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American companies eager to invest in Cuba, but hurdles await them

American companies eager to invest in Cuba, but hurdles await them
Published December 21, 2014 Fox News Latino

WASHINGTON (AP) – Cargill aims to sell more corn and soybeans.
MasterCard covets another site for Americans to swipe credit cards.
Marriott sees beachfront property that needs hotels.

And outside Orlando, Florida, Danny Howell just knows there would be
demand for his classic Chevrolet parts.

American businesses have begun imagining ways to capitalize on last
week’s announcement that the United States will restore diplomatic ties
with Cuba and ease curbs on trade with one of the last surviving
Communist regimes.

Their more ambitious plans would require that Congress lift the U.S.
embargo on most exports to Cuba. Given sharp resistance from some in
Congress, that might not happen soon. But many analysts think Congress
will repeal the embargo eventually.

“It’s great news — it’s a totally untapped market,” said Seth Kaplowitz,
a lawyer and lecturer in finance at San Diego State University.

All that said, Cuba experts have a message for any business that might
be envisioning easy riches:

Be patient.

After years of rigid market planning in Cuba and the half-century-old
U.S. embargo, restoring economic ties to something close to normal is
likely to be complex and time-consuming. The United States must change
laws and regulations, and Cuba must build an economy more hospitable to
foreign investment.

“The Cuban government has a long way to go and a lot more to do,” said
Jodi Bond, vice president of the Americas at the U.S. Chamber of
Commerce. “I don’t think any businesses are under the illusion that this
is going to be an easy transition or the floodgates will open.”

Still, the prospects are tantalizing.

Economists at the Peterson Institute for International Economics
estimate that the export of U.S. goods to Cuba could eventually reach
$4.3 billion annually, up from just $360 million in 2013. And Cuban
exports of goods to the United States could reach $5.8 billion, from
zero now.

A full lifting of the U.S. trade embargo could benefit, among others,
U.S. farmers, auto and tractor makers, airline and hotel companies and
telecom equipment makers. The United States now sells Cuba about $350
million a year in farm products, including rice corn, soybeans and
frozen chicken parts, according to the American Farm Bureau. A 2000 law
relaxed restrictions on food and medical exports.

Those exports could surge once the United States eases restrictions on
financial transactions, which could happen soon. Cuban buyers of U.S.
agricultural goods are required to pay up front, though international
trade is usually done on credit.

“We have been pretty much hamstrung by the financial constraints,” said
Devry Boughner Vorwerk, a vice president at Cargill, the agriculture
giant. She called the U.S. move “a great first step.”

U.S.-based travel companies have been eager to embrace the Caribbean
island, just an hour’s flight from Miami. Delta Air Lines, JetBlue
Airways, Hilton Worldwide, Marriott International and the Carnival Corp.
all expressed interest last week, though most of their plans would have
to await a repeal of the embargo.

CEO Arne Sorenson said in a statement that Marriott looks “forward to
opening hotels in Cuba, as companies from other countries have done
already.”

Apple Leisure Group, which books 2 million vacation packages to the
Caribbean a year and is about to open its 38th hotel in the region, is
developing a plan for Cuba.

“We could very rapidly put charters onto the island” or buy a hotel and
convert it into one of its Sunscape brand resorts, CEO Alex Zozaya said.
He envisions a market for the company’s higher-end hotels, like Secrets
and Dreams.

Eventually, that is.

“Cuba does not have the right infrastructure yet to satisfy the
mid-to-high-end market,” Zozaya said.

Cuba, which can appear stuck in a 1950s time warp, desperately needs
investment. The island lags far behind its neighbors Haiti and the
Dominican Republic in the proportion of its economic output that goes
into public infrastructure like roads, factories and housing. In fact,
Cuba has one of the lowest investment rates in the world, according to
the World Bank.

If the embargo is lifted, U.S. refiners could find a new market in Cuba
for gasoline and diesel or refining technology. Cuba has been struggling
to find a partner to finance an upgrade and expansion of its largest
refinery. And suppliers of electric power generation and transmission
equipment, like General Electric, could help improve and expand
electricity services on the island.

American technology firms will likely be interested in putting Cubans to
work assembling electronic components, taking advantage of low-wage
labor far closer to the United States than India and China are.

But businesses eager to break into Cuba will face numerous obstacles:

— THE U.S. GOVERNMENT

President Barack Obama’s announcement only relaxed restrictions on
traveling and doing business in Cuba. And even Obama’s limited action
will require government regulators to craft new rules. The United
States, for example, will now let companies like John Deere sell
tractors to small private Cuban farmers but not to government-run farms.
Yet it’s not clear how the eligible farms will be defined.

“All these regulations have to be written; it’s not simple,” says Kirby
Jones, a consultant on U.S.-Cuba trade issues. “That could take weeks or
months.”

— CUBA’S GOVERNMENT

Havana has sent mixed messages about its appetite for foreign
involvement in its economy. In March, Cuba passed a law meant to attract
foreign investment. But in September, it jailed a Canadian executive on
corruption charges — a move that sent a chill through the expatriate
community.

“The climate for foreign investment is not that great,” said Archibald
Ritter, an economist at Carleton University in Ottawa who specializes in
Cuba. Ritter said foreign companies that want to enter the Cuban market
might be required to establish joint ventures with state-owned firms.

China required such arrangements as it opened its economy in the 1980s
and 1990s, and many U.S. and other foreign companies found the joint
ventures useless and costly.

—THE CUBAN ECONOMY

Cuba is hardly rich. Its economy ranks No. 69 in the world, about the
size of Hawaii’s. Income per person is just $6,200, according to the
United Nations. That means that Detroit automakers, for example, are
unlikely to enjoy big sales in Cuba.

“Nobody can buy a brand-new car,” said Karl Brauer, senior analyst for
Kelley Blue Book.

U.S. car sales have been banned in Cuba since 1959. Cubans have been
have been forced to patch together Fords, Chevrolets and Chryslers that
date back to before Fidel Castro’s revolution.

Since the Communist economic system isn’t likely to change soon, many of
those cars will have to stay on the road for years. That could mean an
opportunity for U.S. companies that make or distribute vintage car
parts, Brauer said.

Enter Danny Howell, who sells parts for classic Chevrolets near Orlando.
His business, Southeast Chevy Parts Inc., specializes in original parts
dating to 1955.

Howell, who scours car ads and storage facilities to buy cars for parts,
already sells indirectly to Cuba. U.S. citizens who have Cuban relatives
often buy parts and send them to Cuba to keep the old cars running.
Demand should grow as trade restrictions are eased, Howell said.

“I would be delighted if the door were opened,” he says.

Source: American companies eager to invest in Cuba, but hurdles await
them | Fox News Latino –
http://latino.foxnews.com/latino/money/2014/12/21/american-companies-eager-to-invest-in-cuba-but-hurdles-await-them/

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