U.S. firms closer to ripe, but raw, market in Cuba

Men push a tricycle with a platform in the back for transporting goods in Havana on Thursday. Cuba’s poor economy will make investment difficult for some businesses should the U.S. embargo of the island nation be lifted.
Men push a tricycle with a platform in the back for transporting goods in Havana on Thursday. Cuba’s poor economy will make investment difficult for some businesses should the U.S. embargo of the island nation be lifted.

NEW YORK -- Companies considering doing business in Cuba will find a country ripe for a modern communications system, lacking U.S. consumer goods such as Coke and Pepsi, and craving more hotels, earth-moving equipment and even aluminum cans for beer.


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That's the bounty potentially awaiting U.S. corporations as President Barack Obama moves to thaw relations with the communist country, loosening restrictions on trade and travel. The bad news: Cuba remains a poor country with an inefficient, sometimes corrupt economy that could dash capitalist dreams.

"The key word is potential," said Bill Lane, director of global government affairs at Peoria, Ill.-based Caterpillar Inc. "Cuba doesn't need to rebuild its infrastructure. It needs to build an infrastructure. Everything that we make in U.S. is needed in Cuba."

Obama's unexpected policy shift is just a first step in allowing U.S. companies to do business in Cuba after a 50-year-long embargo. He would let U.S. businesses export goods such as building materials, farming equipment and communications infrastructure to the island. Ending the embargo totally would require congressional approval.

Easing travel restrictions could aid the cruise and airline industries. U.S. financial institutions will be allowed to open accounts with Cuban banks. The thaw could mean new business for companies as varied as Carnival and Nike.

U.S. consumers also were thrown a pleasurable benefit. American visitors to the island can bring back as much as $100 of Cuban cigars, a treasure for those so inclined. The U.S. bans all Cuban tobacco imports now.

Normalizing relations with the island nation about 90 miles from Florida would open a market of about 11 million people -- about the same size as Ohio -- that have been longing for U.S. products for decades, according to John Kavulich, a senior policy adviser at the U.S.- Cuba Trade and Economic Council.

"What's attracted U.S. companies from before the revolution, through the revolution to today is there's an incredibly high awareness for U.S. brand names," Kavulich said in an interview. That means the cost of entering the market would be lower because not as much marketing is needed, he said.

Coca-Cola Co. would consider re-entering the Cuban market "at the appropriate time and in accordance with the relevant laws and regulations governing U.S. relations with Cuba," Ann Moore, a spokesman for Coke, said in an email. Coke sells its beverages in all countries except for Cuba and North Korea.

PepsiCo, which does business in more than 200 countries and territories, looks forward "to adding Cuba contingent on business relations becoming normalized," said spokesman Jay Cooney in an email.

Even before Obama's announcement, Cuba had been pushing to attract more foreign investment. The government issued a 168-page report in November targeting the energy, agriculture and tourism industries as good areas for foreign investment.

The plans would include more than 20 new hotels, golf courses and condos as well as partnerships in oil drilling and making aluminum cans for beer and soda.

If Cuba embraces political and economic change, the country "can become a significant market for Caterpillar," said Lane.

One potentially big area for investment is telecommunications. Only about 5 percent of people in Cuba have access to the Web, one of the lowest rates in the world. The new rules allow U.S. companies to export equipment to build an Internet infrastructure.

"It's a virgin market in relation to everything that has to do with telecoms," said Jose Otero, director of Latin America and the Caribbean for 4G Americas, a telecommunications trade organization. "It could be interesting to any U.S. operator."

Cisco Systems, for instance, might want to fund a plan to make Havana a model for its "Smart Cities" initiative, in which it deploys networks for the Internet and city services, said Ray Mota, an analyst with ACG Research.

Cisco is exploring the implications of the new trade rules, said spokesman John Earnhardt.

Cruise ship operators have eyed Cuba for years in the hope that normalized relations would allow for greater travel to the country. Many have already developed plans in anticipation of loosened travel restrictions, said Matthew Jacob, a cruise industry analyst with ITG Investment Research.

While limited infrastructure reduces the near-term potential for port calls, the prospect of vacationing in a little-seen destination could appeal to travelers and help jump-start previously weak demand for Caribbean cruises, he said.

"Given the novelty of it, Cuba makes for a compelling destination for cruise itineraries," Jacob said. "This is a unique situation in that here is an island that people used to visit but has been basically closed off to U.S. visitors for the last 50 years."

Orbitz Worldwide, a longtime critic of the embargo, applauded Obama's moves on Cuba, saying it would hopefully pave the way for travel between the two countries.

"There are numerous economic, social and cultural benefits that will flow from free and open access and our customers are eager to visit Cuba," said Barney Harford, chief executive officer of Orbitz.

Business on 12/19/2014

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