Cuba – the last emerging market?

By Phillip Oppenheim

Next BRIC?

Cuba – sexy, sultry, sandy, salsa – and the last frontier of emerging markets? If you don’t count North Korea, that is.

Maybe not everyone’s choice of place to do business, but you might be surprised. Following the fall of the Soviet Union in 1990, the Cubans tried to keep the flame of socialism burning, only to find themselves almost starving without the help of the massive Soviet subsidies they had enjoyed.

Plan B from 1995 was to allow the development of tourism and a few big corporates to invest – Nestle, Altadis (now Imperial Tobacco) and Pernod Ricard quickly got into the food, cigar and rum business while Melia was the main mover in hotels. The Canadian miner, Sherritt, also got into nickel production.

Beneath that, a whole raft of much smaller enterprises and funds entered Cuba, with mixed results. The Cubans saw them as lifestyle investors and cleared a lot out in the early 2000s.

Fidel Castro’s illness in 2006 and the assumption of power by his brother, Raul, heralded a fresh wave of liberalisation which initially promised more than it delivered. However, in recent years there has been a dawning realisation that Cuba cannot continue as it is, even with subsidies from Venezuela, and so the process has begun to move again.

There’s no doubt that the opportunities are there. But too many people have fallen victim to their own PR. Stories in recent years of golf courses, condominiums and power plants have come to nothing. Property ownership has been liberalised, but you need a Cuban partner as nominal owner and that involves risks.

So what’s left? Big corporates will always be welcome in Cuba because in what is still largely a state controlled economy, they like doing business with big entities.

The lower reaches of the economy have also been liberalised – small hotels, restaurants, services – but these micro-businesses are not really for serious investors, though Miami Cubans do invest in relatives businesses across the water.

For most investors, it’s the $1-100 million enterprises which are of most interest and that’s where Cuba is going slowest, though there is some movement. Our own strategy has been to select areas where Cuba has comparative advantage – or where a business might feed into the tourist industry or the growing middle class which is emerging from the reforms or cash remittances from relatives.

Coffee has a long and illustrious history in Cuba and massive potential. The island has a large mountain range in the south-east – just across the water from the Blue Mountains of Cuba – where huge quantities of high quality coffee used to be grown.

We began negotiating in 2007, but our Alma de Cuba e-commerce coffee brand was only launched in late 2013. Our first investment in the growing areas will be 2015.

So patience is needed. The Cubans will not work with people they do not know well. If you turn up, you will be listened to politely and expressions of interest will be made. But your emails will go unanswered.

Choose the area you want to invest in, make sure it is in line with Cuba’s economic plans – agriculture and exports are an important part of this – get advice and help from people who know Cuba and go in modestly and with patience and you may be rewarded.

Cuba is the largest island in the Caribbean with several thousand kilometers of often stunning coastline. It has a generally well-educated and enterprising population. The island has a massive under-utilised amount of land and a steadily growing middle class. Above all, with stops and starts, the reforms will continue in the right direction.

Phillip Oppenheim is a former UK Treasury minister and managing director of Alma de Cuba coffee and Cubana bar-restaurant       


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