Is Cuba rolling out red carpet for business?

Is Cuba rolling out red carpet for business?
Holly Ellyatt | @HollyEllyatt
Wednesday, 7 Oct 2015 | 1:09 AM ET
CNBC.com

After a thawing of relations that had been frozen for 60 years, Cuba's
rapprochement with the U.S. means the country is rapidly opening itself
up to business.

The Cuban government has been trying to pitch the country as a "place
for foreign investment" touting tax incentives, a qualified workforce
and "political, social and legal stability" as reasons for investment.

Indeed, looking at the fragility and insecurity of other emerging
markets around the world, the former socialist stronghold is looking an
appealing investment location.

The Cuban authorities are pitching their energy, sugar, mining, tourism,
manufacturing and construction, agribusiness, finance and biotechnology
sectors as particularly attractive.

The opening-up of such sectors comes after 54 years of frosty relations
and trade embargoes between the west and Cuba. This summer, however, the
Cuban embassy in Washington D.C. reopened in July and its counterpart in
Havana re-opened in August, heralding the re-establishment of diplomatic
ties and commercial opportunities.

Even Rolling Stone Mick Jagger has reportedly been scouting locations
for a Cuban concert, The Guardian newspaper reported Tuesday, citing
local media.

The rapprochement was already bearing fruit in commercial terms,
according to one Latin America expert.

"It's clear that tourism and telecoms have seen the biggest upticks in
activity since the beginning of the normalization process in December
2014," Joel Ross, Latin America analyst at Verisk Maplecroft told CNBC
Tuesday.

"Several U.S. telecom providers are already operating in Cuba since new
regulations were introduced and more are likely to enter the market.
Cuba has accepted that it needs to improve its telecommunications in the
country if it is to attract higher levels of Foreign Direct Investment,"
Ross added.

The Cuban offer

Joint businesses in Cuba (between the private sector and Cuban
authorities) are nothing new, although they are expected to increase as
the country attracts more investment. For example, 51 percent of total
businesses were joint venture with the Cuban authorities, as of the end
of 2013, according to government data. Tourism was the sector with the
largest foreign investment, accounting for 42 percent of all foreign
investment in the same time period.
Ross believed that there was an urgent need to improve tourism
infrastructure to deal with the increased number of visitors on the back
of the thawing of relations with the west. He said that while
"U.S.-based hotel chains are chomping at the bit to invest, non-US
companies have jumped to the head of the queue."

Indeed, many countries around the world have been keen to capitalize on
Cuba's re-entrance to international relations and the U.K., for one, has
been keen not to miss an opportunity in the Caribbean nation.

In April, not-for-profit consultancy Caribbean Council sent a U.K. trade
and investment delegation to Cuba in a bid to open up investment
opportunities. In May, it announced several ventures created following
the trip.

Among the new business deals inked between U.K. businesses and Cuban
authorities were a major golf and beach resort with a gross investment
in excess of $350 million, a joint project to develop potato production
and crisp manufacturing in Cuba and a major bio-power project in
collaboration with the sugar sector worth $150 million.

No cigar? Cuba still risky

Despite the apparently cordial relations, U.S. sanctions on Cuba remain
in place and risks remain for potential investors.
There is still a trade embargo between the U.S. and Cuba -- which
requires congressional approval to be rescinded -- but amendments to the
rules have been made to open up travel, economic and communication
flows, the U.S. Treasury states on its website.

These amendments were "to further engage and empower the Cuban people by
facilitating authorized travel to Cuba by persons subject to U.S.
jurisdiction, certain authorized commerce, and the flow of information
to, from, and within Cuba," the Treasury said.

There are signs that the trade embargo could be lifted entirely, too,
with U.S. Secretary of State, John Kerry, saying on Monday that he
favoured lifting the trade embargo on Cuba because the island is making
progress in the right direction.Despite the rosy outlook for U.S.-Cuban
relations, Verisk Maplecroft's Latin America analyst Ross warned that
that it was possible for foreign businesses in Cuba to fall foul of the
government's tight control of industry.

"The laws governing foreign investment and employment are very
cumbersome and difficult to navigate," he warned. "The government
tightly controls what foreign companies do and the country's inefficient
bureaucracy is incredibly complex. The rule of law is weak, and
companies will be powerless in a government dispute."

Labour is hired through the state and companies do not have control over
their workforce or over how much employees are paid, he added. The
biggest risk, however, came from a leadership change in 2018.

"Raul Castro's successor, thought to be Miguel Diaz Canel, will have to
manage hard-line communist elements and ensure that Cuba continues to
implement economic reforms to improve the business environment for
foreign investors."

- By CNBC's Holly Ellyat, follow her on Twitter @HollyEllyatt. Follow us
on Twitter: @CNBCWorld

Source: Is Cuba rolling out red carpet for business? -
http://www.cnbc.com/2015/10/07/is-cuba-rolling-out-red-carpet-for-business.html