After more than five decades of an economic embargo with Cuba, the Obama administration recently announced a new, less restrictive approach to how American businesses can conduct commerce with the island nation of Cuba. What do businesses need to know to make the most of the recent thawing in relations with the more than 11 million potential consumers of this Caribbean nation?
Expansion of Commercial Relations
In January and September, the Obama administration took specific action to liberalize commerce rules for U.S. businesses through the Office of Foreign Assets, part of the Department of Treasury, along with the Bureau of Industry and Security, part of the Department of Commerce.
Loosened regulations include letting authorized U.S. citizens, though not for tourism purposes exclusively, travel to Cuba via boat, ferry or airplane without explicit permission from the American government. Permitted U.S. citizens may also have bank accounts in Cuba, and American banks are able to open branches there. The bilateral warming between the U.S. and Cuba also permits some forms of legal and telecommunication services and sales.
While the legal and economic environment with Cuba has and is still changing, there are many factors that must be considered before investment. With the country opening itself up to telecommunications services and corresponding devices, there is much opportunity. However, with the country’s government still owning and directing most business’ operations –including factories, supply centers, internal capital and legal proceedings – it is highly recommended that you remain cautious.
Another consideration is the purchasing power of the Cuban people and the limited means of tourism permitted by the United States government. With the average wage of Cuban workers at $20 a month and the United States not permitting travel to Cuba for tourism exclusively, there is some question as to how much tourism from outside the United States will support American business ventures.
Regardless of improved relations of late, there is always the possibility of internal or external government instability. Since about 2010, foreign lenders to Cuba have failed to collect more than $40 billion in Cuban debt obligations. Looking at this in the terms of the United States, it would be the equivalent of the federal government defaulting on approximately $8 trillion. Similarly, whether or not an industry is permitted to do business in Cuba, the island nation is the final arbiter of product and service licensing. This is further complicated by a prohibition on international transactions in U.S. dollars and current credit terms run from nine to 24 months.
How fast and how much more deregulation will occur is up in the air. Due to Congressional action moving the power to end deregulation from the President to Congress after the Helms-Burton Act was passed in 1996, Congress needs to repeal this legislation before the Cuban Embargo can be lifted. Further commerce may also be slowed by gridlock between those industries that want the embargo lifted and the interests that don’t, including anti-communism and human rights groups.
While these regulations by no means permit the free trade American businesses have with European, Asian and South American businesses, some see these steps by the Obama administration as a signal to prompt Congress to do its part to permit greater business access in Cuba.