Global Economics

Cuba: After the Thaw


Three years ago, Wayne Fox was one of 20 members of an Iowa delegation that met with Fidel Castro in Havana. In a session that lasted from 10:30 a.m. to 3:30 a.m. the next day, Castro peppered Fox, chief executive of Des Moines farm products company Triple F, and the rest of group with questions about the nutritional virtues of soy milk and other farm products. "I had a feeling when I left that room that he would have bought from me on the spot,"says Fox.

It was, of course, not to be. And despite speculation about a regime change sparked by Castro's recent health crisis, Fox's aspirations will likely remain on hold, as must those of other executives at U.S. companies like Jet Blue Airways (JBLU), Marriott International (MAR), Coca-Cola (KO), and Caterpillar (CAT).

As long as either Fidel or his brother Raul Castro maintains control over Cuba, U.S. law bars U.S. companies from doing business with the country. Beyond that, the impoverished nation, which survives on aid from like-minded countries such as Venezuela and China, has little hard currency with which to buy U.S. goods. "People should stop taking Viagra and start taking Valium" when it comes to the Cuba market, says John S. Kavulich, senior policy adviser at the U.S.-Cuba Trade & Economic Council.

NO SWAT TEAM. BellSouth (BLS) has already downed a dose of strong medicine. A decade ago, when the Clinton Administration made noises about normalizing relations with Cuba, the local-phone giant set up a Cuba task force to suss out potential for doing business on the island. Today, with the Bush Administration set on a hard line against communist Cuba, the company has no plans to reconstitute its SWAT team. Plus, most of the members have since retired.

Caterpillar has long taken a pragmatic, if hopeful, view. In testimony before the U.S. International Trade Commission in September, 2000, Caterpillar's Caribbean regional manager, Joe Green, anticipated "limited U.S. export opportunities" for Caterpillar equipment after the removal of U.S. economic sanctions.

At that time, Cuba's purchases of agricultural and industrial machinery, mostly from Japan and Europe, were tiny, amounting to roughly $25 million. Yet if Cuba implemented economic and political reforms, Green said, Caterpillar's sales there in a decade could exceed the $500 million in sales it had in Puerto Rico.

Companies that would probably benefit most from a thawing of U.S.-Cuban relations are those already doing business there under a U.S. legal exemption for food and medical product sales. Last year these companies exported some $350 million in sales to Cuba. And they could expand their businesses to other product lines.

FRIENDLIER SKIES? In addition, airlines could cash in from the lifting of the travel ban. "Our planning team is constantly watching the environment, in particular for Cuba and other routes that might fit," says JetBlue spokeswoman Jenny Dervin.

She says the discount carrier believes Havana would be a promising market based on business, family, and cultural ties to the New York area. "If we were ever able to serve Havana from New York it would be a great service," Dervin says.

But even if the U.S. eventually lifts the embargo, businesses will have to break into a market already dominated by companies from other countries. Today, Cuba has hundreds of joint ventures, including one with Spain's Sol Melia hotel chain, for example, that bet on Cuba at the risk of forfeiting the right to build hotels in the U.S. "American companies thinking they'll go in and set up a McDonald's (MCD)—it's not going to happen," says Kirby Jones, president of the U.S.-Cuba Trade Assn.


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