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SNOWBIRD DESTINATION? Critics of Leal's project abound. The most charitable dismiss it as a façade thrown up for the cruise-ship crowd (Havana is a significant port for European ships). Others say the project's greatest strength is its continued ability to bamboozle foreign investors, who have yet to see any profits and must cede 51% ownership to Cuba's government. "I don't know why the Europeans keep investing," marvels Teddy Taylor, the Consul General of the U.S. Interests Section in Havana, the closest thing the U.S. has to an embassy on the island.
While foreign investors aren't seeing profits, they're at least gaining market share. Spanish chain Sol Melia now manages 23 properties that account for almost 25% of the island's 36,000 hotel rooms. Enrique Arias, a banker with BBVA, a European group whose holdings are primarily in Latin America, believes investments could pay off -- eventually. "With the high doctor-patient ratio, inexpensive and nice beaches, and warm climates, Cuban real estate has real potential for American retirees," he notes.
U.S. travel restrictions remain the most daunting challenge facing Cuba's tourism industry. Old Havana's renovation and the construction of beach resorts at places like Varadero were undertaken in anticipation of an influx of Americans. But the Helms-Burton law passed by the U.S. Congress in 1996 not only crimped the flow of U.S. visitors but also continues to curtail foreign investment by penalizing in the U.S. any outfit also doing business in Cuba. Sol Melia had to relinquish its U.S. holdings to become a player in Cuba.
$50 SPAM. U.S. policy affects tourism in other ways as well. Much to the surprise of many first-time visitors, Cuba isn't cheap. American staples -- things like steak and shampoo, for example -- are scarce, and imported substitutes expensive. Additionally, prices are regulated and taxes high. It's not uncommon to pay $10 for a cocktail, a small bottle of water costs $2, and seats at the Tropicana nightclub start at $70. Author Isadora Tattlin, who spent four years in Cuba and recounted her experiences in Cuba Diaries: An American Housewife in Havana, tells of Spam going for $50 a can.
With the government collecting most of the profits, the few private Cuban-owned tourism companies have dwindled. Paladares, the tiny restaurants operated by Cuban citizens in their homes, once numbered some 1,500. Now a mere 200 remain. And despite high prices, heavy taxes have forced many of the remaining small businesses into the red.
Still, given that the Castro regime exerts an iron grip on the rest of Cuba's economy, many Cubanos are rushing into tourism -- a trend that has caused a brain drain in high-skill professions. Thanks to hard-currency tips, educated Cubans can multiply their incomes by switching to tourist-industry service jobs. For example, the taxi driver who brought me from the airport was an aeronautical engineer, and one of our hotel's bartenders was a doctor.
Tourism continues to inspire high hopes among some investors. "I believe that Cuba could be to America like Hong Kong is to Asia," says Enzo Alberto, the Canadian-Italian CEO of ICC, a major investor in the island's Internet infrastructure. Perhaps. But not until the U.S. trade embargo ends and the Cuban government loosens its stranglehold on the economy.
Copyright 2003, Bloomberg L.P.
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