Tourism could lead to Cuban business opportunities
Island filled with investment potential, but pitfalls abound

After his final session at McGill University's law school in 1991, Cameron Young was exhausted and needed a break. So he did what more and more Canadians are doing. He and his wife decided to take a short vacation in Cuba.

"At the time we didn't have much money, and you could get a really good deal," Young said. "But the tourist infrastructure was not as developed as it is today." Little did Young know that the seemingly innocuous time he spent on the beaches of Cayo Largo would plant the seeds of what would become a major career and lifestyle change.

Eleven years and several career moves later, Young is now a partner in Berger Young, a five-man Havana-based consulting firm that helps foreign companies seeking to invest in Cuba. And business is good.

"We like to say that everyone and no one is investing in Cuba," Young said. "Many people have money in the country, but no one likes to talk about it."

Several years ago the directors and officers one big Canadian investor in Cuba; Sherritt International were barred from entering the U.S. by provisions of the Helms-Burton Act. The law states that anyone "trafficking," in former U.S. property in Cuba that was nationalized, is subject to legal action by the U.S. government or the previous owners.

As a result Canadian Department of Foreign Affairs and International Trade (DFAIT) officials are unwilling to realease names of Canadian companies that invest or do business in Cuba. Those we talked to generally requested anonymity.

But there are many, and the number is likely to grow. Even the untrained eye can see that Cuba - for years kept down by a repressive and socialist government -- is massively underdeveloped, especially its tourism sector.

The country has hundreds of miles of under exploited beaches. And the Havana waterfront, one of the most beautiful in the planet, is wide open. "Cuban tourism clearly has potential," said Young. "Experts estimate if the U.S. travel embargo were lifted, close to a million new visitors would come in the first year."

But that's only the beginning. Tourism is already Cuba's biggest generator of foreign currency. Cuban government officials predict that in a post U.S. embargo scenario the tourism could grow six-fold, to 12 million visitors a year, up from the 1,8 million that came during 2001.

Young's experience is typical of Canadians operating in Cuba. Many first became aware of the business opportunities while on vacation. And with the number of Canadians visiting Cuba jumping from 144,000 in 1995, to 350,000 last year, no doubt some will develop investment ideas of their own.

Tourism growth and the Foreign Investment Act, which enables joint ventures between the Cuban government and offshore players mean hotel operators such as the Spanish Sol Melia chain, and Montreal based Thibault Messier Savard, are among the biggest investors in Cuba.

Although Berger Young has three lawyers that are licensed under the Cuban bar, neither of the two partners is. "So we prefer to prefer to describe ourselves as consultants rather than lawyers," said Young. "Although our knowledge of Cuban law, and how to navigate the local bureaucracy are our key-value added services."

But despite the considerable opportunities that Cuba offers, there are plenty of pitfalls. According to a DFAIT paper, "Cuba suffers from serious inefficiencies caused by bureaucratic central planning, outdated and inappropriate technology, and poorly motivated workers."

Although Cuban labour is relatively cheap by Western standards, Canadian companies operating in Cuba, don't pay the workers directly. Companies pay the salaries to the Cuban government in U.S. dollars, which in turn pays the workers in near worthless Cuban pesos. This amounts to a stunning 96.3 per cent effective income tax.

Nevertheless, despite its fits and starts the Cuban government appears to be transitioning to a mixed economy, and the situation for investors is improving.

Young advises potential investors to be prudent, to take the time to learn Cuban business practices and conduct appropriate market studies.

"The potential here is good," Young said. "But you have to remember that this is a transition economy and things work slowly. Investors need to be ready to make a long-term commitment."

 

Peter@peterdiekmeyer.com

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