Business

Ending the isolation of Cuba could benefit many companies

Cuba is known for keeping its classic cars rolling, like this one on Havana’s Malecon. But U.S. companies now could send new models to the island, though its an open question how much demand the relatively poor country will generate.
Cuba is known for keeping its classic cars rolling, like this one on Havana’s Malecon. But U.S. companies now could send new models to the island, though its an open question how much demand the relatively poor country will generate. The Associated Press

Coca-Cola Co., one of the world’s largest companies, sells its beverages in all but two countries — North Korea and Cuba. That might be one nation soon.

President Barack Obama’s move Wednesday to end the isolation of Cuba by removing trade and travel restrictions could benefit U.S. farmers, travel companies, energy producers and importers of rum and cigars. The U.S. is alone in its ban, now in place more than 50 years, and as a result, companies from Brazil, Canada, China, Germany and elsewhere have been able to open hotels, offer cruise ship services and operate mines.

Obama said he would let U.S. businesses export goods such as building materials, farming equipment and communications infrastructure on the island. The loosening of travel restrictions could aid the cruise and airline industries. U.S. financial institutions will be allowed to open accounts with Cuban banks.

And U.S. brands from Coca-Cola and Pepsi to Carnival, Nike and Wal-Mart could pick up business.

Normalizing relations with the island nation about 90 miles from Florida would open a market of 11 million people, about the same size as a U.S. state like Ohio, that have been longing for U.S. products for decades.

The steps Obama laid out would loosen an embargo that had been one of the most durable elements of U.S. foreign policy.

“I think this is momentous, and I think it opens up everything,” said Vicki J. Huddleston, a former head of the U.S. interests section for Cuba at the State Department. “This is the beginning of the removal of the (trade) embargo.”

U.S. farmers have been permitted to sell corn and wheat to Cuba since 2002, but the ability to secure trade financing was limited. The real changes will come when the farmers can get easy financing to sell their products.

The lack of trade finance for U.S. farmers helped hand business to competitors in Brazil and elsewhere. One example is Canada’s Scotiabank, which has operations in Cuba that help Canadian companies with finance and credit.

If Obama’s steps lead to a real opening up for Cuba, larger players such as Mexico and Canada will have stiff competition.

In the travel sector, Orbitz Worldwide, a longtime critic of the embargo, applauded Obama’s move.

“There are numerous economic, social and cultural benefits that will flow from free and open access, and our customers are eager to visit Cuba,” said Barney Harford, CEO of Orbitz.

Cruise operators have eyed Cuba for years in the hope that normalized relations would allow for greater travel to the country. Many have already developed plans in anticipation of loosened travel restrictions, said Matthew Jacob, a cruise industry analyst with ITG Investment Research.

But any excitement over the potential for Cuba to become an outpost for global brands such as Nike, McDonald’s and Wal-Mart has to be tempered. It’s a poor country, and its people don’t have enough access to credit to spend a lot on discretionary goods. The government in Havana, the nation’s capital, also has been known to make moves toward opening up to foreign firms, only to pull back.

“The only thing that works in Cuba at the moment is the black market,” said Jorge Salazar-Carrillo, professor of economics at Florida International University in Miami. “It’s the most inefficient economy in the world, with the exception of North Korea.”

The World Bank, citing 2011 data, pegs the island’s gross domestic product at more than $68 billion — about what the U.S. produced that year in a day and a half, according to data compiled by Bloomberg.

Cuba’s GDP is expected to increase 1.2 percent this year, according to the Economist Intelligence Unit, which compiles data on Cuba. That growth should accelerate to 4 percent over the next few years, even without more trade with the U.S., the researcher said.

Cuba has some of the best trained workers in Latin America, but foreign companies will have to overcome a lack of infrastructure and corruption.

Coca-Cola would consider re-entering the market “at the appropriate time and in accordance with the relevant laws and regulations governing U.S. relations with Cuba,” said Ann Moore, a spokeswoman for Coke.

PepsiCo, which does business in more than 200 countries and territories, looks forward “to adding Cuba contingent on business relations becoming normalized,” said spokesman Jay Cooney.

Obama’s plan boosted the shares of some companies that may benefit from the opening of Cuba. Herzfeld Caribbean Basin Fund is a closed-end mutual fund that aims to profit from a resumption of trade between the U.S. and Cuba. Herzfeld, which overseas $45 million, jumped as much as 47 percent. Its top holdings are airline Copa Holdings and Coca-Cola Femsa, the world’s largest Coke bottler.

Even before Obama’s announcement, Cuba had been pushing to attract more foreign investment. The government issued a report in November emphasizing the energy, agriculture and tourism industries. The plans include more than 20 new hotels, golf courses and condos as well as partners in oil drilling and making aluminum cans for beer and soda.

Cuba may also be ripe for automakers because many of the cars in use are decades old.

“Anyone who has been to Cuba can attest that in terms of cars, time stood still,” Michelle Krebs, an analyst at researcher AutoTrader.com, said in an e-mail. “Beat-up classics from the ’50s and ’60s are on the streets. But Cubans can’t afford today’s cars until their economy is revived. This is a first small step.”

Bloomberg News, The Associated Press and Kevin G. Hall of the McClatchy Washington Bureau contributed.

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