Capitalism makes plans for an invasion of Cuba

The Sunday Times
September 10, 2006

Capitalism makes plans for an invasion of Cuba
With the regime of Fidel Castro fading, firms are already eyeing up the
opportunities. Simon Goodley reports

THE boxing promoter Frank Warren knows all about striking when an
opponent is on the ropes. Having long admired Cuba’s production line of
boxers, he has been considering signing up some of the island’s best
fighting prospects while President Fidel Castro is confined to his sick
bed.
There is a rich Cuban boxing heritage to tap into. Although professional
sport is outlawed in the communist republic, Cuba has produced near
legendary boxers such as Teófilo Stevenson and Mario Kindelan, both
Olympic gold medallists who were denied the opportunity to fight for
world crowns and lucrative purses.

So who can blame Warren, promoter of the biggest names in British boxing
— from Frank Bruno to his present protege Amir Khan — for considering a
reconnaissance mission to Havana.

And he is not alone in eyeing up the island’s potential that may be up
for grabs once the 80-year-old Cuban leader finally throws in the towel.

“I may well go there. It would be a nice holiday anyway,” said Warren
when the question was put to him. “We’ve certainly looked at it and
we’re interested. I’ve been over to Cuba before and invested a bit of
time and money in it.”

There has been a great deal of interest in Cuba since Castro underwent
emergency surgery at the end of July and ceded power to his brother Raul.

“We’re getting more interest than we were six months ago, and not just
from American companies,” said Teo Babun, a Cuban émigré who is
president of a Miami business consultancy that specialises in Cuba.

“We work with big companies that are putting together preliminary
strategies so they could operate in Cuba when and if the opportunity
emerges.”

Babun’s company has a list of clients that include the cruise group
Royal Caribbean, hotel operator Radisson and computer giant
Hewlett-Packard.

For decades, Cuba’s main foreign currency earner was sugar; now it is
tourism. It generated $2.6 billion (£1.4 billion) last year and the
island is expected to attract a record 2.5m visitors this year, a rise
of 7.7%.

Paul Charles, of Virgin Atlantic, which opened its flights service to
Havana last year, said: “Cuba has gone through a revolution. It’s been
amazing. In the year we have been operating, the tourism industry has
been transformed. It is almost as if Castro’s legacy will be one of
building up a very dynamic economy.”

Ian Benjafield, a spokesman for the holiday company First Choice, said:
“We are continuing to expand our Cuba offering. We will increase our
flight regularity from every fortnight to every week from Gatwick as of
November 2007.”

However, Matthew Pickles, an analyst at Ernst & Young, said some foreign
hotel operators with Cuban partners were finding it a challenge to
implement five-star levels of service.

Inevitably, as a result of the island’s history under the former
president Fulgencio Batista (ousted in 1959), gambling groups are
hinting that they are preparing to take a bet on post-Castro Cuba. These
include MGM Mirage of Las Vegas and Ladbrokes, its British rival.

“We will definitely keep a close eye on it,” said Ciaran O’Brien, a
spokesman for Ladbrokes. “I imagine that, if there was a regime change,
that would present an opportunity for non-American companies.”

Up to a point. There are those who believe that gambling would be the
last sector to benefit from any liberalisation. Sol Kerzner, the South
African gambling and hotel tycoon, was forced to withdraw from the
island last year. His company, One & Only, stopped managing Havana’s new
Saratoga hotel amid speculation that the Cuban government had refused to
pay its fees.

There are many cautionary tales concerning the island’s communist
bureaucracy.

“If you invest in Cuba you pay the wages for your staff to the
government,” reported one foreign investor, who did not want to be
named. “You then get given your employees. They are chosen by officials
who put their family members into the jobs. The nepotism there is
ridiculous and the only way to get loyalty from your staff is to bung
them money under the table.

“There are a lot of people on the take. There is a saying in Cuba that
‘everybody is too busy making a living to do their job’.”

There are other major hurdles to clear too, not least for American
businesses.

For a start, there is the Helms-Burton Act, a 1996 law that toughened
the American embargo of Cuba, and specifically precludes the United
States from recognising a transitional government headed by Raul Castro.

Many American companies and individuals also have claims on assets that
were expropriated by the Cuban government after the 1959 revolution.
There are 5,911 outstanding that could be worth an estimated $7 billion
(£3.7 billion) today.

“The opportunities will be slow in coming as, first, there need to be
bilateral agreements,” said John Kavulich, the founder of the US-Cuba
Trade and Economic Council. “The settling of corporate claims,
double-taxation agreements, import-duty agreements, all need to be
established before trade between America and Cuba can begin.”

Most people think change will come through evolution, not revolution.

“If the embargo were lifted, the economy would pick up, but I don’t
think there will be a sudden change,” cautioned Ranald Macdonald, the
London restaurateur who has licensed the names of El Floridita and La
Bodeguita del Medio — Ernest Hemingway’s legendary drinking haunts in
Havana.

“One of Fidel’s legacies is that he has kept Cuban assets for the Cubans.

“There will be some opportunities, but this won’t be buying up Cuba on
the cheap.”

Warren, too, has a cautionary experience. His last foray on to the
island resulted only in John Duncan’s book, In the Red Corner: A Journey
Into Cuban Boxing.

It recounts the author’s attempt in the 1990s to set up a fight between
Mike Tyson and the Cuban Olympic heavyweight champion, Felix Savon.
Duncan got nowhere, but he did spend an enjoyable year on the Caribbean
island . . . at Warren’s expense.

http://business.timesonline.co.uk/article/0,,8209-2350202,00.html