Cuba: big fuss, small market.

Author:Price, John
Position:THE CONTRARIAN
 
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Since the Obama administration made its diplomatic overture on December 17,2014, the pace of change in U.S.-Cuban relations has been exhilarating. The U.S. embargo of Cuba, which has stood as a thorn in U.S.-Latin American relations for over five decades, may soon be dismantled. For the two million Americans of Cuban descent, the surreal developments conjure great depths of emotion, a combination of hope and angst about where this new path might lead. The likely end of Americas last cold war conflict has captured the world's imagination. Infectious curiosity has even crept into boardrooms of American and international companies who have been kept out of Cuba or resisted engagement because of the Helms-Burton Act. But Cuba is neither a new commercial opportunity, nor a large one. Pioneering spirits may yet get the better of American business as viable opportunities elsewhere in Latin American are neglected in pursuit of a prize that is grand in complexity, but financially limited.

DEMOGRAPHIC DESPAIR

Cuba is one of Latin Americas aging populations, thanks to a low birth rate and a history of emigration. At 11 million people, Cuba's population has stopped growing. If more Cubans gain the freedom to travel abroad, many will leave for good. With close to three million Cubans residing outside of the country, every Cuban family has a relative abroad to sponsor their emigration. If East Germany is any guide to what may happen next in Cuba, an additional two million Cubans would leave the island within five years of an end to travel restrictions. Most of those anxious to leave will be the best educated working age adults who can pursue higher wages and better opportunities abroad. Cuba will become a nation of elderly, with limited growth prospects.

CUBA, THE TRADER

In 2013, Cuba imported approximately $13 billion in goods from over 50 countries. In 2014, the U.S. sold $291 million of agrifood and medical supplies to Cuba, 60 percent less than 2008, because unlike their competitors, U.S. exporters are forbidden from financing their exports to Cuba. A shortage of working capital means that most suppliers in (Canada, Spain, Brazil, etc.) are paid three to 12 months after shipment to Cuba, thus requiring costly trade finance. As one frustrated Canadian banker once remarked: "Doing business in Cuba is a pain in the--. If we analyzed our trade finance business with Cuba on commercial merits alone, we would be obliged to shut it down."

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