Betting On Cuba's Economic Future As Havana Becomes Las Vegas Again
Steven Dudash , Contributor
For most Americans, Cuba is an isolated third-world island country with
a backward economy and a regrettable political and human rights record.
After 56 years of the Castro regime, this reputation has been
well-earned, but there was a time when Cuba represented something quite
different. During pre-revolutionary days, it was a hotbed for American
tourism, a place where well-heeled East Coasters came to enjoy plentiful
sunshine, opulent beaches and a nightlife scene that bustled year round.
In many ways, parts of Cuba were Las Vegas before Las Vegas, right down
to the unmistakable presence of nefarious underworld characters, brought
to life most vividly by Godfather II, critical parts of which were set
With the United States and Cuba having taken small steps to normalize
relations in recent months, one of the questions that have been raised
is whether the island can once again become a prominent destination for
American tourists and, more broadly, a haven for outside business
To be sure, a number of hurdles stand in the way before this can become
a reality – not the least of which is that an American travel and trade
embargo remains in place. Only Congress can change that, and despite the
initial signs of a détente, opposition to Cuba's leaders on Capitol Hill
remains fierce, meaning the embargo being lifted is still anything but
Equally important is that Cuba's crumbling infrastructure is in no
position to support Western-style tourist activity. The country
generally lacks many of the amenities needed to attract an influx of
regular visitors, including a wide selection of luxury hotels, golf
courses and high-quality restaurants.
Clearly, new investment will come slowly, and economic progress – if it
comes – will be measured in years, not months, but just as Las Vegas
emerged from the shadow of the mob to become a hub of tourism and
legitimate business, so, too, can Cuba, even in the face of considerable
structural and political obstacles.
Here are some industries that could benefit should Congress lift the
current embargo and allow U.S. companies the freedom to pursue
opportunities on the island:
**Hotels and Lodging: Any potential resurgence in Cuba starts here.
Absent significant upgrades to current hotel and other lodging options,
very few American travelers will consider Cuba a realistic vacation or
business destination. Obviously, this would be an ambitious undertaking,
but as the U.S. economy has improved in recent years, the fortunes of
the world's largest hotel chains have also surged, with Marriott (MAR)
and Hilton (HLT) both up around 20 percent over the last year. By acting
decisively, these companies could gain a valuable first-mover advantage
over potential rivals and for years to come establish a dominant
position in this potentially lucrative market.
**Shipping and Cruises: The U.S. recently granted permission to four
small companies to operate limited ferry services to Cuba. And while
American travel is still tightly controlled and Havana must first
approve these companies' licenses, this move may encourage bigger
players such as Royal Caribbean (NYSE: RCL) to pursue Cuban routes.
Cruise liners would likely be among the first businesses to benefit from
the country potentially embracing more open economic policies, since the
industry would be less affected by its lack of hotel infrastructure.
Situated only 250 miles from Miami, Cuba would also attract attention
from cargo ship operators, who would likely want to participate in trade
activity were the embargo lifted.
**Housing and Real Estate: First, it's important to note that almost
without exception nonresidents are barred from owning real estate in
Cuba. But as the two sides slowly pursue more normalized relations,
there has been speculation that such restrictions could ease as part of
a more formal future agreement to re-start American trade and travel. If
so, it could somewhat ease the upcoming financial burden facing many
Baby Boomers, many of whom are hurdling toward retirement woefully
unprepared. Should Cuba open up, top retirement-community builders in
the U.S. like Lennar Corp. (LEN) and Hovnanian Enterprises Inc. (HOV)
could seize this opportunity to construct low-cost developments geared
to older Americans looking for a more affordable housing alternatives.
Gaming: Casino operators have hit a wall in Macau, where gaming revenues
have fallen 12 straight months amid a softening Asian economy and
corruption crackdown in China. Shares of Wynn Resorts (WYNN) are down
more than 30 percent since the beginning of the year, while Las Vegas
Sands Corp. (LVS) and MGM Resorts International (MGM) have shed over 10
percent over the same period. Obviously, these negative trends could
reverse in time and revenues may come roaring back. Still, the always
ambitious casino industry is unlikely to pass on the opportunity to
enter a new, potentially profitable market – especially one so close to
the East Coast now that Atlantic City, N.J., is a shell of its former self.
**Telecommunications: According to estimates, less than 20 percent of
Cuba's 11 million citizens have cell service. Even fewer have access to
the Internet. U.S. policy makers pursuing closer ties with Cuba have
prioritized further mobile phone penetration and getting more people
connected to the outside world, having recently placed
telecommunications equipment and services on a list of embargo
exemptions. Naturally, this is an opening for one of the two American
telecom giants, Verizon (NYSE: VZ) or AT&T (NYSE: T), to build more cell
towers and establish a greater level of connectivity – which could
ultimately lay the groundwork for better broadband access. Facebook
(NASDAQ: FB) would also probably consider making investments in Cuba.
Never shy about spending money on high-growth potential projects, the
company has said expanding Internet access in the Third World is one of
its key strategic goals moving forward.
Much of the above, of course, is pure speculation. There are no
guarantees U.S. lawmakers will lift the longstanding embargo or, for
that matter, that Havana will open itself up to outside business
investment if they did. And even if those two things happened, it would
take years for many of the these projects to come to fruition. Time will
tell. In the meantime, it doesn't hurt for investors to keep an eye on
Cuba for the future.
Steven Dudash is President of IHT Wealth Management, a Chicago-based
firm with approximately $650 million is assets under management.
Source: Betting On Cuba's Economic Future As Havana Becomes Las Vegas