Who is Investing in the Island?

The New Cuba: Who is Investing in the Island?
By Jillian Sequeira | April 4, 2016

President Obama touched down in Cuba last week, making him the first
sitting president to visit the nation in eighty-eight years. As the
President and the First Family toured the historic center of Havana,
they likely witnessed the stunning old city filled with the vintage cars
and delicious cuisine that make Cuba unique. As a result of the embargo,
Cuba sometimes seems like a land forgotten by time. However, the Cuba
that the Obamas are witnessing this week is very different than the
Cuba the average tourist may experience in the next ten years. As more
opportunities for investment and travel open up in Cuba, foreign
investors are making moves–especially within the hospitality sector.
Consider that Marriott CEO Arne Sorenson is accompanying President Obama
on his visit to Cuba–Marriott may be interested in investing on the
island. Read on to see which companies are investing in Cuba and why.

HOTELS AND HOSPITALITY

Starwood Hotels, the company which owns Westin, Sheraton, and W Hotels
(just to name a few), made headlines by announcing that it will open
three hotels in Cuba. At the moment, all Cuban hotels are state-owned
but Starwood has the financial and organizational power to build hotels
that meet the state's standards. The location of the third hotel has not
been made public but the company has stated that the Hotel Inglaterra,
which is owned by a Cuban state tourism company, will become one of
Starwood's Luxury Collection hotels and the Quinta Avenida, which is run
by a Cuban military-run tourism group, will become a Four Points by
Sheraton hotel.

The potential Starwood-Marriott merger that is currently on the table
could have a major impact on how these new hotels will be built and run.
On the heels of the Starwood commitment, AirBnB has announced it will
open listings on the island by April 2. AirBnB has in fact been planning
for the opening of the country for some time now–last year, the company
claimed the right to represent all private residences in Cuba. AirBnB's
chief executive Brian Chesky referred to Cuba as the fastest-growing
country that AirBnB has ever launched in. Physical accommodation is not
the only segment of the tourism sector that is expanding into Cuba:
online booking website Priceline, Western Union and Carnival cruises
have all thrown their hats into the ring (Carnival will begin sailing
cruises to the island in May). Multiple U.S. airlines have filed for
permission to fly commercial flights into Cuba. At the moment, American
citizens cannot travel to Cuba on a touristic visa but visas falling
under the following twelve categories have been opened:

Family visits, official business of the U.S. government, foreign
governments, and certain intergovernmental organizations, journalism,
professional research, educational activities, religious activities,
public performances, clinics, workshops, athletic and other
competitions, and exhibition, support for the Cuban people, humanitarian
project, activities of private foundations or research or educational
institutes, exportation, importation, or transmission of information or
information materials and certain export transactions that may be
considered for authorization under existing regulations and guidelines.

Travelers must provide itineraries that justify their visa, but they no
longer have to apply for a formal travel license from the government.
Ease of travel is drawing a steadily increasing number of Americans to
the island. According to Jose Luis Perello Cabrera, an economist at the
University of Havana, there was a 36 percent increase in the number of
Americans visiting Cuba between January and May of 2015 alone.

American investors for the most part are flocking to the hospitality
industry but there are a handful of cases of more specific investment.
Consider Alabama-based Cleber LLC, a tractor company which was the first
company to receive joint approval from the Cuban government and the U.S.
Department of the Treasury. Cleber LLC is looking to produce tractors in
the newly built port of Mariel just outside of Havana, claiming that
these tractors will deliver both a financial profit and an ethical
good–improving the quality of life of Cuban farmers. Tractors are just
one element of machinery that Cuban farms and factories are clamoring
for and as the market continues to open, an increasing number of small
businesses like Cleber LLC will be given the opportunity to sell their
specialized products on the island.

CHINESE INVESTMENT IN CUBA

American companies are not the only investors chomping at the bit to
launch projects in Cuba. Venezuela has historically been Cuba's largest
trade partner but in recent years, China has been vying for that
position. Cuba has long been reliant on Venezuela for oil but the regime
has now turned to China for its technology and infrastructure needs.

American companies such as AT&T have projects in Cuba waiting in their
pipelines but Cuban authorities have resisted American
telecommunications investment. Instead, they have turned to Chinese
operators such as Huawei Technology Co. Ltd., which was tasked with
installing fiber-optic connections in Old Havana. Professor William M.
LeoGrande of American University has said that "partly that's a result
of the fact that historically we've tried to use telecommunications as
an avenue to undermine their government, and so consequently they really
don't trust our hardware." Silicon Valley tech companies are getting
left behind as Huawei installs dozens of Wi-Fi hot spots around the
island. Huawei has also partnered with the Cuban telecom company Etecsa
to distribute smartphones, further anchoring its brand with the Cuban
public.

The economic exchange between the countries has also led to Cuban
efforts to break into Asian trade: Cuba's Havana Club rum has launched
major marketing campaigns targeting the Chinese market, hoping that it
will be a gateway to Asia as a whole. In 2015, airlines began operating
direct flights between Beijing and Havana as both Chinese investment and
tourism in Cuba soared. Although Chinese investors have not paid as much
attention to the hospitality sector as American companies, China's
Suntine International-Economic Trading Company has partnered with Cuba's
Cubanacan hotel group to launch a new "Hemingway Hotel"–a luxury hotel
with a price tag of at least $150 million. If the Hemingway Hotel
project succeeds, then Chinese corporations may commit to more
hospitality projects–putting them in direct competition with companies
like Starwood and AirBnB.

CONCLUSION

Although foreign investment appears to open up new opportunities for the
Cuban people, it has been argued that foreign companies will only
further entrench the power of Raul Castro rather than aiding the general
Cuban populace. American (and other foreign) companies hiring Cuban
workers will not necessarily be allowed to hire employees directly.
Instead, they may only be permitted to hire people through state
agencies, effectively blacklisting anybody the regime has deemed
unacceptable. Foreign investors will pour their money into the regime
itself rather than into the individual bank accounts of Cubans who they
hire at their enterprises. Cuba is a nation with a rich cultural
heritage that travelers have been drawn to for centuries but many
Americans are unfamiliar with the island's government and its approach
towards controlling the population. As diplomatic relations between the
U.S. and Cuba expand, American investors are trickling into the country,
hoping to prepare it for a potential flood of tourists in the coming years.

While Americans seem to have gained the upper hand regarding early
investment in hospitality services, Chinese and Venezuelan companies
have been positioning themselves to win the contracts on Cuba's largest
infrastructure projects. Tech investment could be a battleground, as
Cisco has already committed to a training institute and Google is
interested in working on Cuban connectivity but Chinese investment in
Cuba's internet has already but them at a significant advantage. The
swell of foreign investment in Cuba may not provide the stability and
equality that optimists hope for, but it should not be dismissed
outright. Allowing open commerce and investment in Cuba will allow the
nation to engage in the global economy in a way that it has never
before–but it is, at least at the moment, unclear who will truly benefit
from this expansion.

Source: The New Cuba: Who is Investing in the Island? - Law Street (TM)
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http://lawstreetmedia.com/issues/business-and-economics/new-cuba-investing-island/