Opportunity in Post-embargo Cuba

Havana. Photo by Didier Baertschiger.
Havana. Photo by Didier Baertschiger.

Cuba, the largest country by land area in the Caribbean, has been all over the news this week following interest in investment by US companies, namely Google or Airbnb. The home rental company just launched 1,000 brand new listings–only available to Americans for now—in anticipation of an upcoming boom in tourism. Netflix launched a streaming service recently, and JetBlue added a charter flight to Cuba from Tampa, even though travel to the Caribbean island is still limited.

What’s all the fuss about?

Last December the United States announced restrictions would be lifted in the island after over 50 years of embargo that goes back to the Cold War. Communist Fidel Castro, who became premier in 1959, led the country until his brother Raul took over in 2008.

The Obama administration, however, hasn’t completely normalized trade and diplomatic relations with Cuba, yet, and it will likely take years until many laws can be changed. Some Cubans, like freelance journalist Marta María Ramírez, are skeptical about the lifting of the embargo. Currently, Cubans are able to only legally sell certain products to the United States.

The Cuban economy is centrally-planned—run in the most part by the military— and has been severely affected by the crises in its main creditors Venezuela and Russia.

What does this mean for business?

It is expected that the policy change will open up significant opportunities for US agricultural and telecommunications exports. Only 5% of 11.27 million Cubans have access to fixed broadband Internet, and only 18% have a mobile phone according to the World Bank. One hour of Internet access at a [legal] cafe can reportedly cost $4.50, which is around what a Cuban makes in a week. Wi-Fi equipment without a license is illegal in Cuba, where the Internet is considered one of the most controlled in the world.

Ramírez, based on the island, tells OnFrontiers that enterprises flourish despite the restrictions. Some are making things happen–websites, apps, video games, are LGBTI magazines are just a few examples of what is going on underground. Others can only dream of developing their ideas due to the ‘almost non-existent connectivity,’ Ramírez regrets. It is clear that an end of the embargo would trigger an economic boom in Cuba.

Remittances are crucial for the country. The island receives roughly $5.1 billion from the US according to an article by Jennifer M. Harris in Fortune. Harris claims that ‘remittances total more than the four fastest growing sectors of the Cuban economy combined.’

According to the US Treasury, the limits on remittances sent to the country have now been raised from $500 per quarter to $2,000 per quarter. Additionally, “certain remittances to Cuban nationals for humanitarian projects, support for the Cuban people, or development of private businesses are now generally authorized.”

Judging by the interest of Airbnb, Cuban real estate will be a very hot market. There is increasing interest from US citizens in investing in real estate, as Allen and Vyas highlight in an article for the Wall Street Journal. Currently, Americans can’t own any property in Cuba, but many are getting ready by talking to potential sellers or by figuring out legal loopholes.

Going forward

Obama, who made the decision through executive authority, expects the Republican-backed Congress to lift the embargo in its totality. The change in diplomatic relations would bring countless opportunities for the US private sector and Cuban entrepreneurs, but the legal systems in both countries will need to adapt to the new reality in order for the private sector to be protected when entering the market.

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Founded in 2014, OnFrontiers is a global advisory network and research firm that provides rapid access to targeted, high quality insights in hard to reach frontier markets.