jerry Copper)

    In reply to: Rosecolin Permalink

    By this academic things, i meant to say that academic writing services providers are unethical in front of legalislation. because you do not have to write some one else thesis or assignments. buy your own template from us we have unique and http://www.enosite.com/">free website builder that could you make your stunning website in a few minutes.

  • Guest (Alessa Clark)

    Permalink

    Hello Judy Kruger! After reading this article "Is Cuba Ready for American Investment?" I have gotten mroe and more glad because I was finding this kind of topic before coming here but was not visiting an interesting website from where can collect fabulus knowledge. Click Here | Sunnyessays.com. Thanks for writing on it.

  • Guest (happy wheels)

    Permalink

    Hi there, You’ve done a great job. I will definitely digg it and personally suggest to my friends. I am sure they’ll be benefited from this website….happy wheels

Leave your comments

0

Quick Search

Stock Watch

FREE Impact Analysis

Get an inside perspective and stay on top of the most important issues in today's Global Economic Arena. Subscribe to The Manzella Report's FREE Impact Analysis Newsletter today!