The Cuban Market Mirage

The Cuban Market Mirage
BY JOSÉ R. CÁRDENASMAY 27, 2015 - 1:18 PM

It's a safe bet that neither Cy Tokmakjian or Stephen Purvis will be
attending a Brookings Institution event next week on doing business in
Cuba. Canadian and British businessmen, respectively, they each suffered
through Kafkaesque ordeals in Cuba after they did just that, somehow
running afoul of some regulation in Cuba's opaque and arbitrary judicial
system. After being imprisoned for months and robbed of their assets by
the Castro government, they were finally released only after heavy
diplomatic pressure by their governments.

Indeed, of all the justifications for President Obama's about-face on
Cuba policy — that it will serve to moderate the Castro regime's
behavior, improve human rights, or that it will transform U.S.-Latin
America relations — perhaps the biggest whopper in defense of the new
policy is that Cuba's bankrupt economy represents a gold mine for U.S.
producers and investors.

Thus, we are currently being treated to a succession of trade
delegations, assorted junkets, and conferences — encouraged by the Obama
administration — selling the American public on the notion that a U.S.
economic windfall lies right around the corner.

Commerce Secretary Penny Pritzker, who told the Miami Herald that she
will lead a trade delegation as soon as relations are normalized and
embassies are open, was quoted as saying, "Companies are already going.
Google led a delegation. You're seeing people going to visit. That's
because, as I said, there's enormous excitement — excitement from the
entrepreneurial community in Cuba and excitement here in the United
States about that. I think they deserve our support."

However, if you look hard enough, not all U.S. officials are so
sanguine. Pritzker's own undersecretary for international trade, Stefan
Selig, told the Washington Post, "We are embarking on a process that is
complicated. We should remember Cuba is a small country, and a poor
country. I don't think we should be overly excited about the near-term
economic prospects." U.S. Department of Agriculture under secretary
Michael Scuse recently cautioned an eager Senate panel that it was
important not to "minimize the obstacles" in Cuba, such as the country's
limited purchasing power and its widespread market underdevelopment.

How could it be any other way? The reality of Cuba is that five decades
of centralized political and economic control have impoverished the
island both materially and spiritually. And the prospects are hardly
uplifting. The dead hand of the regime still controls nearly 100 percent
of economic activity and, to the extent there is any semblance of
reform, it exists only at the margins.

For anyone eyeing Cuba from abroad, the Castro government lacks hard
currency and infrastructure, has an abysmal credit rating, and restricts
internet use. As one experienced foreigner points out, "Your state
partner is also the supplier, the employer of your staff, the buyer, the
regulating authority and the entity that taxes you. So it's a complex
place to enter into a normal business transaction."

Pedro Freyre, a partner at the law firm Akerman who knows Cuba told
Politico that, "While I think that the business community recognizes
Cuba's potential, there's also the reality that Cuba is bankrupt. Cuba
is grossly in need of investment … but they don't have a philosophy,
don't have the legal infrastructure to support any kind of mid-level to
even higher-level industry." According to John Kavulich, president of
the U.S.-Cuba Trade and Economic Council, "This is not Dubai just 90
miles south of the U.S., saying, 'Please sell us your products.'"

To say trading with Cuba involves personal and financial risk is a gross
understatement, as the ordeals of Tokmakjian and Purvis attest. Don't
look for or expect transparency, legal guarantees, and predictability —
none of which the Cuban government is capable of providing. And don't
look for a local economy that rewards innovation, risk taking, or hard
work. That's the Cuban economic reality and no amount of irrational
exuberance and ideological cheerleading changes those facts.

It is clear by now that Obama's reversal of five decades of isolating
the Castro regime rests on little else than hope; hope that just doing
something different could translate into something good developing
organically sometime in the future. But hope is a pretty thin reed on
which to base a policy under such scrutiny, and that means sexing up its
about-face on Cuba by convincing people that there really are immediate
and tangible benefits to it — and that means selling the notion that
bankrupt Cuba is like an overripe mango waiting to plucked by American
business.

Source: The Cuban Market Mirage | Foreign Policy -
https://foreignpolicy.com/2015/05/27/the-cuban-market-mirage/