Country Profile — Cuba

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With the normalising of relations with the West, this Caribbean island is starting to enjoy a new life in the sun, raising hopes for further trade and investment. Martin Clark reports.

While the transition process is likely to be a long, slow one, the times are clearly changing for Cuba, famed for its cigars and salsa.

In 2014, this communist island state in the Caribbean agreed to normalise relations with the USA, a major break from previous times.

Never too far away from controversy, Cuba’s Government had survived more than five decades of US sanctions and sustained pressure designed to topple its veteran leader Fidel Castro, who passed away in late 2016.

The communist revolutionary and politician was the figurehead for this island nation of just 11.5 million people, one that has been a thorn in the side of the USA for many years, aligning itself politically closer to the former Soviet Union during the Cold War era.

Fidel Castro ruled Cuba first as Prime Minister from 1959 to 1976 and then as President from 1976 to 2008.

Though he was initially succeeded by his brother, Raul — who remains head of the all-powerful local Communist Party — a real turning point took place in April 2018, with the handover of power to Miguel Diaz-Canel as the new President.

This move ended six decades of rule by the Castro family.

A former engineer born after the revolution that brought Fidel Castro to power, Diaz-Canel — chosen and appointed by Raul Castro — has nonetheless vowed to maintain the island’s one-party communist system, just as it opens the doors to closer ties with the USA and the West.

In this sense, it is a key moment in history once more for the Spanish-speaking country.

Cuban resilience

Yet Cuba has proved its resilience many times before, at key turning points.

It has been a one-party state led by Castro, his brother, and now Diaz-Canel, since the fall of the US-backed dictatorship of Fulgencio Batista in 1959.

Since then, it has maintained its fierce independence, even under intense pressure from Washington, and defied predictions that it would not survive the collapse of its former ally, the Soviet Union.

For many years, Fidel Castro exploited the Cold War masterfully for his nation’s benefit, receiving billions of dollars in annual subsidies from the former Soviet Union, until its eventual demise.

Most famously, this was the background to the nail-biting Cuban missile crisis of 1962, when Moscow attempted to deploy its ballistic missiles in Cuba, just 90 miles off the coast of Florida.

The ensuing standoff is widely considered the closest the world came to escalating into a full-scale nuclear war.

Over half a century later much has changed, on all sides, including Cuba’s rapprochement with its former adversary.

The USA has since restored full diplomatic ties and opened an embassy in Cuba for the first time since Dwight Eisenhower was President.

For exporters, it presents a glimmer of hope that trade relations will likewise have the chance to flourish, not only with the USA, but with Britain and Europe too.

Economic openings

The UK has its own embassy in the vibrant capital, Havana.

Indeed, many Britons and foreigners are already very familiar with the country.

An estimated 150,000 British tourists visit Cuba every year, drawn to its Caribbean beaches and lifestyle, and enjoying the local rum, Latin beats and legendary cigars.

The British Council is also active in deepening cultural relations.

Given the dearth of activity in the past, there is clearly a lot of ground to be made up on the business front.

According to the Department for International Trade, the Cuban market offers good opportunities for companies focused on areas such as renewable energy, biotech and healthcare, agri-food, tourism and manufacturing industries.

Again though, it is a process, as Cuba’s own economy opens up.

During his long tenure in charge, Fidel Castro controlled virtually all aspects of Cuban life, building reputable health and education systems — Cuba has the highest number of GPs per head of population in the world.

One UK firm, Cardiocity, is tapping into this extensive healthcare system, landing a five-year license for its diagnostic screening tool, the RhythmPad, that detects abnormal heart rhythms.

However, at least partly because of the US trade sanctions, Castro failed to diversify the economy.

This has left imbalances which officials are no doubt keen to address in the years ahead.

One obvious sector is telecommunications, with Cuba one of the Western Hemisphere’s least connected countries.

State-run telecommunications monopoly ETECSA only recently trialled internet services nationwide.

While there are hundreds of Wi-Fi hotspots in Cuba, there is virtually no home penetration.

Similarly, less than half the population, about 5 million, uses a mobile phone.

UK trade and investment

It means trade and investment, especially for the UK, is starting from a very low base.

While the UK is the sixth largest economy in the world, its level of trade with Cuba is derisory — total bilateral trade was worth less than US$20 million at the turn of the decade.

Compare that to 1958 when the UK Government sold 25 fighter jets to General Batista’s dictatorship, in a deal that would loosely equate to annual exports of around £1 billion (US$1.3 billion) today.

While the trend is positive — in 2015, exports of UK goods to Cuba saw an increase of approximately 32% from 2014, for instance — there is obvious ground to be made up.

It’s all a far cry from the days before Castro’s 1950s revolution.

While Cuba may not be about to start importing military aircraft anytime soon given recent history, the potential for more business across all areas is undeniable.

In one of the priority sectors, renewable energy, Havana Energy, a UK firm that is headed by former Member of Parliament, Brian Wilson, is working on a £140 million (US$182 million) investment project for the construction of biomass power stations linked to Cuba’s large sugar industry.

It joined forces with a subsidiary of domestic sugar monopoly Azcuba to create Biopower in 2012, with a contract to build five plants attached to sugar mills, also drawing in China’s Shanghai Electric Group Ltd.

Cuba is battling a chronic energy deficit, and yet it has all the sunshine, wind and sugar to fuel what could become a booming renewables sector.

Barriers to entry

There are plenty of barriers still holding back the private sector from flourishing though in this modern day communist country.

Even today, the State controls 90% of the economy and employs around 85% of the total workforce.

And, for decades, the US blockade effectively starved Cuba of access to external funding from the UK, Europe and other main sources, with banks afraid of sanctions.

It explains the lack of development in key areas such as mobile telecommunications and the continuing high usage costs.

Cuba’s Wi-Fi hotspots charge about US$1 per hour — yet monthly wages in Cuba only average just US$30.

The Government has made boosting connectivity a priority, with plans to slowly start to hook up homes to the worldwide web — this will be integral too in the advance of business links with the outside world.

President Diaz-Canel has even called for a new “revolution” online, although a counter argument to this is that it could potentially start to erode government control over what information reaches its people.

Needless to say, the State likewise has a monopoly on the media.

The energy sector is also one strategic area that will need to be addressed if Cuba is to go on to reach its true potential.

Politically, things are never that straightforward either, especially with the USA.

The Trump administration has, in part, pulled back the US detente with Cuba that was initiated in the Barack Obama era, reducing embassy staff and expelling Cuban diplomats.

Realising potential

And yet, bit by bit, it appears that Cuba is slowly awakening from its deep slumber.

That includes a reshaping of the Cold War-era constitution, which could further boost its appetite for international trade.

A public debate is underway on issues ranging from one-party rule and socialism to inequality, gay rights, private property and a restructuring of the Government, with the outcome set to be put to the nation in 2019.

While no radical changes are anticipated, the shift is likely to be another step in the general direction toward a more mixed economy and modern society.

One key move is a softened stance toward private property ownership.

The planned London listing of a Cuba property fund — Ceiba Investments, which invests in foreign tourism assets — backed by Aberdeen Standard Investments, illustrates how the UK’s financial and services industries can aid the island’s long-term development.

Perhaps foreign tourists are the first to evidence this emerging nation’s obvious potential.

In fact, 2017 was a record year for foreign visitors to Cuba, which welcomed 4.7 million travellers, netting US$3 billion in tourism revenues.

The sugar-white sandy beaches are as much a part of Cuba’s appeal as it’s quirky, artsy chic, with Havana lined with 1950s-era cars and Spanish-colonial architecture, interspersed with cool music bars and arthouse clubs.

While the potential for Cuba may be immense, there remains much work left to do.

Gross domestic product growth remains weak: the economy grew just 1.1% during the first half of 2018, compared with the 2% forecast by the Government, and 1.6% growth the year before.

Officials estimate that the economy must up this to 7% annual growth to fully thrive.

That means gradually re-establishing financial credibility in the eyes of the world, according to the president, no small feat after so many years in isolation.

But Cuba is full of surprises, and there is now a real sense that it is starting to emerge from the shadows — it’s a place exporters and investors should monitor closely.

Last reviewed 7 December 2018

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