The Cuban Economy: After the Smoke Clears

(page 2 of 3)

Browse Issues

Browse the BusinessWeek Archive

Related Items

• When Will Cuba Be Open for Business?

Small biz: A shoemaker at work in Havana Sven Creutzmann/Getty Images

Story Tools

• post a comment
• e-mail this story
• print this story
• order a reprint
• digg this
• save to del.icio.us

Miguel Alejandro complains that he's been fined five times by the police for offenses such as failing to carry his national ID card or sitting on the back of a park bench with his feet on the seat. "I'm tired of being hassled," he says.

THE PROMISE OF OIL

Despite the travails of the likes of Benito, Reinier, and Miguel Alejandro, the economy has some surprising bright spots that could mean a more prosperous future. Perhaps the most promising sector is oil. Before the 1959 revolution, prospectors from Texas surveyed Cuba and concluded that it had little in the way of energy resources. But today, Cuba produces as much as 52,000 barrels of crude a day—some 36% of its needs. It comes from onshore and shallow-water wells operated for the past 15 years by Canadian companies Sherritt International and Peberco, as well as Cupet, the Cuban oil monopoly. And that represents just a fraction of Cuba's onshore potential, says Rafael Tenreyro-Pérez, Cupet's exploration director, who studied in Moscow in the 1970s, then returned home to work alongside Russian advisers searching for crude.

Farther offshore, in a triangular section of the Gulf of Mexico that belongs to Cuba, things look even better. The U.S. Geological Survey estimates that as much as 9.3 billion barrels of oil may lie in the 6,000-foot-deep waters. A half-dozen foreign outfits, including the state oil companies of China, Norway, and Venezuela, have snapped up exploration rights and are conducting seismic studies. Several expect to drill exploratory wells next year. Cuba has encouraged investment by offering standard international production-sharing deals, giving foreigners a percentage of output. "We have tried to make the contracts as fair and flexible as possible because we are interested in finding oil quickly," says Tenreyro-Pérez. Within a decade, he says, Cuba could be a net exporter of oil.

WHITE SANDS AND TURQUOISE WATERS

Major offshore discoveries would have important geopolitical ramifications: Cuba could reduce its dependence on the charity of the mercurial Venezuelan President, Hugo Chávez, who now sends 92,000 barrels a day of oil to the island at heavily subsidized prices. And it would provide the Cuban government with funds needed to improve living standards, which could buy it more years in power. "Even if Cuba simply becomes self-sufficient, that would be a very big change," says Jorge I. Dominguez, a Latin American studies professor at Harvard University. "And Cuba as an exporter of energy would make things even more interesting."

It's far from certain, though, that Cuba will ever get there. As long as the U.S. embargo remains, Havana would have nowhere to send the crude for processing, since nearby refineries are either operating at capacity or are U.S.-owned. And if Cuba's economy keeps growing as fast as it has, consumption will surely climb, too.

Tourism is similarly promising—and faces similar problems. Cuba has long attracted plenty of tourists, but not Americans, who are barred from visiting the island without special permission. After the collapse of the Soviet Union, Raúl persuaded a reluctant Fidel that they should open the borders to foreign visitors so the country could earn needed hard currency. Cuba began pitching its white sands and turquoise waters to armies of budget vacationers from Canada and Europe. It went from receiving just 340,000 tourists in 1990 to more than 2 million by 1994 and 2.3 million in 2005. Today, package-tour visitors burn themselves to a crisp on the beaches of Varadero and Cayo Coco, while the more adventurous dodge 1950s Buicks and Chevys in the streets of Old Havana looking for the Floridita and other bars where Ernest Hemingway used to toss back daiquiris.

Now, Cuba wants to go upscale. Officials aim to attract richer tourists by constructing dozens of new four- and five-star resorts and restoring some 50 historic buildings as boutique hotels.