Following President Obama’s trip to Cuba last month, which was followed by a free Rolling Stones concert, there has been renewed interest in the country — especially from a business potential perspective.
Like a tarnished gem that’s been rediscovered, Cuba is on the minds of investors, policymakers and the business community, including tourism. Optimism is high, and some observers see a bright future for Cuba if the U.S. embargo is lifted and more outside investments are allowed by the Communist-run government there.
Small steps are already under way with recent policy changes between Cuba and the U.S., and growing the tourism industry in Cuba is in the works.
But there are major hurdles to overcome. Right now, American citizens can’t visit the country specifically as tourists. As for the local market, it remains almost nonexistent — the average monthly household income in Cuba is $22. Infrastructure is also in poor shape, including essentials such as roads, telecommunication, clean water and sewers.
However, there’s growing optimism about the potential of Cuba for manufacturing, including fashion apparel sourcing. Attorneys, analysts and former diplomats also see potential for forming joint ventures and developing collaborations with Cuban artists and designers.
Former U.S. diplomat John Caulfield served as chief of mission of the U.S. Interests Section in Havana, Cuba from 2011 to his retirement in 2014. Caulfield said although U.S. citizens cannot travel to Cuba as tourists, “they can visit as students and for humanitarian and cultural purposes.”
He said about 500,000 Cuban-Americans visit the country each year, while about 200,000 Americans visit via “people-to-people tours” under the guises mentioned above. “But the number-one group visiting as tourists are Canadians,” Caulfield said, adding that Cuba is a “tourism destination for Canadian blue-collar workers.” Tourists from Europe and Asia also visit the island country, bringing the annual total to about three million.
Regarding Cuba’s business potential, Caulfield sees the biggest opportunity in leveraging the country’s “highly skilled, yet low-cost labor.”
“And for the apparel industry that could mean developing niche offerings in bridal gowns, or even high-end dresses,” Caulfield said, which could be 15 or 20 percent of the cost of the same products made elsewhere. The former diplomat acknowledged that creating these markets is a long way off, though.
Meanwhile, policymakers are forging ahead. Several weeks ago, the U.S. Department of Commerce noted several efforts to foster economic development in Cuba while building business relations. This included reaching an agreement on the re-establishment of direct flights between the U.S. and Cuba; authorizing Airbnb services for U.S. travelers to Cuba, and striking hotel development deals with Starwood as well as opening the door to Marriott, Norwegian Cruise Lines and Royal Caribbean, among other efforts.
This follows an announcement in March by the U.S. Department of the Treasury’s Office of Foreign Assets Control and the Department of Commerce’s Bureau of Industry and Security regarding “significant amendments” to the Cuban Assets Control Regulations and Export Administration Regulations.
These changes included the air travel initiative as well as expanding “physical and business presence” in Cuba, which would include opening offices, retail outlets or warehouses — but only when the businesses engage in “authorized humanitarian projects” or involve “entities that engage in authorized non-commercial activities intended to provide support for the Cuban people,” OFAC and BIS said.
These changes leave a lot to be interpreted and could include nonprofits setting up a presence in Cuba for economic development projects that directly help the country’s citizens, which could involve partnerships with for-profit businesses based in the U.S. or abroad.
Albert Goldson, executive director of Indo-Brazilian Associates LLC, which is a New York-based global advisory firm that provides international investment strategies and geopolitical risk assessments, said for fashion companies the real potential is to “collaborate with Cuban artists and fashion designers to create and manufacture clothes in Cuba for export worldwide. There’s a deep artistic pool of talent in Cuba that has been politically and economically restrained for decades that can provide luxury fashion companies an abundance of creative works.”
“This will serve well for the short and possibly medium term because of Cuba’s half-century isolation and geographic proximity,” Goldson explained. “But in the long term, as Cuba eventually becomes more integrated into the world economy, demand for Cuban fashion will reach a plateau and its future success will be contingent more on rock-star Cuban designers.”
Elsa Manzanares and Michelle Schulz, Dallas attorneys who serve as co-chairs of Gardere Wynne Sewell LLP’s international trade group, said this is a good time for fashion apparel suppliers to consider establishing a foothold in Cuba.
Manzanares said companies can take advantage of the Department of Commerce’s recent “authorization intended to support the Cuban people through independent economic activity. This license exception, known as Support for the Cuban People (SCP), allows exports of tools, equipment and supplies for use by private sector entrepreneurs.
“For example, a U.S. [apparel company] can sell fabric or other materials to a Cuban entrepreneur who owns a dress shop,” Manzanares explained. “Because those goods are authorized for export, there are a number of other activities incident to the export of those items that are also permitted. The U.S. [company] can negotiate and enter into contracts relating to the materials.
“The [company] can also travel to Cuba under a general license to conduct market research and contract negotiations with respect to those goods,” Schulz said. “Luxury [firms] can also establish a physical or business presence in Cuba to support transactions involving those goods, such as leasing of warehouse or retail space, or establishing a subsidiary or joint venture.”
For now, simply allowing more U.S. tourists into the country can bring more money into the market. Greg Geronemus, co-ceo of SmarTours, a guided tour company based in New York, said his firm has 25 tours to the island scheduled this year.
“While there are still a lot of political questions to be answered, it’s very clear that the demand for Cuba among our existing travelers, and new travelers, is incredibly strong,” Geronemus said. “We’ve hardly been able to keep pace with demand, and we only have a little bit of space remaining to offer. Americans want to go to Cuba now, before it could possibly become Miami or Cancún.”
One challenge is hotel development and capacity. “Unlike in other parts of the world where hotel development would address this issue, Cuba is not like other parts of the world, and it will take quite a long time for Cuban hotel capacity to catch up with demand from the U.S.,” Geronemus said. “Hotels will be built, but not in the same time frame it would take here in the U.S.”
Geronemus said the solution to hotel space “initially will be the cruise industry. Ships will be able to go to Cuba and provide room and food for countless Americans. Most of these people, today, would have great difficulty getting hotel space, particularly in downtown Havana.”
Anita Covic, a destination specialist at TripTogether.com, said the tourism demand is great, but “Cuba desperately needs new and modern hotels, roads and other related infrastructure such as Wi-Fi network in order to become a top tourism destination.”
Attorney Jennifer Olmedo-Rodriguez, a shareholder at Buchanan Ingersoll & Rooney who works out of the firm’s Miami office, recently traveled to Cuba to gauge business opportunities for her clients.
Olmedo-Rodriguez said despite the changes “effectuated by the Obama administration that have resulted in a relaxation of certain restrictions, the embargo is still in effect and general touristic travel for U.S. citizens to Cuba is still illegal.”
“Until Congress formally repeals the embargo, business opportunities for U.S. companies in tourism and tourism-related spending in Cuba are limited,” Olmedo-Rodriguez added. “The state of the infrastructure in Cuba cannot currently support the anticipated influx of tourists. Thus the time necessary to ramp up the tourism industry in Cuba will be directly tied to the ability of the country to modernize and update their infrastructure to support the development of general tourism from the United States; something that will likely take years.”