By Anthony Boadle
Reuters
Friday, March 21, 2008
HAVANA: When the ailing Fidel Castro resigned last month, stock prices
of U.S. companies that stand to benefit from more business with Cuba
rallied.
Six days later, those shares retreated as his brother Raúl Castro,
Cuba's first new leader in 49 years, was installed and picked old-guard
revolutionaries to help him govern.
That dashed forecasts of a rapid transition from communism to capitalism
and an end to the embargo the United States has kept against Cuba since
1962, which bars U.S. investment and most travel to the island.
"Anyone who thinks there will be a 'for sale' sign up by a bankrupt
Cuban government is wrong," said the manager of a Canadian company, who
is based in Cuba and spoke on the condition of anonymity because of the
sensitivity of doing business in Cuba.
As Raúl Castro moves to raise living standards, foreign investment
opportunities in mining, oil, tourism, possibly agriculture and even
ethanol would open up, but only for non-U.S. companies, the executive said.
European, Latin American, Israeli and Arab investors already have a foot
in the door in Cuba in the cigar, rum, citrus and hotel industries. With
no American competition to worry about, they are looking at a windfall
when U.S. sanctions are eventually lifted.
That day is still far off, even if a Democrat wins the presidential
elections in November, say Cuba watchers, who see no action by the U.S.
Congress until Havana releases jailed dissidents and reforms its
one-party state.
Raúl Castro has vowed to maintain Cuba's socialist system, and there are
no signs that he intends to follow the free-market path of China and
Vietnam.
However, he has already taken some small steps. Within weeks of formally
taking office, his government has moved to allow Cubans to buy consumer
goods that were banned until now, like computers and DVD players.
The increased consumption longed for by Cubans would benefit European
companies already producing goods in Cuba, like ice cream and soft
drinks by Nestlé; beer by one of the world's largest brewers, InBev;
soap and shampoo by the Anglo-Dutch giant Unilever; and cigarettes by
Souza Cruz of Brasil, a subsidiary of British American Tobacco group.
Allowing Cubans to buy mobile phones and have more access to Internet
would increase sales for the state telecommunications company Empresa de
Telecomunicaciones de Cuba, in which Telecom Italia has a 27 percent stake.
Even Red Bull of Austria has set up in Cuba, selling its energy drink to
young Cubans who can afford the silver cans.
Foreign businessmen have spent years struggling to make money in Cuba's
inefficient state-run economy since it opened up to foreign investment
and tourism after the 1991 collapse of the Soviet Union.
Many were disappointed trying to do business with the communist
bureaucracy and were squeezed out or failed to collect payments. Others
had equipment stolen in joint-ventures that folded. Some small ventures
were just a pretext for businessmen to enjoy a life of mojito cocktails
and women in the tropics.
Foreign firms have had to endure sanctions by Washington for doing
business in Cuba. A dozen directors of Sherritt International of Canada
are still banned from entering the United States under the 1996
Helms-Burton law. That did not stop Sherritt investing $1.5 billion in
Cuba's nickel industry and in coastal oil and gas production.
Another successful venture penalized by the United States was BM Group,
Cuba's biggest citrus exporter, co-founded by a former Israeli
intelligence operations chief, Rafi Eitan, who has divested since
becoming the Israeli minister for pensioners' affairs.
The BM Group became the biggest commercial real estate developer in Cuba
with the building of Havana's main business center, the Miramar Trade
Center, which is now owned by Ceiba Finance, a $100 million growth fund
registered in the Channel Islands.
Companies making Cuba's most famous exports, cigars and rum, are banking
on gaining access to the U.S. market one day.
The French spirits giant Pernod-Ricard last year built a distillery for
its Havana Club joint venture to make dark rum that is partly aimed at
future sales to the world's largest rum market, the United States.
Havana Club managers are confident that by that time they would have won
a U.S. trademark dispute with their rival, Bacardi.
The cigar maker Habanos, half owned by Imperial Tobacco of Britain since
it took over the French-Spanish cigarette manufacturer Altadis, is
expected to double sales the day U.S. smokers can buy its premium
hand-rolled cigars.
Lifting the travel ban could send millions of Americans to Cuba,
reviving its stagnant tourist trade and filling beach resort hotels run
by foreign firms like the Spanish hotel chain Sol Meliá, which manages
24 of them.
Qatari Diar Real Estate Investment last year began building a $75
million, 200-room 5-star hotel on Cayo Largo del Sur, Cuba's most
beautiful key.
The state-owned Dubai Ports World, which relinquished control over six
U.S. ports in a political firestorm in 2006, has agreed to study
building a $250 million container terminal in the Cuban port of Mariel
by 2012. Proximity to the United States could make the port a hub for
shipping cargo to the United States.
Meanwhile, U.S. interests have to wait until the embargo is lifted, said
Thomas Herzfeld, who runs a fund that invests in companies likely to
gain from the opening up of U.S. trade with Cuba, like cruise line
companies based in Miami.
Shares of his closed-end Herzfeld Caribbean Basin Fund soared 28 percent
to an intraday high of $9.50 on Feb. 19, the day Fidel Castro announced
his retirement, but then fell back when it became clear that reforms
would be gradual under his brother.
Herzfeld is optimistic the U.S. embargo would go some day soon and said
the U.S. Congress could start easing sanctions if Raúl Castro frees
Cuba's political prisoners.
"Or it could be like the Berlin Wall at the end of communism," he said.
"Sometimes these things happen much more quickly than people think."
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