http://havanajournal.com/business/entry/how-to-do-business-in-cuba-624-2/

HavanaJournal.com: Cuba Business

How to do business in Cuba

Posted June 24, 2010 by publisher in Cuba Business.
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Rob Sequin | Havana Journal

Cuba’s centrally controlled and secret economy is throwing off signs that it cannot sustain its economy for much longer.

As we have seen, many countries around the world have suffered crippling debt crises so Cuba, a country that chooses not to participate in the World Monetary Fund or World Bank, has no access to credit and limited foreign investment and exports. Of course the good Communists here at the Havana Journal will blame capitalism for the debt crisis and probably say that since Cuba is a Communist country that they don’t have a debt crisis. I would tend to agree… oh sure Cuba has billions of dollars of debt but they just don’t bother paying it. Therefore they have no crisis.

As Marc Frank reports, the Communist-run nation failed to make some debt payments on schedule beginning in 2008, then froze up to $1 billion in the accounts of 600 foreign suppliers by the start of 2009. Cuba is talking about paying back the frozen funds at 2% interest over five years but that’s just another debt that Raul and company can avoid at a later date. This is how Cuba gets out of its debt crisis.

The pay-back offer does not apply to Cuba’s joint venture partners and foreign companies administering hotels, each of whom are said to be trying to work out their own arrangements to recover funds.

Cuba has cut imports, froze foreign bank accounts and is making very very small steps at privatizing some services like taxis, beauty salons and barber shops but the government does not reveal much about its creative accounting practices, the amount of its cash reserves, debt or the current account of the inflow and outflow of foreign exchange.

The last report was in 2008 covering finances for 2007.

Reuters says that Cuba blames Washington for its lack of transparency, saying the U.S. scrutiny of Cuba’s economic activity as part of enforcement of its longstanding trade embargo leave it no choice but to cover its tracks.

How to do business in Cuba

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I don’t understand how any company can operate in Cuba since there is so much regulation, restrictions, risks, deterrents to successful business, hidden government accounting and sub-standard accounting practices. VERY few businesses are successful in Cuba. In my opinion most foreign businesses operating in Cuba today are there for the future, not for the present.

We get calls here at the Havana Journal many times a month from businesses looking to be the “first one in” or looking to “explore the Cuban market”. I always tell them how it works… if they are a US based business first they have to go through the lengthy process of getting permission from the US government. Then after maybe three to six months and thousands of dollars in legal fees THEN they can look towards breaking into the Cuban market. This requires many visits to Cuba to meet the right people. THEN, MAYBE they will get a purchase order. If they are a foreign company looking to build anything, they will have to learn about the process of joint ventures. All of this costing many many thousands of dollars, hundreds of man hours with the chance of doing business in Cuba.

Then I tell them the result: you will loose money. The Cuban government will let you operate your business until they figure out how to take it over. Then they will make life difficult for you until you pack up and leave… leave the island, leave your expertise and of course, leave your money.

That’s how you do business in Cuba. Hey, I didn’t say you’d make money doing business in Cuba but if you want to be the “first one in”, good luck. By the way, you are not the first one in and you won’t be the last one out. Just like Meyer Lansky said shortly after Fidel took over… “I crapped out”. Foreigners have been leaving money in Cuba for decades.

Havana Journal Inc., a Massachusetts corporation, offers Cuba business consulting services.

Member Comments

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On June 24, 2010, gallofino wrote:

Rob, very well informed article.  It is very true that Cuba is a minefield for doing business.  In fact they have a policy not to get involved in “small” (under $2 million) ventures.  This has subsided somewhat and the exceptions are invariably people of interest;  in other worlds they wanted to watch the players and their activities.

Moreover, as any business that plans to operate outside of its traditional venue, the laws have to be respected.  Perhaps Cuba counts on businessmen going off, half cocked as if they were in their own back yard.  Cuba has complex yet fair contract procedures.  If you ignore or don’t bother to inform yourself about them, then the results are indeed predictable.

In the interest of correct information though, please note that Cuba cannot participate in IMF and World Bank “aid” projects not because it doesn’t wish to but because the US has VETO power over these bodies and they lean heavily on the embargo to rationalize their VETO of Cuba.

Then again, with the WB and IMF success rate, by not allowing Cuba into the fold they have essentially bestowed a blessing upon her.  Just ask Jamaica…

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On June 24, 2010, publisher wrote:

Thanks for the reply. Not sure that the US can keep Cuba out of the world bank or IMF.

Do you have a link that explains this? It is my understanding that Fidel has opted out of the world bank and IMF.

Let’s get the blame where it belongs with an independent source.

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On June 25, 2010, publisher wrote:

The Cuban government reported that import tonnage was down sharply in 2009 compared to 2008.

According to Reuters, import tonnage was 3.27 million tonnes in 2009, compared with 8.84 million tonnes in 2008, while export tonnage was unchanged at around 450,000 tonnes.

Foreign businessman in Cuba say the country appears to be reducing imports even more this year.

...and that’s official government reports which are not open to independent review.

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On July 27, 2010, Marek wrote:

According to this article (http://www.caribbeannetnews.com/cuba/cuba.php?news_id=15996&start=0&category_id=5) and the IMF’s wikipedia page, Cuba left the IMF in 1964.  From the gist of the article linked above, it would seem that Cuba would need to ask to be allowed to rejoin.  Logically, since the U.S. embargo is aimed at “depriving the Cuban regime of funding that would keep it alive” (yeah, that’s funny), one could anticipate that the U.S. (which controls both the IMF and WB) would do whatever possible to block that access.

But as gallofino notes above, given the experiences of Latin American countries who have taken WB / IMF loans (and therefore, the loan conditionalities which restrict their freedom to direct their own economies), Cuba is undoubtedly better off on the outside of that club.

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On July 29, 2010, Yeyo wrote:

What abaout Chile, Peru, Brazil and Panama? There are other countries in South America that are doing well.
In fact there are very few countries in America doing as bad as Cuba, probably Haiti is the only that comes near.

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On July 29, 2010, Marek wrote:

Well, Yeyo, it depends on your measurement. I’ve been in Mexico now for four years, working in some of the poorest municipalities (and that’s saying something, in a country with a 52% poverty rate and massive unemployment).  The Cubans I know who live here are shell-shocked….  back on the island, there was never the worry that the moment they stepped out their front door, they may be shot in the street (intentionally or not) by the narco gangs in one of the (frequent) confrontations with police or military. 

It would never enter into the minds of people in Cuba that they or their children might be kidnapped. The abject poverty that exists here (and Mexico is far from the “worst” country in the Americas) is completely bat-shit insane. My wife and I have been dealing with the threat of abduction this past year… walking out the front door is an effort of counter-terrorism. We live in one of the “safest” cities in Mexico, and yet we are fearful of going to the corner or milk and bread.

Those who complain about the quality of life of Cubans have likely never lived anywhere else than Cuba or Miami.  The reality of the developing world is one of great cruelty, crime and desperation.

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On July 30, 2010, Yeyo wrote:

Well Marek, I know that safety is a problem in Mexico.
But are you implying that the level of life in Mexico is worse than in Cuba?
I wonder why so many Cubans choose Mexico to live. I know you would say that it is only on their way to the US, but while certainly may Cubans cross Mexico on their way to the US many have chosen to live there. I actually have few friends living there. There are large Cuban communities in various Mexican Cities.
In addition to that I mentioned Chile, Peru, Brazil and Panama as examples of countries in the region doing well.
I hate when people try to say that Cuba is doing well and compare Cuba to the worst countries in the region.
The Cuban economy was among the best in the region in 1958. In 1958 Cuba received thousands of immigrants from all sort of countries, including UK, Spain and Japan. Yet today Cubans would emigrate from their country to go ...anywhere else.

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On July 30, 2010, Marek wrote:

Yeyo, for a large portion of the Mexican population, life is infinitely worse than anything Cubans have to endure. There is also a ridiculous amount of wealth here, concentrated in the political (and narco) sectors.

Many Cubans leave the island seeking better opportunities. This is an age-old phenomenon that Cubans share with people the world over… those who believe that life will be better somewhere else. Some make it, some don’t.

I will remind readers that Cubans who make it to U.S. territory are granted instant citizenship under the Cuban Adjustment Act of 1961. I wonder how the current inundation of migrants along the Mexico-US border would increase were they given the same treatment?  But Cuba is always portrayed in a different light - the migrants (and balseros) aren’t seeking better economic opportunities, they are “escaping an evil commie dictator”.  Always interesting to see how the press frames these stories.

As for Cuba prior to 1959 - this paradise that critics of the Revolution are always talking about has been well refuted. Certainly there was a pile of money floating around, and great wealth… in Havana. If you look at the statistics beyond basic numbers, and start looking at inequality, you see that the wealth, the medical services, etc., were concentrated in the capital and other urban areas. The rural population - the sharecroppers, the itinerant farm labourers, the rural peasants - they were at or below the levels of poverty, child mortality, etc., that existed in the rest of the region.

I highly recommend a recent publication by John Kirk and Michael Erisman on Cuban Medical Internationalism (Palgrave-MacMillan 2009), which tackles specifically the erroneous representation of pre-Revolutionary Cuba’s health indices.

All of those who are critics of Cuba are not giving the country its due. Cuba has done incredibly well, considering 50+ years of aggression, economic sabotage, the embargo, etc.  Those who dismiss all of the challenges placed in the way of the Cuban government are being dishonest in their criticisms of the Revolution.

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On July 30, 2010, Yeyo wrote:

Marek, like your book of Jonh Kirk and Michael Erisman, there are hundreds that show that Cuba was doing hundred times better before than after the “Revolution”. You should ask older Cubans about it, no better testimony that theirs. Even the pro Castro elders now confess that Cuba was doing better before than now.
The great achievements of the “Revolution” Education and Health for all:  Well let me tell you Cuba had free education prior to 1959; actually my mother studied on the Cuban public system prior 1959 and went all the way to university. The teachers in Cuba prior 1959 were excellent and substantially better than now.  While the free health was not the best quality the health care that average Cubans receive today is far from perfect. I know that Cuban Doctors are well regarded. I should know because my wife is one of them but what people fail to realize that Cuban Doctors were also excellent prior to 1959, they were very highly regarded in all the Countries of the area and before 1959 already many people traveled to Cuba for health care.
Cubans leave the island looking for better opportunities but chief among those opportunities is freedom to do with their lives whatever they want. If you deny this you are blindsided by your love to the Castro regime.
You say …”Cuba has done incredibly well, considering 50+ years of aggression, economic sabotage, the embargo, etc.” I wonder …incredibly well compared to what?
Your thoughts of the Castro Regime doing all the oppression of the Cuban people for their wellbeing is good until you have to live and endure the same conditions than the average Cubans endure.
You should check facebook and see most youth Cubans openly indicating in Political Preferences: none or Anticommunist. The era of the socialist revolutions and totalitarian states already passed and if you want to keep one you should move there, live like an average Cuban lives and stop bulsheting people around with your “knowledge” of the reality in Cuba today.
Finally I’m NOT a critic of Cuba, I’m a critic of the repressive and totalitarian Castro regime that has oppressed my country for over 50 years with the complacency of people like you that feel nostalgic for the old east European soviet states.

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On July 30, 2010, Marek wrote:

Yes, Yeyo, you are correct. I should abandon my independent thought, and embrace the memories of Miami-resident Cubans who remember “the good old days” when everything was beautiful, there was no discrimination or injustice, and Cuba was a paradise on earth. I should just ignore social scientific research conducted by respected investigators, who obviously are wasting their time and in fact are part of a global conspiracy of communist moles who control the media and the very thoughts that are beamed into our heads.  I must trust unquestioningly that life before Fidel was heaven on earth. Of course the embargo does nothing - nothing! It is just a piece of paper, after all. I must surrender the deep man-love I feel for Stalin and Lenin and Marx, and accept that I am a flawed human being. I must enter the re-education process, learn to love the United States as I do my woman, and leave behind my childish notions of justice for all.

Or… I can continue to bang my head against the thick brick wall that surrounds this revisionist belief-system you guys have constructed, in the hopes that some day, some way, a ray of light of reason will enter. But I somehow doubt that will ever happen.

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On July 30, 2010, Yeyo wrote:

Your “independent” thought is not that independent but exactly the views that Fidel Castro has been selling for over 50 years now. If you want to stick to them or abandon them is up to you, fortunately this is a free country, no such thing in Cuba where people have no choices but to follow the official discourse and if they by any chance go against it they are thrown in jail for treachery to their country.
The good old days (prior 1959)are not only memories of the Miami resident Cubans, but of all the Cubans from Cuba and abroad. The pro-Castro gang, you included try always to put all anti-Castro Cubans on the same Miami right wing bag. Once again I would remind you I’m born and raised in Cuba during the “Revolution” times, now living in Canada by choice and opposing the embargo.
You and I actually agree in something and it is the very core of why I oppose the embargo: because “ the embargo does nothing - nothing! It is just a piece of paper, after all.” If not why can I have an American Coca Cola while sitting in Varadero beach. What kind of embargo is that? Something so easily traceable and you can find it openly in Cuba.
At the end of the day the issue is not the embargo but Fidel Castro.

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On July 30, 2010, publisher wrote:

Okay, glad you guys are having a great dialog but time to get back on topic about doing business in Cuba.

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On July 30, 2010, Yeyo wrote:

Regarding business in Cuba, there is no such thing, nothing you can do about unit the old fellow is gone.

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On August 06, 2010, rogdix wrote:

You can try and do as much “business” in Cuba as you wish. But unless you are particularly well connected with the Castro-Mafia, you will not be paid.

Things will change, and very shortly. But right now, just hang on to your business plans for Cuba. And keep your wallets closed.

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On August 08, 2010, gallofino wrote:

About the IMF and World Bank, Fidel walked out on them.  Because of the VETO power, they certainly didn’t propose anything other than economical slavery.  Call it part of the “economic aggression package”.  Interesting you should tout Brasil.  Look into what happened when Lula tried to then was finally able to pay them off.

Marek, your points are well taken.  Perhaps ask the Publisher how to post a thread here and post questions if you like to debate the excellent topic.

rodgix and Yeyo, I disagee with your take on business in Cuba.  To those who have interest in Cuba other than what they fantasize they can wring out of her, are barred from access to entrepreneurs that risk arrest and seizure of their tools and equipment, maybe their property too… 

Business in Cuba is to say the least an issue.  Its so easy to see Cuba as the Golden Goose because they “need so much”.  Its true that they need allot but none of it has to do with a MacDonald’s franchise.  They need basics that will allow them some access to either currency without threat of arrest.  If they can’t have a sandwich stand or a teller to fix your car, a carpentry, be masons, plumbers, what have you what do you think you can do?  They have cut back up to 70% in imports. 

If you want to know about business in Cuba, ask a Cuban living in Cuba.  Its all about micro business.  Which means unless you are willing to help someone in Cuba start a small business and expect they will be as enthusiastic about the opportunity as you are to make a go of it AND have permission,  you best store away your Cuba business plan for another 10 years. Or more.

Exceptions are those who have major projects, funding and permission.

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On August 08, 2010, rogdix wrote:

Gallofino:

I’m not sure that you ARE disagreeing with me, or Yeyo!

Perhaps a brief response to your IMF remarks, ..“they certainly didn’t propose anything other than economical slavery.” Castro doesn’t need this sort of input of course, - he already did it himself without the help of the IMF.

Whether you’re working with a Cubano or not, remember, this is a communist totalitarian regime, - it does not understand marketing and economics. As soon as it sees anyone “making money,” whether for re-patriation or not, it swoops in with ad hoc taxes. Many Casas Particulares in Cuba have given up because of the excessive taxes. “Micro businesses” do not yet exist in any economically viable form. What does exist is the underground black market, and it works extremely well.

Now what do the Castro geniuses do? They are going to allow hairdressers to work for themselves. THAT should solve Cuba’s egregious international debt!

They badly need tourist dollars, and yet they are busily taking everything “off the top” at every opportunity, with no concept of marketing and the competition presented by other Caribbean destinations. Check out the foreign travel agencies in Havana, even those with capital investment in the hotels. They’re quitting, and those that are staying are using their Cuban facilities to sell vacations in Jamaica, Cayman, Dominica, Mexico, - you name it. In short, the Castro government is infinitely stupid.

By the way, I live in Cuba half the year; my wife is a Cubana.

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On August 09, 2010, gallofino wrote:

Hi rogdix!

Although Castro has indeed bungled up the Cuban economy.  When he took power Batista had looted the Central Bank (some $400 Million), then Che understood “buen comunista” instead of “buen economista” and became president of the Central Bank which he never should have been.  The Soviet tit propelled Cuba into a massively false and dependent economy that lasted for decades and when the 90’s emerged and Soviet subsidies stopped, Cuba was sent into a tail spin that it has never fully recovered from.  It doesn’t help that the aggression towards them even extends to non-US banks.  Forget about credit.  Cuba pays HUGE fees to exchange USD abroad and despite the big fines, the banks still make out like bandits.  You are right.  Cuba doesn’t need support from these bodies to screw up the economy, nor does it need them to fix it.  There is no real long term advantage to accepting any “assistance” from them and if they do, it will be directly due to a corrupt regime accepting the fast fix at the expense of perpetual economic slavery.  In fact, walking out on that body was probably one of the best things Fidel ever did.

I was trying to convey that foreigners, unless linked with major projects that are funded abroad have little to no hope of success in Cuban business.  Hence “micro” business, which in itself denotes that no one gets rich and that a big percentage of the input will have to be directly from the entrepreneur.  Which in this case is the Cuban in Cuba, not the yuma.  Cuba is not for the foreigner.  Its for Cubans in Cuba.  If you choose to help someone in Cuba, you should accept that you may never see a return on your investment. 

Castro has more than allowed independent barber shops and I do agree that not all the million or so to lose their jobs now or into the coming months will cut hair and do manicures.  So the timing is right to once again issue licenses and the smart Cubans will keep as low a profile as possible should they accumulate any “wealth”.  Then again, I personally know a few Cubans that have very profitable enterprise (farming and casas) and are not afraid to show their success.  The taxation rate on the casas is very high indeed.  Same for other business that require patentas (permits) and the conditions they can do business under are highly defined and restrictive.  Still, many play along and have extra rooms and undeclared income and raw materials.  Which is an absolute nod to your comment about the Black Market.  It has been forced on Cubans and by that I even mean the cop, the doctor, the MININT officer.  No one can survive without it.

Tourist dollars are indeed important but they have learned how much of a hit you can take by putting all your eggs into one basket.  And they are NOT stupid.  Just disinterested, aloof, and basically couldn’t give a crap whether the place they work and their jobs are sustainable.  This may change with the mass firings, but it could just as easily backfire by making those people left even more arrogant and self-important.

Business with Cuba is possible if there is a social aspect and benefit to what you are doing.  This however still gives no guarantee that your efforts will be welcome or successful.  If you fund projects,you would be crazy to invest into mixed enterprise with Cuba unless its a major project and you have the millions to back it.  But even people that meet that criteria are subject to getting to big for their britches and eventually trip on their own dicks.  Look up Max Marambio, whom you would think was “untouchable” in Cuba

I lived full time in Cuba for a few years and now spend about a month there every year.  My wife is also Cubana.  She is to me proof what a Cuban can do given the opportunity to make a legitimate go of a small business.  We just celebrated her fifth anniversary here in Canada and her third anniversary for her own, thriving little business.  I am very proud and convinced that given more economic freedoms, Cuban individuals will eventually create business that will require more foreign investment.  It has to be a grass-roots initiative to be sustainable.  When you let money rain from up high, what you ALWAYS get is massive waste, corruption and incompetence.  Working up from the ashes of a devastated economy with the sweat from your brow makes you mre efficient and less likely to be allof about a given opportunity.

Our family in Cuba are simple and humble farmers and their lot has largely improved under Raul Castro’s reforms.  Now, will they let my father-in-law import a small tractor?  Fertilizer?  Seed?  A pump?  Other tools?  Not yet.  So if Cubans in Cuba cannot do it and they are running legitimate enterprise, how do we expect to trounce in and get our way with your business “opportunity”?