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Posted May 08, 2003 by publisher in Business In Cuba

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From grass Tiki huts to high rise hotels construction is doing well in Cuba. Made necessary because it supports 10% of the economy, Cuba has committed its limited resources to projects related to growing its expanding tourism business. Havana on the north, Varadero 90 miles to the east and Isle of Youth on the south side of the island, are bustling hubs of construction and tourism.

Despite the 40 year embargo, the Cuban / United States connection still exists. Just off Old Havana’s central plaza, an ancient, but still functioning Otis elevator can be found in Hemingway’s former home at the Ambros Mundos Hotel. Other familiar names like Rheem, Carrier, and York are commonly being seen as air conditioning is starting to make itself known in renovated Cuba.

$40,000,000 annually finances a massive restoration of Havana’s historical buildings. These funds come from boot strapped money from previously restored hotels, museums, and restaurants run by the government. With this funding is a mixture of foreign investment from Spain, Italy, Mexico and Canada; and from UNESCO grants.

This construction boom was initiated by a bold $1,000,000 investment in 1994, during the darkest days for the Cuban economy after a 70% collapse of the economy following the Russian pullout. Results can be seen in the steady improvement to the Havana skyline as the crumbling 400 year old buildings along the Malecon, the famous seawall drive that lines the Atlantic Ocean, are being brought back from the brink of collapse. In 1994, at least 75% of these three story buildings, along what would be called the Gold Coast in Miami, were vacant. Today most have been restored or are in the process of being restored.

In Varadero, the former DuPont mansion, nationalized (some say stolen) by the Cuban government, has been renovated as the focal point of a golf course development. Toronto based Sherritt International Corp. maintains part ownership in hotels along the Varadero beach. On nearby Cayo Blanco, the Tiki huts are being increased to better accommodate the 150 tourists that daily visit this small mangrove island. .

Building Design Standards

US Construction standards were the norm in Cuba when Meyer Lanski, the mafia don, built his Hotel de Nationale in the 1950’s. Today this five star hotel, one of three in Havana, sees thousands of tourist visitors each year. Under Russian influence construction rules were somewhat compromised to what would get by. Poured concrete without rebar is common Russian construction technique. Since the mid 1990’s, new construction mostly adhered to the standards of the investing country, . . . “providing it meets the approval of the authorities.” This is not to say that unknowledgeable people are reviewing proposed construction projects. More recently Canadian and Spanish standards have been commonly accepted.

Investment in Cuba is problematic. Presidential Decree # 77, the Cuban Foreign Investment Law passed in 1995 by the Cuban Government, requires Cuban participation in any new real estate project. Although an investor may provide 100% funding, 50% ownership is the best that can be typically obtained. Your partner normally is an agency of the Cuban government. In spite of the heavy hand of the Cuban government, reports say the Cubans meet their contracted agreements in capital and fund transfers. The chief complaint is the time involved, 13 months or more, getting business deals approved by the ministries of historical antiquities, economic development, architectural standards, public utilities, plus the Committee for the Defense of the Revolution and the like. Build-Own-Manage-Transfer, as done in other developing countries, is not permitted.

Failed Thinking

With the increased momentum of construction taking place, and given an increased shortage of housing, one would assume that individual construction firms would be springing up. No so. In spite of desperate need for local housing, the Castro government continues to discourage any trace of individualism. Only on a limited basis are family owned businesses allowed to exist, commonly as a family run restaurant. Without the authorization of local governments, the law prohibits Cubans from building houses or additions, selling their homes, or swapping small housing units for larger ones, even if the difference is paid for. Moreover, people that are authorized to build houses on their own must prove that they purchased all materials, from cement, sand, to the last brick, from state enterprises.

Given these constraints that control construction, government reports state that 42%, or 4.7 million people of Cuba’s population live in categories of “middling” to poor conditions that are in need of urgent repairs or refurbishing. This proportion represents 39% in Havana and 60% in some eastern provinces. A government initiative to refurbish these sub-standard homes was used by just 4.9% nationally and 9.8% in Havana. With the lack of government help, individuals are left to illegally make their own repairs, in violation of official regulations.

An example can be found in a 42-year old Havana resident who paid 40 Cuban pesos (just under US$2) for a sack of cement to patch her corridor leading to her front door. Because she could not get the government to respond to her requests, she paid nearly a monthly salary on the black market to hire someone to fix her walk and now stands the risk of being fined, or possibly evicted, by the government. Because it is difficult living solely on the government provided salary, finding highly skilled people willing to work is easy to do. But they must mindful it is not good practice to make their underground entrepreneurism common knowledge, lest they be fined or jailed by the government.

A nicely furnished home can be rented for $45 per day to a foreigner and $15 per day to a well-heeled vacationing Cuban family. Renting to tourists can only be done through government agencies, such as Intourist, who are authorized to do so. Similarly, renting homes and apartments for temporary visitors is done through the government operated, joint venture firms. In both cases, foreigners are generally housed in areas not accessible by the average Cubans.

In spite of these regulations, and the possible dire consequences if caught, people continue to take chances to better themselves. In a seaside tourist town of Guanabo, 30 kms from Havana, more than thirty homes have been seized for violating this edict. Recently a $74,000 seaside home, sold by a Cuban to a foreign national, was seized by the government and handed over to the teachers social club, “for seminars and recreational activities.” According to Juan Contino, coordinator of the Committees for the Defense of the Revolution, “The day money determines housing patterns in this country, is the day we will be divided into social classes.”

A Little Background

To better explain the impact of foreign investment, it helps to explain how the Cubans live. Havana is home to over 2.6 million of the 11 million who live in Cuba. The Cuban government provides nearly everyone a job. But unless you are fortunate to come from a wealthy family, have connections, be exceptionally gifted academically, your future is determined by how well you do on a national scholastic exam and the current needs of the Cuban Government.

The average wage is about 223 pesos (US$10) per month, which includes teachers, engineers and carpenters. Doctors are slightly higher at US$15, with a head of a hospital making around US$25 plus a social wage involving more freedom to travel overseas, and social status. Although Cuba claims a 97% literacy rate, the preferred jobs are jobs that provide access to the tourist dollars. It is not uncommon to see what we consider professional people, competing for authorization to drive taxicabs. The result makes for an upside down economy. People playing the game are barely getting by, while a common tour guide can get US$150 - $200 in tips squiring a tourist group for few days. This wealth disparity, obtained from contact with westerners, is a source of concern with the Cuban government because of this potential destabilizing effect on the government. This is why to maintain the status quo, and as many think, to act as Mr. Castro’s insurance policy, a policeman’s monthly pay is US$45.

The Dollar Economy

Pesos buy you staples for minimalist survival: bread, rice, beans, 5 pounds of sugar per month, and an occasional chicken. Access to hard currency allows access to dollar stores with their better variety of food, and household appliances and electronics not available in peso stores. If you would like a TV and the finer things that you see from watching your TV, they can only be obtained with US dollars; which are hard to come by unless you have contact with the tourist industry at some level.

Counterpoint to the glitz of the new construction is the reality of everyday living in Cuba. Outside the tourist hotels, toilet paper and toilet seats are in short supply. In the two star hotels and restaurants of downtown Havana, ladies wishing to use the restroom tip the doorman 10 cents, who then gives them a napkin, and will politely stand guard at the door for privacy. The restrooms will usually be immaculate however. In Marina Darsena, in Varadero, where this writer arrived by sailboat, both men and women sailors use the same shower facilities simultaneously to save wear and tear. (Surprisingly however, this was not alarming to either sexes, merely a natural extension of communal life on a small boat, different but not offensive.)

Cubans are almost always being watched, whether by hidden cameras in the streets, plain-clothes police, or a neighbor who is a snitch. The police serve not only to see that the locals do not inconvenience tourists, but also try to keep foreigners and locals separated. Unauthorized contact with an American can relegate a professional to the backwaters of his profession. A young girl seen to have contact alone can be black listed as a prostitute, thereby eliminating access to advanced schooling and a profession. Photographing a policeman can get a tourist’s film confiscated, and as I discovered, get my fearful taxi driver’s license revoked. Even assuming the average Cuban could afford the prices, they need special authorization to enter the tourist areas.

So What

From an outsider’s point of view, the construction that is occurring, both legal and illegal, can be seen to be significantly improving the well being of those fortunate participants involved. Foreign companies reward their key people with under the table payments. Due to the scale of foreign investment, the lives of these people can be seen to be getting better. Not only the Cuban construction workers, but also those in the tourism industry that construction creates, are well dressed, well fed, and healthy. This wealth effect from public construction can be seen to be trickling down to those not now so well off.

But the failure of the private sector construction has contributing to the continued shortage of housing. Housing in Cuba is assigned, after review by a six-person board, with the decision made based on the location of your assigned job and your social status. Because of the shortage of housing, this process can take several months to over a year while waiting in temporary housing. It is common to see three generations living under the same roof. Due to the lack of privacy and adequate living space, the birth rate is steadily declining. This difficulty in finding one’s own place to live is one of the main problems driving Cubans, especially young couples, to attempt to emigrate.

Philosophical arguments are made for and against the U.S. embargo against Cuba, with each side of the argument having entrenched themselves solidly in their position. There are those that think the embargo serves to personally punish Fidel Castro and his followers. There are others that say the embargo has served to prolong the Castro government’s oppression; that without the U.S. to blame, they would be forced to face up to the failures of Communism. The reality is that after 40 years, the US embargo is definitely hurting the poorer Cubans that have the least choices, while the well off seem to be living well. Even with the embargo, certain elements of hypocrisy are evident: Cigarettes from Jesse Helm’s South Carolina are the dominant cigarettes able to be purchased in Jose Marti Airport; and U.S. made consumer goods, sold through Canada and Mexico, are common in the dollar stores.

Construction in Cuba, with all its difficulties and bureaucratic entanglements, is serving as a positive influence for change in Cuba. The wage disparity of those with access to the construction and tourist sectors creates life style differences incompatible with a Communist system of government. While the lifestyle benefits are undeniable, the intransigency of the political picture between the two countries is also reality. US engineers and contractors continue to lose, not only business to overseas competitors, but also the possibility of being agents of change to the oppressive Cuban government. U.S. construction companies can only look forward to the day when good people on both sides of the Florida Straits can overcome the political differences to the betterment of both countries.

Thanks Bob!

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