Business interest in Cuba
by Mike Vogel and Jason Garcia
Updated 7 yearss ago
Sectors that are poised to gain or lose under a more open U.S.-Cuba environment, including agriculture, airlines, banks, cruise companies, telecom, ports, investors and universities.
Telecom, among many Cuban economic sectors in need of investment, stands to be one of the first to benefit from an opening with the United States. Cuba has one of the lowest rates of internet access in the world, just 5%, according to the White House, and most service is dial-up. Staterun internet cafes usually charge $4.50 per hour for service.
Americans have been able to send cell phones to Cuban family members since George W. Bush’s administration, and faith-based groups and nonprofits can provide computers. President Obama’s December announcement allows U.S. companies to provide services there and export telecom gear.
Luis G. Coello, CEO and founder of CubaMobile in Miami, has made several attempts to win part of Cuba’s telecommunications business. Within a month of President Obama’s announcement, he began trying again. Meanwhile, in March, New Jersey-based IDT became the first U.S. telecom company in 15 years to connect long-distance service directly to Cuba’s phone system.
U. S. telecoms face lots of competition. Italian, Spanish, Canadian and Mexican companies already have been active in telecom in Cuba, and Mexican companies have proved formidable competitors for U.S. telecoms elsewhere in Latin America. Cuba is “an extremely attractive market by Latin American standards,” says Jose Otero, director of Latin America and the Caribbean for industry trade association 4G Americas.
The United States has been the leading source of food imports for Cuba for 12 of the last 14 years, until supplanted by Brazil in the last two years. U.S. sales have dwindled to $266 million from a high of $710 million in 2008.
Most agricultural interests in the U.S. want the embargo to end. Other countries are investing in Cuba. Brazilian money has increased Cuba sugar production, perhaps as a long-term play to supply ethanol to the United States, and other countries have invested in shellfish and other agricultural endeavors. U.S. growers want in, seeing opportunity in Cuba’s 11.3 million people and 3 million annual tourists.
Noticeably absent from the chorus singing the financial gain to be made in Cuba, however, has been Florida agriculture, which last year sold relatively little to Cuba — $6.28 million in animal fodder and $26.22 million in meat, mostly chicken.
William Messina, an agricultural economist at the Institute of Food and Agricultural Sciences at the University of Florida in Gainesville has studied the island’s agriculture and has visited it for 20 years. Resuming trade between the U. S. and Cuba will have a bigger impact on Florida agriculture than any event in state history, he says. There will be challenges and opportunities, and the negatives may outweigh the positives for Florida, he says.
Cuba already grows what Florida grows — sugar, citrus, vegetables, tropical fruit — limiting opportunities for Florida growers. Cuba also poses a potential threat: State Agriculture Commissioner Adam Putnam says, “from a strictly agricultural standpoint, I am very concerned about the near certainty of pests and diseases coming into Florida ports from Cuba.”
In addition, Florida growers are concerned about competing against government-subsidized agriculture. “We’re not against competition as long as it’s fair competition,” says John Hoblick, president and CEO of Florida Farm Bureau.
The long-term threat from two-way Cuba trade is that the island restores its ag sector and challenges Florida’s role as winter vegetable supplier to half the nation. Just as NAFTA hurt U. S. tomato growers, Cuban agriculture, with its lower costs, could damage Florida.
Where’s the Beef?
Rancher Jim Strickland and his wife, Renee, who run an export business, participated in the sale of Florida-created, heat-tolerant breeding cattle to Cuba in 2004, the only year in a decade that live animals were exported to Cuba from Florida. The Stricklands haven’t done so since. The profit and volume were too low for the difficulty of making the deal, especially when exporting to many other countries in Latin America is so much easier. “You’ve got hoops on both sides of the Florida Straits. It’s not just the U.S.,” says Strickland, who says he’d be happy to do more if it were profitable and economical and provided Cuba can pay.
On the Horizon
Cruise lines often are heralded as the likely first beneficiary of an opening of U. S. tourism to Cuba because they carry their lodging with them, an important consideration in room-short Cuba.
And they’re interested in serving Cuba. “Tremendous opportunity,” says Carnival. “There is pent-up travel demand, and we know our guests are eager to explore Cuba,” echoes a Norwegian spokesperson, who says Norwegian’s small and midsized Oceania Cruises and Regent Seven Seas Cruises ships could call on Cuba tomorrow if the law changes to allow traditional tourism.
At present, Cuban ports are served only by Canada-based Cuba Cruise, with a comparatively small 1,200-passenger ship, and a few other small lines, based abroad, that ply the market from time to time.
But an era of megaships sailing into Havana on a regular basis isn’t close, even if U.S. law changed tomorrow to allow traditional tourism and Cuba was willing to accept them. Cuba’s ports lack the infrastructure to serve 5,000-passenger ships — not just the berths and terminals, but also hospitality infrastructure — hotel rooms, tours and guides.
In the short term, Cuba may present two maritime opportunities — ferry service and specialty cruises, says Santiago Fittipaldi, a managing director for Burson- Marsteller in Miami who advises companies on Cuba opportunities. Small ships could offer specialty people-to-people or educational cruises, two categories of U.S. travelers already allowed to visit Cuba.
Ferries also could carry U.S. travelers, and Florida ports have fielded inquiries from major overseas ferry operators and from Florida-based outfits about adding service. Travel is much slower than by air, but ferries would be able to carry more personal goods, which now cost Cuban-American families a small fortune in freight charges on air charters. Unlike the Tampa, Fort Lauderdale and Miami airports, however, no U.S. seaport has been granted a U.S. license to offer passenger service to Cuba.
In the meantime, mass-market cruises are “a long way off,” says U.K.-based cruise line analyst Tony Peisley.
Up in the Air
The changes in U.S. policy toward Cuba won’t create much opportunity for U.S. airlines in the short term, since they won’t be able to offer scheduled service from the U. S. under their own names until the U.S. Department of Transportation changes its rules and procedures and the two countries negotiate a civil aviation agreement, something they last did in 1953.
U. S. airlines such as American and JetBlue fly more than 100 flights a month to Cuba now but under the auspices of charter companies. Also interested are Silver Airways and Spirit Airlines, both based in Broward County. Paul Berry, a spokesman for Spirit, says Spirit will fly to Cuba eventually only if it can fly profitably at less than $40 a ticket. “That’s a long way off.”
Charter Airlines: OK For Now
A half-dozen charter companies operate from three airports, Miami, Fort Lauderdale and Tampa. Miami- and New Jersey-based Marazul carries more than 50,000 passengers a year, three-quarters of them Cuban-Americans, to Cuba. Another company, ABC Charters in Miami, runs 10 charters a week from Miami and three from Tampa, carrying 40,000 people a year. In March, Californiabased Cuban Travel Service added a Havana flight at JFK in New York.
Short term, demand for the charters is up, but in the long term, increased opportunities for the established airlines likely will threaten the charters’ business.
Hopeful, But Uncertain
Every week from Port Everglades in Fort Lauderdale, a ship owned by Crowley Lines sets sail on an 18-hour journey to the port of Mariel in Cuba. About 40 of the 550 containers on board are Cubabound, carrying, for the most part, chicken.
That lone ship, which has made its run for 14 years, is the extent of regular maritime shipping from Florida to Cuba.
Well-positioned geographically, Florida ports all hope to benefit if the Cuban trade embargo ends, particularly Miami, Port Everglades, the Port of Palm Beach and Tampa. Port Tampa Bay CEO Paul Anderson says his port has been preparing for open trade with Cuba “for years.” Adds Carlos Buqueras, executive director at Port Manatee, “It’s a Chinasized opportunity. If Florida does not take care of this opportunity, shame on us.”
But it’s not a slam dunk. The freight carriers — companies like Maersk, Hanjin and Crowley — make the deals to move goods. Those companies’ decisions about which ports to use depend on a host of calculations: The goods being shipped, a port’s experience with that material, speed, a cargo ship’s itinerary and the ultimate origin and destination of goods.
Cuba’s ports, meanwhile, could become low-cost competitors to Florida ports. Mariel, where all cargo ships to Cuba arrive, has a special trade zone around it to house light manufacturing and to serve as a transshipment point for goods coming through the expanded Panama Canal opening next year. Thanks to Brazilian investment, Mariel has first-class dock facilities, says Crowley Maritime’s vice president of government service Jay Brickman, who has been going to Cuba for Crowley since 1978. He says the Mariel harbor itself needs work and ships can experience delays getting to dock, but “once you get to the dock, you get in and out very quickly,” he says.
U. S. banks have several reasons to be wary of Cuba. In the short term, as long as Cuba remains on the U.S. list of countries that sponsor terrorism, they face fines for doing business there. Longer term there may be opportunities, but Cuba’s risk prof le is poor: The island has a lousy credit rating, and the legal and financial systems are a long way from being conducive to capital formation and lending
A Distant Boom?
Miami Beach investment manager Thomas Herzfeld likens President Obama’s announcement on wanting to re-establish ambassador-level relations with Cuba as a historic moment akin to the fall of the Berlin Wall or Nixon going to China. “It’s in that magnitude,” says Herzfeld, president of Thomas J. Herzfeld Advisors.
Herzfeld always has been enthusiastic about the potential of Cuba, certainly over-optimistic on how soon it would open to U.S. trade. In 1994, he filed to start a Cuba-themed closed-end fund, the First Cuba Fund. Traded under the ticker symbol CUBA, it aimed to invest in companies that would expand into the island or in Cuban companies.
The time seemed ripe. Without the financial support of the defunct Soviet Union, an aging Castro and his regime surely couldn’t last much longer, he reckoned.
Turns out, of course, they could last 23 years and counting. Undaunted, Herzfeld changed the fund name to the Herzfeld Caribbean Basin Fun (he kept the CUBA ticker) to target companies that will gain from development in the Caribbean, with a special focus on companies that would benefit from a resumption of wide U.S. trade with Cuba.
Florida companies in its portfolio include the major cruise lines, TECO, FPL parent NextEra Energy, Miami’s Lennar Homes and Fresh Del Monte Produce.
Private colleges and universities in Florida are showing increased interest in visiting Cuba. Eckerd College economics students recently spent two weeks there. In March, 19 students from private Stetson University College of Law, at about $4,648 per person, went to Cuba to study its justice system.
Meanwhile, at the state’s public universities, travel to Cuba remains difficult. Florida in 2006 banned the use of money in state accounts, whether state, private donor or federal, for public university professors, scientists and students to travel to states on the U.S. State Department list of state sponsors of terrorism. The administration has said it’s reviewing whether to keep Cuba on the list. Public univer-sity professors, researchers and students can visit only if they arrange their own funding and the donor money doesn’t pass through university accounts and is done on their own time.
Professors say the ban makes financing a trip difficult but not impossible. The University of Florida offers an 11-day trip to Cuba to study marine ecology that includes stays in Havana and the Isle of Youth for snorkeling and reef exploration. The trip — students have to pay a travel agency directly — concludes with dinner at a paladar.
‘Something to Help’
Carol Craig’s interest in Cuba began as purely personal. The owner of Cape Canaveral-based Craig Technologies, Craig has a grandfather who came to the United States from Havana. Last year, she traveled to Cuba on a trip organized by Orlando’s chamber of commerce. “In my opinion, they’re an entrepreneurial culture,” says Craig. “But I don’t think there’s any formal training or support for them to really become successful entrepreneurs.” Craig Technologies’ many products include software designed for small businesses that lack internal expertise to develop web-based applications. Craig, who has since made two more trips to Cuba, wants to sell those systems to small-business owners in Cuba. More than ringing up new sales, Craig says her goal would be to help Cuban entrepreneurs build their businesses, much like she built Craig Technologies from a one-woman consultancy in Virginia to a $45-million-a-year software and engineering firm. “It would be an entrepreneurial Thomas Herzfeld venture,” she says. “But it’s not going to make me rich.”
As a U.S. soldier in the Spanish- American War, Robert Henry Leeder became so captivated by Cuba that he packed up his young family and moved there from Chicago. He eventually owned a 150-acre spread 10 miles south of Havana and a 72,000-acre rice and sugar ranch in Matanzas.
Leeder’s four grandchildren, all born in Cuba as U.S. citizens, had property and money in a Cuban bank. “I loved Cuba. It was my childhood,” says his granddaughter Margery Leeder, born in Cuba in 1930 and now living in Pompano Beach. She and her sister, Ginger Ostreicher, born in 1936 and currently living in Satellite Beach, and their two brothers attended grade school in Havana.
Margery, who married in Havana in 1954, remembers the unrest and was in Havana when Batista fell. She left the island, but her father remained, trying to hold onto the family property. Eventually, the Cuban government seized it all without paying for it and told her father he had to leave as well.
He was 65 when he left “with $5 in his pocket,” ending up in Miami. Nearly broke, he took up real estate and died at age 76. He and his children filed claims with the U.S. Foreign Claims Settlement Commission for their seized property, claims the commission eventually certified as valid and valued at $3.9 million in 1971 — about $13.5 million today with interest. “It’s been an awful long time,” Margery says.
The Leeder claims are among the 5,913 certified claims by U.S. citizens — Cuban exiles aren’t included — that under U.S. law must be settled before the U.S. trade embargo can be lifted. With interest, the aggregate claim amount is more than $7 billion. U.S. law leaves the negotiations to the U.S. State Department and doesn’t require payment in full.
It’s well established in international law that when a country takes the property of foreigners, it must pay compensation. Even the 6% interest rate to be paid is settled in international law. The U.S. claims commission, in fact, predates the Cuba seizures and has run 49 claims programs related to seizures by the old Soviet Union, Eastern Bloc countries, Vietnam, Iran and other countries. The only two claims programs never successfully settled are over Tsarist-era bonds and Cuba, the largest claims program the commission ever handled. Cuba settled with the United Kingdom, Spain and other countries over seized property.
The claimant list includes storied names such as Walt Disney Co. And Coca-Cola. Universities and colleges — Yale and the University of Chicago, among others — churches and religious groups, a movie studio and businesses have claims pending, though the lion’s share of claims are held by individuals.
Prominent Florida names include Lykes, the ranching, insurance, banking and shipping family, and the late Arthur Vining Davis, the real estate tycoon whose development company, Arvida, played a key role in building Florida.
The largest single claim, originally $267 million for the seizure of Cuban Electric, belongs, through a series of acquisitions, to Boca Raton-based Office Depot.
Resolving the claims will be difficult. Returning property isn’t likely; some structures no longer exist, and the Cuban government isn’t likely to evict people or turn back the clock on collectivized farmland. Meanwhile, Cuba’s government may be too broke to pay.
Margery Leeder’s and Ginger Ostreicher’s attorney, Washington lawyer Mauricio Tamargo, a partner in Poblete Tamargo and chairman of the claims commission from 2002- 10, says he’s confident Cuba claimants will get “a significant percentage on the dollar, even 100%. Cuba has money. Cuba has lots of money, and if this matter is settled they will have lots more money” because the country will be able to move forward economically.