Transcript Cuba

Cuba
Foreign Investment in
the New Millennium
Grupo 3
Cuba
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Historical Perspective
• Columbus landed in
1492
• Settled 1511
• 18th Century Exporter
of Sugar and Tobacco
• 19th Century most
mechanized Sugar
Exporter
• Slavery and Wealth
Disparity
• War torn years of
latter 19th century
• 1895 War for
Independence from
Spain
• US intervention and
the Platt amendment
• Dependency on US
Sugar Exports to 1960
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Cuban Revolution
• 1959 - Fidel Castro &
Che Guevera Lead
Revolution v. Batista
regime
• Property
Nationalization - US
Retaliation and
Escalation lead Cuba
into Soviet Arms
• US Embargo
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Cuba Today
• Fall of the Soviet Bloc - Cuba loses equivalent of
22% income subsidy
• 1989-1993 Massive contraction of Cuban
economy
• 1996 Helms-Burton act continues and expands the
US embargo
• Cuba productivity enters downward spiral
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Macroeconomic Overview
1998 Figures
• GDP: $20.3 Billion
• National Debt: $12.5 Billion
• Balance of Payments
– Current account: -$0.4 Billion
• Historical Inflation: 2.9%
• Currency Trends:
Not Traded
– Officially 1:1
– Reality - 95:1 down to 22:1 Pesos/Dollar
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Why Cuba?
• Human Capital
• Natural Resources
• Government Incentives
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Human Capital Development
• Education & Literacy
– Free and Compulsory
to Age 12
– 45% complete High
School
– 4% complete
University degree
– 96% Literacy Rate
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Human Capital Development
• Health Care
– Publicly Available
Preventative Health
Care
– Life Expectancy at
Birth of 74.8 yrs (1998)
• Employment
– Unemployment 6.6%
(1998)
– Underemployment
(Incl. Unemployment)
34% (1996-ECLAC)
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Natural Resources
• “Geographical pearl”
• Dominant nickel and cobalt deposits
• Sugar and Tobacco
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Government Incentives
• Foreign Investment Act
• Seeking Hard Currency
• Apertura: Opening of the markets
– Privatization efforts
– Joint Ventures
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Why Not Cuba?
• Island economy
• Low purchasing power
• JV partner is usually
the Government
• Government
Bureaucracy
• Import restrictions on
Foreign entities
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Why Not Cuba?
• Highly regulated
environment
• Weak transportation
system
• Insufficient Power and
Telecom Infrastructure
• Teledensity 4.3%
• “Complex” banking
system
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Current FDI Climate
• 1995 Law on Foreign Investment.
• As of February 2000, FDI in Cuba totals US$2
billion.
• Another US$2 billion committed through signing
of JV agreements. JVs total 360.
• Telecom leads at $650 million, followed by
mining at $350 million and tourism at $200
million.
• Biggest investors are Canada at $600 million,
Mexico at $450 million and Italy at $387 million.
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Cuba’s FDI Opportunities: Tourism
• The Opportunity
– Location, Location, Location
– Lure of an untouched island
getaway
– Enormous foreign demand
– Government’s commitment to
infrastructure
• The Reality
– Sol Melia of Spain with 12 hotels
– Jamaica’s Superclub chain with 10
hotels by end of Y2K
– US citizens’ property claims under
H-B Act
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Cuba’s FDI Opportunities: Telecom
• The Opportunity
– Potential for huge growth in Cuba
– No monopoly on cellular service
• The Reality
– Empresa de Telecomunicaciones
(Etecsa) has monopoly
– Etecsa 51% owned by government,
29% owned by Telecom Italia
– $940 million investment program to
upgrade network
– Full employment issue
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Cuba’s FDI Opportunities:
Power, Oil & Mining
• The Opportunity
– Aggressive opening to FDI
– Huge nickel & cobalt reserves
• The Reality
– First 100% foreign-owned deal with
Genpower Cuba SA of Panama for
construction of power station
– JVs account for 30% of oil exploration and
production
– Canadian Sherritt International Corp. planned
to invest $475 million in mining and other
sectors - pulling back due to human rights
abuses
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Current Strategies for U.S.
Corporations
• 1994 Ruling by U.S. Treasury Dept’s Office of Foreign
Assets Control.
– Ford via Volvo
• U.S. companies signing letters of intent to enter Cuba
when embargo ends
• U.S. Chamber of Commerce & Congressional efforts
• Agricultural and Medical “Humanitarian”
Opportunities
• Cultural Exchanges
– Baseball
– Musica
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Opportunities for U.S. FDI to Cuba:
Biotech
• The Opportunity
–
–
–
–
Cuba’s “well kept secret”
25 state-sponsored research centers
Potential for ‘cheap’ manufacturing base
Global interest in Cuban research and
products
– Open to foreign & U.S. participation
• The Reality
– SKB US testing & manufacturing Cuban
meningitis vaccine in U.S.
– Genesis Medical Technologies of CO testing
needleless injector in Cuba
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Opportunities for U.S. FDI to Cuba:
Financial Services
• The Opportunity
– Investment in Cuba via international
subsidiaries
– Third party processing activities
– Archaic banking system requires reform
• The Reality
– Charles Schwab & Merrill Lynch have bought
Canadian firms
– Citibank profits from processing charges on
credit cards issued by its foreign subsidiaries
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Post-Embargo Opportunities
• Autos & Heavy Machinery
– Spare parts needed
– Vintage 1950s used autos
• Entertainment
– Cable, TV, Radio
– Related electronics
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Post-Embargo Opportunities
• Needs outweigh purchasing power
– Concentrate on basic supplies first
•
•
•
•
•
Privatization opportunities - Infrastructure
Banking and Finance
Manufacturing base
Tobacco - Cigars
Mining and related equipment
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Conclusions for the Future
• Uncertainty is high for
US Corporations
• Cuban market is
opening, but slowly
• US is missing an
opportunity in Cuba
• Companies need to
have scenarios in place
to take advantage
Castro's Survival Probability
120%
100%
80%
60%
40%
20%
0%
ar 03 07 11 15 19 23 27 31 35 39
e
Y 20 20 20 20 20 20 20 20 20 20
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Questions?
Ross Dolgoff
Fernando Aguirre
Sue Mundell
Kirk Gilpin
Linda Naranjo
Greg Londres
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