Originally published in: CNBC.com

Is Cuba rolling out red carpet for business?

«After a thawing of relations that had been frozen for 60 years, Cuba's rapprochement with the US means the country is rapidly opening itself up to business.

The Cuban government has been trying to pitch the country as a "place for foreign investment" touting tax incentives, a qualified workforce and "political, social and legal stability" as reasons for investment.

Indeed, looking at the fragility and insecurity of other emerging markets around the world, the former socialist stronghold is looking at an appealing investment location.

The Cuban authorities are pitching their energy, sugar, mining, tourism, manufacturing and construction, agribusiness, finance and biotechnology sectors as particularly attractive.

The opening-up of such sectors comes after 54 years of frosty relations and trade embargoes between the west and Cuba. This summer, however, the Cuban embassy in Washington DC reopened in July and its counterpart in Havana re-opened in August, heralding the re-establishment of diplomatic ties and commercial opportunities.

Even Rolling Stone Mick Jagger has reportedly been scouting locations for a Cuban concert, The Guardian newspaper reported Tuesday, citing local media.

The rapprochement was already bearing fruit in commercial terms, according to one Latin America expert.

"It's clear that tourism and telecoms have seen the biggest upticks in activity since the beginning of the normalization process in December 2014," Joel Ross, Latin America analyst at Verisk Maplecroft told CNBC Tuesday.

“Several US telecom providers are already operating in Cuba since new regulations were introduced and more are likely to enter the market. Cuba has accepted that it needs to improve its telecommunications in the country if it is to attract higher levels of Foreign Direct Investment,” Ross added.

The Cuban offer

Joint businesses in Cuba (between the private sector and Cuban authorities) are nothing new, although they are expected to increase as the country attracts more investment. For example, 51 percent of total businesses were joint ventures with the Cuban authorities, as of the end of 2013, according to government data. Tourism was the sector with the largest foreign investment, accounting for 42 percent of all foreign investment in the same time period.

Ross believed that there was an urgent need to improve tourism infrastructure to deal with the increased number of visitors on the back of the thawing of relations with the west. He said that while “US-based hotel chains are chomping at the bit to invest, non-US companies have jumped to the head of the queue.”

Indeed, many countries around the world have been keen to capitalize on Cuba's re-entrance to international relations and the UK, for one, has been keen not to miss an opportunity in the Caribbean nation.

In April, the not-for-profit consultancy Caribbean Council sent a UK trade and investment delegation to Cuba in a bid to open up investment opportunities. In May, it announced several ventures created following the trip.

Among the new business deals inked between UK businesses and Cuban authorities were a major golf and beach resort with a gross investment in excess of $350 million, a joint project to develop potato production and crisp manufacturing in Cuba and a major bio-power project in collaboration. with the sugar sector worth $150 million.

Don't smoke? Cuba still risky

Despite the apparently cordial relations, US sanctions on Cuba remain in place and risks remain for potential investors.

There is still a trade embargo between the US and Cuba — which requires congressional approval to be rescinded — but amendments to the rules have been made to open up travel, economic and communication flows, the US Treasury states on its website.

These amendments were "to further engage and empower the Cuban people by facilitating authorized travel to Cuba by persons subject to US jurisdiction, certain authorized commerce, and the flow of information to, from, and within Cuba," the Treasury said.

There are signs that the trade embargo could be lifted entirely, too, with US Secretary of State, John Kerry, saying on Monday that he favored lifting the trade embargo on Cuba because the island is making progress in the right direction. Despite the rosy outlook for US-Cuban relations, Verisk Maplecroft's Latin America analyst Ross warned that it was possible for foreign businesses in Cuba to fall foul of the government's tight control of industry.

"The laws governing foreign investment and employment are very cumbersome and difficult to navigate," he warned. “The government tightly controls what foreign companies do and the country's inefficient bureaucracy is incredibly complex. The rule of law is weak, and companies will be powerless in a government dispute.”

Labor is hired through the state and companies do not have control over their workforce or over how many employees are paid, he added. The biggest risk, however, came from a leadership change in 2018.

«Raul Castro's successor, thought to be Miguel Diaz Canel, will have to manage hard-line communist elements and ensure that Cuba continues to implement economic reforms to improve the business environment for foreign investors.»»

By: Holly Ellyat


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