Cuba – tourist paradise and economic opportunities

by Tamás TÓTH, Ambassador, President of the Hungarian-Latin American Association (LATIMO)

If you’re a regular news reader, you probably come across the name of Cuba more and more frequently. The articles cover topics like the future of the American-Cuban easing process that started under the presidency of Barack Obama (and now meets difficulties under the Trump regime), or the agreement between the European Union and the island country concerning economic cooperation. And of course, Cuba is always present in the news as a beloved tourist destination. Besides acknowledging the country’s natural beauty and unique atmosphere, those interested in the Caribbean area and the Latin American region might be wondering whether or not we can count with Cuba from an economic point of view.

When hearing the name of Cuba, most people associate with the tourist paradise which is kept count of as the pearl of the Caribbean. And they have every right to do so, because the island country as big as Hungary is a perfect destination in all seasons. Most days of the year are characterised by 7-8 hours of sunshine, so you don’t have to worry about rain washing away your programmes – except for hurricanes on rare occasions. Much to the delight of beach lovers, more than one thousand further islands belong to the biggest island of the Greater Antilles, which all shine with intact beauty.

One of the most interesting sights in the country is the capital city. The lovely central quarter of Old Havana and its Spanish colonial architectural monuments either glow with sunshine or show their after-rain beauty – a unique spectacle that can’t be seen anywhere else. The city centre of Havana, which forms part of the UNESCO World Heritage, captivates everyone even if only the most frequented streets have been renovated in the past years. The El Morro fortress, a natural formation that guards the bay of Havana at the sea-gate, is a peculiar spectacle, just like the Capitolio designed after the one in Washington, and the Malecón, an eight-kilometre-long “U” shaped bay. After exploring the city centre, head to the seacoast and keep walking until you reach the zone of beautiful, old colonial mansions and their centre, Quinta Avenida. The nicely renovated buildings are home to diplomatic representations, while the neat promenade in the middle of the avenue is used for sport activities by the local youth.

Naturally Cuba is lot more than Havana and Varadero, the popular centre of mass tourism. If you really want to get to know the country, you should opt for the still intact islands of the Caribbean Sea to experience their matchless colour, visit the famous tobacco plantations of the Vinales Valley, take a hike in the national park rich in flora and fauna in the Sierra Maestra Mountains, go boating on the underground rivers or visit the magical island mountains of the Pinar del Río province.

Cuban people are usually friendly, open and curious. From a Hungarian point of view, this is especially true for the older generation, who still remember the prestigious Hungarian products which were mostly present in Cuba back when our political systems were similar. Many people remember the Hungarian light bulb, wines, meat products, the onetime famous canned food and even the logistical products in the harbour. What’s more, you can still encounter buses produced by Hungarian companies. The memory of the onetime excellent Hungarian industry is also guarded by the shops since their selection is still simple and many products are still short in supply. And even though some sectors – like the always developing tourism – improve the financial situation of certain social layers, the general purchasing power is still weak.

Knowing all this, visitors who know a bit about business rightly wonder whether or not Hungarian enterprises have realistic chances of marketing their products or services in Cuba, or to have a go at serious investments.

Hungarian enterprises wishing to invest their capital in Cuba or trade with the companies of the island country have to be aware of the country’s economic situation, the regulations and the existing trade customs.

Although the detailed analysis of the Cuban economic situation and the seemingly ever-changing regulations would exceed the limits of this article, one point must be taken: after the retirement of Fidel Castro from politics, significant changes were made in the economic policy. Under the lead of Raul Castro and with the appearance of younger experts, the Cuban government made a stand for economic reforms, controlled launching of certain market processes, “curing” the dominant state sector, permitting and even supporting private initiatives in certain fields, and first and foremost, the encouragement of foreign capital expenditure. Meanwhile, declaredly kept the socialist system was declared to be maintained. The success of this combination would be quite sensational because the political system of post-socialist countries implementing similar economic reforms were always affected –with one exception-by the economic transition.

The opportunity of foreign investment was legalised by a law adopted in 1995, which regulates foreign investments up to this day. The law laid down a regulatory system which mainly encourages the joint venture form, and guarantee the security of the invested capital and tries to facilitate Cuba’s capital injection, technological and market development, the creation of new jobs and the improvement of the country’s terrible liquidity. For the sake of these aims, the Cuban economic policy encourages foreign investments – primarily in the field of tourism – mainly in eight highlighted economic sectors that produce the majority of the country’s convertible foreign currency income. The special economic zones, where foreign enterprises can freely do business and which were created to attract further foreign capital expenditure, serve a similar purpose.

The operative Cuban laws ensure the security of the invested foreign capital. So except for the governmental nationalisation by the state authorities which have to be compensated in convertible currency in advance and which are done due to public interest reasons, foreign investment can’t be nationalised. At the same time, the tax-free transfer of the profit or the income originating from the selling of the ownership is guaranteed. Moreover, the Cuban government grants a fixed-term tax allowance for the payment of personal income, and advantageous tax rate for the profit of enterprises.

Except for the national security sector, and services in the fields of defence, education and health care, all branches of the national economy are allowed to absorb foreign capital, but Cuba’s economic authorities try to direct them towards the most prosperous sectors. The authorisation of the operation of enterprises in exclusively foreign ownership is quite rare. Even though this form of ownership is legal, authorities prefer joint ventures.

Those wanting to invest their capital should know that the prioritised field of foreign investments is the touristic sector. That is where the majority of joint ventures is found. This trend is understandable since tourism is the second most important foreign currency income source for Cuba, more than three million foreigners visit the country every year and they produce a yearly income worth 3 billion dollars for the island country. The most preferred fields of tourism are hotel construction, and the development of golf courses and yacht harbours. Significant capital is also present in mining: Cuba is the N°1 nickel exporter, while a quarter of the world’s cobalt stock is found in the country.

Further perspective sectors include the production of electric energy from renewable sources and the packaging material industry: the production of plastic containers, glass, paper etc. packaging materials faces difficulties in the country, so Cuba is in need of considerable import.

Several products of the Cuban biotechnological and pharmaceutical industry are acknowledged internationally. These sectors are also happy to welcome foreign capital and modern technological solutions.

Enterprises interested in trading opportunities should be aware that whether you’d like to sell (this is more typical) or buy, your partner will probably be one of Cuba’s great state-owned enterprises: only a limited amount of state-owned holdings have the right to do retail with import products. It is ordered through regulations which enterprise group is allowed to tackle which field of import. Usually these Cuban state holdings satisfy the trade needs of bigger regional units. For instance, Habanaguex is the subcontractor of shops and hotels found in the historic quarter of Havana, Comercializadora ITH is the general subcontractor of the touristic sector, while ALIMPORT handles the food import. From the point of the Hungarian industry which produces good quality food, it is an important to bear in mind that guaranteed food import is an elemental economic goal for Cuba. 80% of the country’s food-related needs are coverd by import, Cuba spends about 2 billion dollars on import every year.

The first step for enterprises that want to sell their own products in Cuba is to be acknowledged as a so called ‘permitted subcontractor’. Cuban companies turn to the ministry responsible for trade and investment with their requests, and when it comes to concrete business they choose from enterprises that are listed as permitted subcontractors. The most important factor is the price; it definitely overrides everything else. Lastly, enterprises marketing their products in Cuba have to be patient, because – while companies that buy Cuban products have to pay in advance – Cuban holdings dealing with import purchases pay after 180-360 days.

Taking into account of the financial situation in Cuba, this is understandable and reasonable. But once you join the Cuban market, you might find yourself in a monopolistic role for a long time. All this explains why the interest of West European and American companies in the Cuban market has significantly increased in the past two years. Naturally this is good for Cuba, but the later companies join the competition for Cuban market positions, the harder the task will be. So it is recommended for Hungarian enterprises interested in the island country to start exploring and gaining a footing on the Cuban market as soon as possible. And do it until the nostalgia for traditional Hungarian products is still present in the pearl of the Caribbean Sea.

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The GLOBS is the only magazine in Hungary that focuses on foreign affairs and trade. The topics cover the different aspects of social life, business and culture (especially business culture), research and development, investment opportunities, charity initiatives, and the everyday life of the diplomatic delegations.
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