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A Site Selection Web Exclusive, February 2010
WEB Exclusive story

Two Experts Weigh In On Opening Up to Cuba

Timothy Ashby
Timothy Ashby

ant to get a conversation started? Start talking to folks in Florida or the Caribbean about Cuba. We received an unsolicited commentary from one of them. Then, after soliciting responses from selected individuals, we got another viewpoint entirely from another noted expert. The results are below, indicating a stubborn gap that may be wider than the 94 miles (151 km) between Cuba and the United States.

First up: Timothy Ashby, a corporate attorney in Miami, and a member of the Public Law & Policy Strategies Practice at Sonnenschein Nath & Rosenthal. Dr. Ashby, who travels regularly to Cuba, has extensive experience in Latin America. He previously served at the U.S. Commerce Department as Director of the Office of Mexico and the Caribbean and was acting Deputy Assistant Secretary of Commerce for the Western Hemisphere:

This month marked a half-century since the U.S. imposed a trade embargo on Cuba that helped incite the long cold war across the Straits of Florida. Although Fidel Castro himself has largely disappeared from the public stage, replaced at the helm by his brother Raúl, most Americans still think of Cuba as the dictatorship that time forgot — a poor, sweltering island of rusted 1950s-era automobiles that clings against all sense to the decaying vestiges of Communist orthodoxy.

Maybe once, but no longer. As the U.S. Congress considers legislation that would lift the 50-year-old travel ban to Cuba — permitting all Americans, not just those of Cuban descent, unrestricted travel to the island — Cuba is positioning itself for a Vietnam- or China-style economic leap forward that will offer huge opportunities for both the Cuban and U.S. industrial sectors.

Ending travel restrictions — which already enjoys bipartisan support in Congress — would not only stimulate Cuba's emergent private sector, but would benefit the U.S. at a time when our economy remains clouded by recession and high unemployment. Cuba, a nation of 11 million, is a hugely untapped market as close to the U.S. mainland as New York is to Philadelphia. Although American businesses are largely sidelined from contributing to the development of the Cuban economy, the government there has made some striking changes.

Acknowledging at last the weakness of its economic state-ism, Cuba's leadership is letting out the reins on private enterprise. The island boasts 4,500 licensed private guest houses (many associated with an umbrella organization that facilitates online bookings) and 1,500 private bars and restaurants. Privately owned taxis shuttle customers among them.

The government has turned over land to a quarter of a million farmers, with more expected. Cuban economists and journalists are openly calling for the government to get out of the retail business and leave it to the private sector. Pressure is growing for private ownership of real estate. The Castro regime has even green-lighted construction of 14 condominium and golf resorts, part of a massive foreign investment to overhaul the island's tourist infrastructure. This is how confident Cubans are that if the U.S. government allowed unrestricted travel, American tourists would return in droves. They would also find a more hospitable place: Policies that once forbade ordinary Cubans from associating with foreigners have disappeared in the last several years.

Oil and Water…and Tourists

News reports of coziness between Havana and Venezuelan strongman Hugo Chavez miss some important points about their relationship. Cubans may welcome shipments of Venezuelan oil and gas but have shown no desire to be roped into Chavez's anti-U.S. orbit — something that is even less likely now that Venezuela is facing economic troubles of its own, undone by wild overspending, nationalization of resources and lower oil prices. What's more, the Cuban government has reportedly counseled Caracas not to make some of the same mistakes it did in the 1960s, such as confiscating private property.

Ending the U.S. travel ban, would not, as some opponents allege, "put dollars in the Castros' pockets." Instead it would accelerate the broad economic changes afoot in Cuba. And it would be a huge shot-in-the-arm for our own economy. Independent studies estimate that lifting travel restrictions would increase domestic output by between $1.2 billion and $1.6 billion annually, and create between 17,000 and 23,000 new jobs — in tourism, but also real estate, retail, food processing, transportation and other sectors.

The same projections see U.S. airlines, cruise ships and tour operators generating more than $522 million from Cuban business the first year, increasing to $1.6 billion by the fifth year, and creating more than 10,000 jobs. An estimated 60 cents out of every dollar spent by Americans in Cuba would end up back in the United States with travel operators and food exporters. Cuba bought nearly $712 million in U.S. food and agricultural products in 2008, a number that is expected to more than double once hungry American visitors descend on the island. Cuba would readily import U.S. vehicles if the embargo were ended. Today there is a preponderance of Chinese vehicles. The police in Havana drive Chinese cars, Chinese rental cars predominate, and across the islands length of 780 miles (1,255 km.) Chinese buses rumble over the highways.

"Cuba is an interesting opportunity. Not just serving 12 million inhabitants, but we have to be looking at intermodal hubs. The Republic of Cuba has an interest in being an intermodal hub. "

- Don Allee, executive director and CEO, Mississippi State Port Authority, at the Southeast Association of State Highway and Transportation Officials conference in Biloxi, Miss., September 2009

Meanwhile, Congress is deliberating legislation that would permit U.S. companies to drill for oil and gas in Cuban waters. If foreign direct investment restrictions were lifted, some $2 billion to $5 billion in U.S. funds would be allocated to Cuba in the first year.

The Cuban government already welcomes foreign direct investment in most industry sectors, with a focus on tourism, agriculture, housing and manufacturing. Cuba plans to completely redevelop Havana, restoring the grand but decayed city, and transforming the port of Havana into a tourism zone by moving commercial shipping to a state-of-the art container port in Mariel. The expected economic boom following the end of the embargo will require new offices, housing and a variety of services.

Just a Start

Economics aside, Americans should have the right to freely travel to Cuba. It is illogical and counterproductive to our foreign policy interests that Americans can visit Iran, Syria and even North Korea — security threats with far worse human rights records than Cuba — but are banned from visiting an impoverished island a stone's throw from our shores that is eager for normal relations with its neighbor. Repressing the right of Americans to travel where they want is no way to fight the absence of liberties in Cuba. If it's wrong to travel to Cuba because of lack of freedoms there, then Americans also should not be allowed to visit China, Saudi Arabia, Libya and other countries that do not meet our standards.

Of course, ending the travel ban is just a start in normalizing relations between our two countries. American law requires that claims against the Cuban government for American property seized in the 1960s be resolved before full relations can be established. It will be a slow process to unravel the U.S. trade embargo. And Cuba won't hold democratic elections any time soon.

Polls show that two-thirds of all Americans, and a majority of Cuban-Americans, want an end to the travel ban. The U.S. Conference of Catholic Bishops and major human rights groups say ending the travel ban will help the Cuban people. Political dissidents in Cuba want engagement with the United States and the freedom to travel for American citizens. They prefer the approach the U.S. took toward the Soviet Union and Eastern Europe during the Cold War — encouraging unrestricted travel so that we could best share our ideas, values, and culture.

After half a century, it is time to rethink our policy toward Cuba — starting with an end to the travel ban. We should send our best ambassadors — American citizens — to engage our Cuban neighbors, thus giving America a much better chance of bringing U.S. ideals and perspectives to the Cuban people.

Another Viewpoint

We asked several experts for their viewpoints on Timothy Ashby's column, versions of which have appeared in numerous online venues over the past month. One delivered in spades:

David Berger

"First, I am skeptical that the market will open before the Castros die," writes David Berger, managing director for Latin America and Caribbean for global real estate firm NAI Global, in an e-mail response. "Their Marxist dictatorship has made slaves out of the Cuban people for over almost 60 years. The USA had go to war against itself to free its own people." David Berger

Berger, who's worked in every Latin American country but Bolivia over his 23 years of experience in corporate real estate advising, pours more than a bit of cold water on Ashby's thesis.

"The permission for new investment in the tourist industry is not a strong sign that the Castros want to open up their slave state to further economic development. It is a sign that they need and want more capital," he posits. "We are going through a global recession and the Castros' cash flow has also been negatively affected. The tourism development is allowed on small, defined areas where the Castros can control the 'foreign incursion' and reap the royalties from it.

"It is like a family turning a small part of their backyard into a garden to have fresh vegetables," Berger says. "They are not tearing down the house to become dedicated farmers or vegetarians. They just want to grow some of their own food."

At the same time, he recognizes the tremendous infrastructure opportunity Cuba may represent.

"Once the market does open the first thing that will be needed is infrastructure, primarily power, telephony and water," writes Berger. "The current supply there is woefully short of what would be required for an open market. It has basically stayed the same since the '60s. The 21st Century requirements are completely different.

"Without a massive influx of investment and infrastructure development the industrial and office development will lag years," he says. "There may be some industrial development without infrastructure investment, but those buildings would soon become obsolete once the primary infrastructure is developed and integrated in the marketplace. Real office development will lag several years."

No Rose-Colored Glasses Here

Berger is decidedly clear-eyed about the first wave of commercial building that will follow: It will be "poor quality — inexpensive and quick to build. The product type will be warehousing, whether good product or not. Opening the economy will create more disposable income; the goods for purchase will have to be stored somewhere until [they reach the] market."

Then will come retail, but not in malls, Berger says.

"It will first be in-line retail and the renovation of some residential buildings and shops at street level in the cities. Retail development will occur along the tourist areas due to the traffic from foreign visitors — disposable income needing a place to be spent. Some residential construction will occur, but probably more like social housing if the government will dedicate some of their ill-gotten gains to providing housing. There will not be a critical mass of enough people with a large enough disposable income for at least a decade to make large-scale housing development possible. For the short- and mid-term there will be a chronic shortage of decent housing."

Long term, however, even Berger concedes the surplus of opportunity that will develop in select niches.

"After about 8 to 10 years the real boom should begin," he writes. "However, the following 20 should be steady growth in all real estate sectors. There will be a residential boom, no doubt, and probably an overdevelopment in tourism. But the rest will be niche opportunity growth.

"Another sector that will see explosive growth is beach front residential," he says. "Cuba in the short-term will offer inexpensive seafront living — if there is title and it can be transferred."

Cuban-American interest in returning to build homes will also revive, he says, projecting that most of the initial wave of new houses will likely be constructed with concrete block.

"There are a lot Cuban-Americans who still dream of their original homeland. They will want to get a piece of it too. Many of them will use their savings to help their families build new houses."

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