Doing Business in Cuba: The Good, Bad and Unknown

Commercial interest in Cuba has risen following the recent reopening of the U.S. Embassy in Havana. The move by President Obama ended more than 50 years without diplomatic relations between the countries, and trade delegates are cautiously exploring opportunities in anticipation of relaxed restrictions. But what are the international business prospects in the communist country, really?

Two close observers of Cuba discussed the key issues on Sept. 30, 2015, during a forum sponsored by the Smith School’s Center for International Business Education and Research (CIBER). The event, moderated by University of Maryland emeritus economics professor Roger Betancourt, was part of the CIBER Distinguished Speaker Series in International Business.

Julia E. Sweig, a senior research fellow at the University of Texas at Austin, said Cuban leader Raúl Castro has pursued a reform agenda since 2008. His stated goal is a mixed economy by the time he steps down in 2018, which should create openings for U.S. investors. “He has looked more like Margaret Thatcher than Karl Marx,” Sweig said.

Recent reforms have included privatized real estate markets, more flexible salary scales, more liberal travel policies, opportunities to have more than one job, and rules that allow businesses to employ more than just family members. “Small business owners are being seen as patriotic, not as counter-revolutionary,” Sweig said.

Gary Clyde Hufbauer from the Peterson Institute for International Economics shared a more pessimistic view about doing business in Cuba. For starters, he said the country’s dual currency system creates serious obstacles for investors. Foreigners and others who do business with state-owned enterprises use one currency, while everyone else uses a more affordable currency in a parallel economy. “It’s a foundation for corruption,” Hufbauer said.

Cuba has made plans to unify its currencies, and Hufbauer said the fallout could be severe. For this reason and others, he said foreign investment has been minimal from countries without trade restrictions in Cuba. “I don’t think there is a big rush to invest in Cuba,” he said.

Still, Hufbauer said the United States should learn a lesson from Libya and other failed states. “There’s something worse than this regime,” he said. “And that is chaos.”

Sweig agreed that many unknowns will have to be worked out, and the normalization process between the United States and Cuba could take a long time. “We don’t really have an experience of what normal relations look like with Cuba,” said Sweig, author of Cuba: What Everyone Needs to Know.

To help improve understanding about Cuba’s political and economic landscape, the Smith School’s CIBER will lead a faculty development trip to Cuba in May 2016. CIBER executive director and Smith professor Kislaya Prasad said about 15 to 20 faculty members from various institutions will participate.

“Because of ties of history, the importance of the Cuban immigrant community, and Cuba’s proximity to the United States, this country has a significance that is out of size with its economy,” Prasad said.