The Call

Cuba opens up… with or without the United States

Cuba opens up… with or without the United States

By Heather Berkman

In September, we noted that Cuba was likely on the verge of major economic reforms, given a struggling economy and Raul Castro’s announcement of state-worker layoffs, agricultural reforms, and the granting of licenses for some types of self-employment. Since then, Cuba’s president has laid the groundwork for an upcoming April 2011 meeting of the Cuban Communist Party, where the Cuban congress is likely to approve guidelines for economic reforms that the government published in early November. The 32 page, 291-point "guidelines for socio-economic policy" clearly aims to tackle some of Cuba’s major challenges: a heavy reliance on food and energy imports; an inefficient export sector; a bloated state payroll; crumbling transportation and vital infrastructure; and a rampant black market that the government now sees as a potential source of tax revenues via the legalization of informal jobs.

Given their government’s on-again-off-again approach to reform in the past, many Cubans are skeptical that the government will follow through. Is Cuba really ready for plans to create wholesale markets, delegate more responsibility to local governments, and diversify exports? These changes will be tough to undertake in a country where the population has for decades depended on the state for jobs, healthcare, food rations, and education.  

Whatever its tolerance for setbacks, Cuba certainly appears eager to attract investment in key sectors, and that will present its foreign allies and other international investors with a huge opportunity to influence the path the country takes. Foreign governments and businesses will have more leeway to invest in infrastructure, construction, electricity generation and transmission, oil and gas exploration and production, and transportation. These countries may also offer input that could shape the Cuban government’s future policy decisions. The road ahead for Castro and his cronies will be fraught with difficulties, but Cuba’s allies will be along for the ride.

Countries like China, Brazil, and Venezuela already have investments in the works to help upgrade Cuba’s port infrastructure, oil refining capacity, and electricity generation. Oil companies from Norway, Spain, Russia, and Canada are focused on boosting oil exploration and production in the Gulf of Mexico off Cuba’s coast. With an eye on the Cuban government’s commitment to revitalizing its domestic agriculture sector, South African officials hope to export agricultural machinery and supplies to the island — and have forgiven $137 million in debt to restore the two countries’ relationship. Just last week, France reestablished bilateral cooperation with Cuba following a seven-year freeze.

The United States will be left out of the game. As Cuba reaches out to its allies and interested foreign investors for help — and makes efforts to deal with its foreign debts, promote industrial production, and revamp its energy matrix — its government, once cornered by the U.S. economic embargo, is making it abundantly clear that an economic opening can and will be made without U.S. help or influence. The Cubans can’t get Texas-based oil drilling technology, but China’s ready to help build a rig. U.S. agriculture exports are tied up in legislative and regulatory knots, but Vietnam’s happy to export rice to the island until Cuba’s domestic production recoups.

The incoming chair of the House Foreign Affairs Committee, Ileana Ros-Lehtinen (R-FL) wants to isolate Cuba and cut funding for the State Department and assistance to foreign governments. Castro and his advisors don’t care. They’re working around Washington — and creating opportunities for the governments, companies and investors that are ready to seize them.

Heather Berkman is an analyst in Eurasia Group’s Latin America practice.