Illinois firms race to establish foothold in Cuba

Illinois firms race to establish foothold in Cuba
By Kathy Bergen
Chicago Tribune

When Cuba's foreign minister raised his nation's single-star flag
outside its newly opened embassy in Washington last month, construction
equipment giant Caterpillar did the same outside its Peoria headquarters.

Caterpillar is one of a growing number of Illinois and Chicago-area
companies, civic organizations and cultural institutions rushing into a
nationwide race to establish a foothold in the tiny communist country
just 90 miles off the Florida shore — a potential trove of new profits
on an island that has been off-limits, for the most part, for more than
a half-century.

"Just about everybody focuses on the tens of thousands of 60-year-old
cars that are on the streets, but for Caterpillar, we focus on the
60-year-old roads they are being driven on. That's where we see our
opportunity," said Bill Lane, the company's director of global
government affairs.

Illinois' own Havana dreams of linking arms with tropical counterpart
Though a 54-year-old embargo on trade and travel remains in place,
President Barack Obama last December began normalizing relations with
Cuba by easing trade restrictions on several sectors, including travel,
telecommunications, Internet services, building equipment, banking and
airlines. Exceptions for agricultural and medical products have been in
place since 2000 and 1992, respectively.

In May, the U.S. removed Cuba's designation as a state sponsor of
terrorism. And on July 20, both countries formally reopened their
embassies in Havana and Washington.

Now, in cities across the country, the race is on to stake a claim on
Cuba's future.

In Illinois, farms and food companies, medical device outfits and
construction firms are among those embarking on scouting missions. But
companies elsewhere are just as eager.

From the tech-heavy Bay Area, Airbnb established operations on the
island April 2, just four months after Obama and Cuban President Raul
Castro announced in mid-December that they would restore diplomatic
relations — one of the first U.S. companies to dive in. Google
executives visited in June to advocate for open Internet access.

New York Gov. Andrew Cuomo flew in for a 26-hour trade mission in April,
the first sitting U.S. governor to visit since the December
announcement. And in Tampa, Fla., once a fundraising hub for Cuban
independence hero Jose Marti, officials are pushing for a Cuban consulate.

Chicago businesses and investors "better learn, and we better learn
fast, because others are looking," said local attorney Patrick Croke,
who assists companies in entering Latin America. "I'm sure New York and
Miami will be all over this."

Entering the Cuban market remains a daunting task, even for businesses
with a presidential green light to proceed. Payment and shipping
restrictions, for instance, put U.S. firms and farmers at a disadvantage
to foreign rivals — a situation that has caused Illinois growers to lose
most of their Cuba export business to Asia and Brazil over the past decade.

And "at the end of the day, it's an island with 11 million residents
with limited spending capacity," said Matthew Aho, a consultant in the
Cuba practice of law firm Akerman. "It's important to remember Cuba is a
communist country in which the government controls the vast majority of
the economy, so it's a different operating environment, to say the least."

Still, getting in first is often critical to winning business in an
emerging market, said Aho, who assisted Airbnb on its entry into Cuba.
"I think we'll see a lot of jockeying by U.S. businesses now."

Many companies "want to push the envelope to see how far this
administration is willing to go," said Janet Kim, head of the
international trade practice at law firm Baker & McKenzie.

"Once you open Cuba, it becomes yet another entry point for South
America — and South America is a huge market for the Midwest," said
Theresa Mintle, president of the Chicagoland Chamber of Commerce.

At the moment, Cuba is a small and shrinking slice of business for
Illinois, just $3 million in exports last year, mostly chicken parts.
But observers see potential for significant growth and say the state has
some competitive advantages.

While Florida is just 90 miles from Cuba and home to 70 percent of
Cuban-Americans, it also has an acrimonious history with its Caribbean
neighbor.

Illinois has a small Cuban-American population but "has long been at the
forefront of engagement," Aho said. "Since 2001, when food and
agriculture products were authorized for export, Illinois farmers and
farm exporters have been actively pursuing contracts in Cuba."

Former Illinois Gov. George Ryan led a delegation of government,
business and academic leaders there in 1999, the first sitting governor
to visit since revolutionary leader Fidel Castro came to power in 1959.

The push for business ties is widening now. Behind some of the efforts
is Chicago commercial real estate broker Ruben Ruban Jr., whose father
fled Cuba in 1967, at age 19, after stealthily making his way onto the
U.S. naval base at Guantanamo Bay, a place of refuge.

"He's got scars all over his back, still, from (climbing through) the
barbed wire," Ruban said.

Asked how his father feels about his son's efforts to restore commercial
and cultural ties with communist Cuba, Ruban said, "He's actually very,
very happy. ... Anything I can potentially do to help out family and the
Cuban population at large, that's only a good thing."

Along with business consultant Paul Johnson, who heads a statewide group
focused on building ties with Cuba, Ruban is working on several
initiatives. Plans in the works include bringing in a Cuban delegation
to discuss cross-border commerce at a Chicagoland Chamber of Commerce
forum this fall; organizing an agriculture-oriented trade mission,
potentially led by Lt. Gov. Evelyn Sanguinetti and U.S. Reps. Rodney
Davis and Cheri Bustos in October; and crafting a telecommunications-
and medical-focused trade mission in December.

"In order for us to increase trade between both countries, we have to
compete with existing relationships that Cuba has … such as with Brazil,
Argentina, Canada, Russia and China," Johnson said.

Independently, a number of local companies and industries are joining
the race.

Burr Ridge-based Grafton Medical Alliance, which sells implants used in
spinal surgeries, plans a trip to Cuba this summer to meet with hospital
administrators and surgeons. The market's potential "is an eye-opener
for any entrepreneur," said Jim Henry, president of the firm, which
started in a garage four years ago and expects $12 million in sales this
year.

Meanwhile, American tourism is surging since Obama eased travel
restrictions late last year, rising 36 percent, to 51,458 visitors, from
Jan. 1 to May 9, according to The Associated Press. Plans for cultural
exchanges are on the rise, with groups such as the Chicago Children's
Choir planning a trip next year.

"We believe music is that cultural bridge," said Josephine Lee, the
choir's president and artistic director. Touring "is life-altering for
our kids and for the people they visit."

As Cuba prepares for the influx of tourists, Illinois businesses see
related opportunities, particularly if trade restrictions are eased further.

Roy Donoso, whose companies in Chicago and throughout Latin America
consult on construction projects, will trek to the Cuban city of
Trinidad next month. Through a company he owns in Ecuador, he is
competing for a contract to provide environmental consulting on a
400-room hotel project in the Cuban city.

The contract would be a small one. "This is more of an investment in the
future," said Donoso, president of Sumac, which specializes in energy
efficiency work. "Obviously we want to be there before anyone else."

United Airlines is pursuing government approval to launch service to
Cuba from hubs in Houston and Newark. The airline declined to comment on
whether it has plans for additional routes.

Meanwhile, Chicago-based consultant Charlie Serrano, who advises firms
on entering Cuba and who operates tours to Cuba, hopes to launch direct
charter flights from Chicago to Havana later this year.

And the Illinois Corn Marketing Board just returned from a trade mission
to Cuba, where its delegation of food producers met with staff members
in government ministries, with the goal of fostering future business ties.

"When tourists come to Cuba they will want high-quality food, and that
is what we can provide them, through pork, beef and chicken," said Don
Duvall, a fourth-generation farmer who owns a 1,000-acre spread near the
Wabash River in southeastern Illinois. He is export chairman for the
corn marketing board.

The corn, soybeans and wheat raised in fields just north of Shawnee
National Forest are shipped out on barges that push through the Wabash
River to the Ohio and then the Mississippi, ending up in New Orleans.

As close as that is to Cuba, Duvall said, "We should be the lowest-cost
provider."

Because of an array of banking and financing restrictions, however, that
is not the case. Illinois farmers, like those throughout the Midwest,
have seen exports to Cuba plummet since 2009.

"Cuba can buy from Brazil and pay those transportation costs, and it's
cheaper than getting it from 92 miles away," Duvall said. "That doesn't
make sense."

Caterpillar, too, sees promise as tourism rises.

"It will require more power generation and much better infrastructure,"
said Lane, who was part of a Caterpillar team that visited Cuba in
April, analyzing opportunities for its construction equipment, gas
turbine engines and mining trucks. The company is pushing for an end to
the embargo.

"One thing you realize when you've been down there is that just because
the U.S. has not been there in 54 years, it doesn't mean your
competitors have not been down there," Lane said.

As promising as Cuba sounds, no one knows whether the recent thaw in
U.S.-Cuban relations will deepen.

The Cuban "government remains wary of rapid shifts toward capitalism and
is prone to backtracking on measures to liberalize the economy," Moody's
Investors Service wrote in a June report.

And the trade ban appears unlikely to be lifted by Congress anytime
soon. Illinois firms, even those in sectors opened up by Obama's policy
changes, say it will be difficult to capture a share of the market
unless there is further loosening of trade restrictions, such as a
prohibition on extending credit to Cuban customers.

Sen. Dick Durbin, D-Ill., who supports an end to the embargo, thinks
that goal remains within reach. He cites recent polls showing younger
generations of Cuban-Americans are more open to engagement than their
parents or grandparents.

"If candidates for president see that," he said, "it will inspire them
to support open trade.'

On Cuban shores, Duvall saw evidence of shifting attitudes as well.

"People were moved by our visit," he said. "They were happy we were
there, particularly the younger people in the ministries. They
recognized that perhaps their system doesn't work and it's time to move on."

kbergen@tribpub.com

Twitter @kathy_bergen

Source: Illinois firms race to establish foothold in Cuba - Chicago
Tribune -
http://www.chicagotribune.com/news/globalcity/ct-race-to-cuba-met-20150731-story.html#page=1