One week ago, I visited Cuba with a delegation from the American Bar Association’s International Law Section. During our visit, we met with government officials, attorneys, law professors, foreign businessmen, journalists and US representatives in Cuba. This is a summary of what we saw and learned on our trip, what I believe is a fairly accurate description of Cuba today.
President Obama announced in December 2014 that he was upgrading relations with Cuba. Recognizing that the Cold War is really over, the President is trying to dismantle the financial, commercial and travel restrictions first imposed by the Eisenhower administration, known as the Cuban Embargo.
Everyone we met with is supportive of a normalization of the relationship with the US. In fact, many Cubans have either relatives or friends in the US and they seek to open travel between the two countries. Though the sanctions restricted US trade, Cuba continued to trade with other nations. We saw Spanish wine and Chilean bass in the new restaurants that are starting to crop-up in Havana and new South Korean Kia sedans on the street. We also saw food from the US in state-run supermarkets. Mainly we saw a country that is struggling financially.
One of the people we met with, an American journalist, best summarized his perspective of the current conditions in Cuba today with the following:
- Fidel, who has been a charismatic leader, is gone. We learned that Fidel Castro is still alive but reputed in ill health and rarely seen, he has been replaced by his brother Raul;
- The country is in financial trouble and owes money (especially for the nationalization of foreign property), so fixing the economy should be a priority;
- The government is losing some control of the system and population. The population is becoming more critical as it has more contact with the west; and,
- There is currently a “brain-drain,” with many young people fleeing the country. We learned that in the old days anyone that left Cuba was looked down upon and their property was immediately confiscated by the government. However, that is no longer true today.
What was remarkable is the lack of telecommunications on the island. Few Cubans have cellphones (or even phones) and little internet access. In our meeting with a former Cuban lawyer for a major Cuban sugar company, we found that she has no phone and no internet. Salaries in Cuba are set by the government so that a waiter could make the same salary as a doctor, and generally no more than the equivalent of $20 a month. However, there appear to be few, if any taxes, and everyone has been given free housing, subsidized food, free education and medical care. The Cuban population is highly educated with increasing expectations for the growth of the economy and country.
In the years of the US embargo, Cuba has been integrated into Latin America which now welcomes it. Today, Cubans talk about what Cuba’s future will look like. We were repeatedly told to bring back the message to the US that they welcome exchanges of ideas and people.
While foreign investment has eased up in recent years, it still depends on the interests of the government. Our meetings with foreign businessmen revealed problems with letters of credit, since the Cubans have little hard currency and little to no relationships with foreign banks. There are also issues with an unstable exchange rate, and the existence of two currencies in the country that need to be unified.
We were also informed that today investment in Cuba continues to be high risk. Meaning long delays, a cumbersome approval process where much can go wrong, and currently resulting in low profits. While the government officials were proud of the new investment law, and the streamlined process does initially sound attractive, we learned that in reality no new foreign investments have been approved under the new law and that many potential investments remain in the pipeline. However, even under the new investment law, a US company seeking to invest in Cuba would need a joint venture (JV) with a Cuban entity (chosen by the government) and can only have minority ownership in the JV. Also, foreigners cannot own land in Cuba, so at best the JV can own the building standing on the land and lease the land from the government.
It became very clear that while the Cubans seek open trade and investment with the US, obstacles and challenges remain. To directly quote one foreign businessman in reference to the Cuban side of the process, investment in Cuba is “not for the faint of heart.” The US businessperson also continues to have to wade through a myriad of sanctions and laws that are anything but clear or helpful.