Global Finance - USA (2020-09)

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62 | Global Finance | September 2020

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FRONTIER MARKETS REPORT

CUBA | By Al Emid

Sources: Bloomberg, Economic Commission for Latin America

and the Caribbean, Economist Intelligence Unit, International

Monetary Fund, Los Angeles Times, Miami Herald, OnCuba

News, Prensa Latina, Reuters, Trading Economics, Transparency

International, UPI, US-Cuba Trade and Economic Council, World

Bank, World Population Review

VITAL STATISTICS

Location: Caribbean

Neighbors: US, Bahamas, Turks and Caicos, Haiti,

Jamaica, Cayman Islands, Mexico

Capital city: Havana

Population (2020): 11,325,956

Official language: Spanish

GDP per capita (2018): $8,821.80

GDP growth (2018): 2.2%

Inflation (2019): 5.7%

Currency: Confusion because of dual currency system:

the Cuban peso and the Cuban convertible peso

Investment promotion agency: ProCuba Center for the

Promotion of Foreign Trade and Foreign Investment

Investment incentives available: Breaks on duties;

streamlined procedures; special economic zone with tax

and customs breaks; majority shareholding in a local

company allowed after approval by the government

Ease of Doing Business rank (2019): Not ranked

Corruption Perceptions Index rank (2019): 60

Political risk: Accusations of resale of Venezuelan oil;

limited support from neighbors; US sanctions

Security risk: Risk of lawsuits in US courts under the

Helms-Burton Act; advisable to avoid eating seafood,

insufficiently cooked meat, salads, fruit unless peeled

personally, water unless boiled, filtered or bottled;

insect-borne diseases such as dengue fever

PROS

Well-educated and trained workforce

Internal political situation stable

High-quality medical and education sectors

Low crime, anticorruption efforts

Dialogue and cooperation agreement with EU

CONS

Limited access to world capital pools

Low foreign exchange reserves

Need to import approximately 80% of all food and fuel

requirements

Limited legal rights for foreign interests

External vulnerabilities include climate, raw material

prices and dependence on Venezuelan aid

Cumbersome administrative processes

C

uba’s economy is slowly powering

back up as the government gradu-

ally ends its Covid-19 lockdown.

But a combination of the health and eco-

nomic effects of the pandemic, intensi-

fying US-imposed trade restrictions and

self-imposed limitations on commerce are

preventing the island from fully recovering

and further developing.

“Cuba currently faces a perfect storm

of challenges,” says Mark Entwistle, for-

merly Canadian ambassador to Cuba and

now managing director of Acasta Capital,

a business development and investment

consultancy. While some of these issues

cannot be tackled immediately, resolving

others would go part way toward offer-

ing Cubans stronger economic prospects.

Covid-19 seriously exacerbated food

and energy shortages, and tourism rev-

enues have been decimated, reduc-

ing Cuba’s stores of foreign exchange.

The Economic Commission for Latin

America and the Caribbean, a United

Nations agency, projects Cuba’s economy

will contract 8% this year.

The country has suffered a series of

external shocks as outside allies have

withdrawn support for the Communist

regime. Recently, for example; Venezuela,

who stepped in after the USSR disinte-

grated, reduced its aid and trade amid

declining oil prices and US sanctions.

At one time, the Venezuelan relationship

accounted for almost 22% of Cuba’s GDP,

according to one estimate.

Meanwhile, US President Donald

Trump’s decision to reimpose travel

and trade restrictions while piling on

additional sanctions and restrictions on

remittances has reduced the flow of

necessary goods, services and currency.

Relaxed rules in the Obama era had

drawn strong interest from both tour-

ists and business, expanding economic

opportunities, notes Entwistle.

Some of Cuba’s difficulties, however,

flow from policies of its own making.

These include tight labor controls, the

dominant role of state-run enterprises and

frequent government insistence on major-

ity control of other businesses. Moreover,

Cuba lacks transparency in reported fig-

ures. Such factors dampen the enthusiasm

of many potential foreign investors.

Some recent developments may sig-

nal a new order of sorts. In July, the

government liberalized import-export

regulations; provided more autonomy for

state-run organizations, farmers and local

governments; and allowed dollarization of

some international trade.

Whether and how soon Cuba can

recover to its pre-pandemic economic

levels remains open questions. For foreign

investors, the risk-reward calculation has

changed as well.

Still, while they are not immediately

apparent in the midst of the present crisis,

Entwistle sees opportunities in mining,

tourism, tobacco, renewable energy and

the rum business, among other areas. ■

For more information on Cuba, check out our

Country Economic Reports at:

GFMag.com/gdp-data-country-reports.html

Difficulties,

Unforeseen

And Homemade

As Cuba reopens its economy, the government

hopes loosened restrictions and dollarization of

international trade will spur expansion.