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HavanaJournal.com: Cuba Business

Cuban economy plods along amid pressures

Posted September 28, 2004 by publisher in Cuba Business.
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BY NANCY SAN MARTIN | .(JavaScript must be enabled to view this email address) | Miami Herald

Analysts say Cuba is still benefiting from Fidel Castro’s decision to open the door to foreign investors a decade ago. But ominous signs loom.

Growing numbers of tourists are visiting Cuba, but the island is not a magnet for repeat visitors. Cuba isn’t attracting new foreign investments but the most prominent joint ventures remain strong. A recent oil exploration struck out, but generated interest for further drilling.

Cuba may be a country of economic contradictions but the economy keeps plugging along.

The island’s economy, analysts say, is still benefiting from President Fidel Castro’s decision to open the door to foreign investors and introduce some capitalist-style reforms a decade ago.

But not all is well in the still largely centrally controlled economy, and there are some ominous signs on the horizon.

‘‘It’s not doing well at all, and all indications are that it’s going to be doing worse in the future,’’ said economist Maria Dolores Espino, of St. Thomas University.

That assumption is at the heart of Bush administration plans to force change on Castro’s government by take aim at its most vulnerable spot: its cash-strapped coffers.

Tightened restrictions on Cuban Americans’ travel and remittances to the island are among the tactics touted by the White House as the most effective way to hasten democratic transition in this hemisphere’s last remaining communist nation.

FEWER U.S. VISITORS

Earlier this month, Cuba announced a 25 percent drop in the number of U.S. visitors since new travel restrictions took effect June 30, and said the trend isn’t expected to change before the U.S. presidential election.

Analysts, however, say it’s too soon to determine whether the new rules will have long-lasting effects on the Cuban government and economy: ‘‘There is no doubt that the measures will have a negative impact,’’ Espino said. “But Cuba has done without before.’‘

Over the past decade, tourism has replaced sugar exports as Cuba’s main foreign-exchange earner, bringing in as much as $2 billion in gross revenue each year. Remittances from Cubans living abroad account for another $400 million to $1 billion a year, according to various estimates.

Cuban Americans make up the largest portion of the U.S. visitors, but the new rules now restrict family visits to the island to once every three years instead of once a year, and remittances may only be sent to immediate family members.

Of the 176,000 U.S. residents who legally traveled to Cuba in 2003, and spent an estimated $200 million there, about 128,000 claimed to be visiting family.

Even with the loss of Cuban-American visitors, Cuban officials have said they expect to meet their goal of 2 million tourists in 2004. In June, authorities celebrated the arrival of the millionth tourist and an 11.8 percent increase in visitors, compared to the same period last year.

But an increase in visitors is not likely to make a significant dent in the overall economy, said Art Padilla, a professor at North Carolina State University.

‘‘The Caribbean tourism market, in general, is beginning to show signs of maturity,’’ said Padilla, who has studied Cuba’s tourism industry. “Total growth has flattened. There is a limit to what you can do in Cuba and in other places.’‘

RETURN VISITS DOWN

Anecdotal evidence suggests that many first-time visitors to Cuba choose not to return because they are turned off by poor service and the blatant disparity that exists between foreigners and Cubans, Padilla added.

Foreign investment also has taken a dive in recent years. The Economic Commission on Latin America and the Caribbean reports that net foreign investment in Cuba for the past two years has stood at zero.

Between 1988 and 2003, Cuba signed 585 ‘‘economic associations with foreign capital,’’ most of them joint ventures between government entities and private investors. By the end of 2003, only 342 remained active, according to Paolo Spadoni, of the University of Florida. He prepared a report on the issue this summer.

However, he notes in the report, that the fact that 342 economic associations survive indicates that “someone must be making money.’‘

Cuba also has diversified its partnerships beyond traditional arrangements that concentrated primarily on tourism, construction and basic industry.

‘‘The presence of foreign investment in Cuba has been particularly strong in all the industries that have experienced the highest growth over the past decade such as oil, electricity generation, telecommunications, nickel and tourism,’’ Spadoni’s report states. “These sectors are considered by Cuban authorities as the engines of future growth and still offer the brightest investment opportunities in Cuba.’‘

In the energy sector, where Cuba must import half its oil and gas needs, the Spanish company Repsol YPF hit a dry hole in June when it sank its first offshore exploration well in the Gulf of Mexico.

But last month the company announced the dry hole produced indications of high-quality crude nearby, so it will continue studying the area and could begin drilling again within the next year.

So the economy plods along as Cuba hopes to cash in on tourism and remittances and, literally, strike it rich with oil.

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