5 Reasons Why You Wont Get Rich In Cuba

2006_08_01t121905_450x332_us_cubaPresident Barack Obama’s historic normalization talks with Cuba have brought about a lot of excitement in business circles, and hardly a day goes by without new reports of U.S. investors, lawyers and entrepreneurs flocking to the island. But I’m afraid most of them will lose their shirts there.

In a recent interview, U.S. Secretary of Commerce Penny Pritzker told me that even though Cuba is a small economy, the Cuban people are entrepreneurial , and have a great economic potential. “It’s a beginning, you have to start. And by starting, things will evolve,” she said.

My opinion: Maybe so. But for the time being, as Florida International University business professor Jerry Haar has rightly — and only half-jokingly — commented, the most profitable businesses dealing with Cuba will be those that put together conferences and seminars on doing business in Cuba.

Obama did the right thing in starting normalization talks with Cuba’s military dictatorship, although he should be much more forthright in demanding basic freedoms on the island. But the administration should tone down its claims that the U.S.-Cuba honeymoon will lead to political and economic changes on the island, and to great business opportunities for foreign companies. It won’t, at least in the near future.

via Andres Oppenheimer: Cuba: Very big fuss over very small economy | Miami Herald Miami Herald.

First, Cuba’s gross national income per capita, although nearly impossible to measure because the island does not measure its economy by international standards, is estimated by the World Bank at $5,800 a year. That’s almost three times less than Chile’s per capita income of more than $15,000 a year, and way below Latin America’s average of $9,500 a year, according to World Bank figures.

Cuba’s average wage is of about $20 a month (yes, you read right, a month.) That will make it very hard for average Cubans to buy more imported goods, wherever they come from.

Second, Cuba’s 11 million population has an average age of about 40, one of the oldest in Latin America, because of few births and massive migration. That will make it hard for Cuba to become a magnet for investments in factories or outsourcing services.

While other Latin American countries will benefit from young populations in coming years, Cuba’s demographic scene is likely to worsen.

In a recent report entitled “Big fuss, small market,” John Price, managing director of the Americas Market Intelligence consulting firm in Miami, argued that “if East Germany is any guide to what may happen next in Cuba, an additional two million Cubans would leave the island within five years of an end to travel restrictions.”

He added, “Most of those anxious to leave will be the best educated working-age adults who can pursue higher wages and better opportunities abroad. Cuba will become a nation of elderly, with limited growth prospects.”

Third, despite Obama’s executive orders to open up tourism and some investments to Cuba, only the U.S. Congress can lift the full U.S. commercial embargo on the island, and that’s not likely to happen anytime soon.

Even if some Republican legislators from mid-Western farm states support lifting the U.S. embargo, the prevailing mood within Republicans in Congress will be to deny Obama a vote that would allow him to set a foreign policy legacy as the U.S. president who “opened up” Cuba, much like Nixon “opened up” China.

“I don’t see the U.S. embargo lifted while Obama is in office,” Price told me.”I doubt that anything will happen within the next two or three years.”

Fourth, despite a big influx of dollars from U.S. tourism and family remittances, Cuba is threatened with a worsening economic crisis if Venezuela can’t keep up with its oil subsidies to the island. That may delay Cuba’s economic resurgence further.

Fifth, Cuba lacks and independent judiciary to protect investors’ rights, as so many Spanish and Canadian business people have learned the hard way. And that’s not likely to change anytime soon.

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