Smoked out

Cuba's cigar industry

Smoked out
Rolling up under-the-counter trading in an emblematic product
Apr 28th 2011 | HAVANA | from the print edition

What price a Cohiba?

ONE of the reforms approved at this month's Congress of Cuba's ruling
Communist Party was a change in the treatment of the country's 3,000 or
so state-owned enterprises. Their management will enjoy more autonomy,
but they will be subjected to thorough audits. That follows a trickle of
corruption scandals. The latest involves Habanos, the state cigar monopoly.

For over a decade Manuel García, Habanos's commercial vice-president,
was the public face of the Cuban cigar industry, living a jet-set life
that most Cubans can only dream of. But this year Mr García was not
there to greet visitors at the Havana cigar festival. Since August 2010
he has been in jail, accused of masterminding graft on a grand scale.

The cigar industry was nationalised shortly after the 1959 revolution.
But it was only in the late 1980s that Cuba took control of
distribution, informing foreign retailers that it would supply only one
distributor per region, in return for a 50% stake in the business.

That did not prevent the small-scale peddling of black-market cigars on
the streets of Havana. But in the past decade the system has faced a
bigger threat from dozens of online cigar retailers operating mainly
from Switzerland and the Caribbean. Many operated legitimately, but some
offered improbably low prices.

Cuban investigators believe they were able to do so because Mr García
and ten of his staff, who also face trial, sold genuine cigars at a
fraction of their normal price to black-market distributors in the
Caribbean in return for bribes. Up to 45m cigars may have been sold this
way. Since handmade habanos fetch up to £40 ($65) each in shops in the
St James's district of London, the loss was considerable.

The fraud also hurt Imperial Tobacco, a British company which inherited
a 50% stake in Habanos when it bought Altadis, a Franco-Spanish firm, in
2008. Imperial has made no comment on the affair. But like the
government, it will hope that the new management team at Habanos
preserves the lucrative monopoly in Cuba's most famous product.

http://www.economist.com/node/18621276?story_id=18621276&fsrc=rss