Loopholes In Cuba

After Fidel, a Deluge of Deals

June 29, 1992 | Newsweek




It must be a comfort to some true believer somewhere that Havana is still the kind of place where Fidel Castro pounds the podium and roars “Socialism or death!” Where “volunteers” ride oxcarts to the cane fields and dig air-raid tunnels under the capital. Where, as far as the eye can see, there’s no McDonald’s, no Gap, no Saturn dealerships. And where the awed regional marketing director for a Fortune 500 company can gaze from a tour bus and marvel: “There’s nothing, nobody’s here. No one’s selling anything!”

Whatever the writing may say on the wall for America’s backyard version of Eastern Europe, the message U.S. business sees is opportunity. That’s because the Soviet Union’s collapse last autumn cut Cuba’s rust-bucket economy adrift, and shellshocked Havana officials are now desperately seeking a new kind of benefactor: foreign capitalists. Officially, U.S. companies remain sidelined by Washington’s 30-year-old embargo-and there are no signs of that being lifted as long as Castro remains in power. Still, big U.S. investors are getting ready for a post-Castro Cuba in which cash from exiles and corporations is expected to fuel an instant $2 billion market for everything from fast-food franchises to 33 years’ worth of fresh paint. In the meantime, Havana officials are energetically peddling joint ventures with such family jewels as beachfront resort sites and showcase biotechnology labs. “It’s the last business frontier in the hemisphere,” trade consultant Kirby Jones told a group of more than 100 foreign executives Cuba hosted in Havana earlier this month, most of them Americans and some from blue-chip heavyweights like Kodak, Philip Morris, Boeing and Bristol-Myers Squibb.

Some U.S. firms, in fact, have tapped the Cuban market for years, despite Castro’s threat to consign Yanqui consumerism to history’s dust heap. Even with the embargo, American products have always found their way through, especially after Washington in the mid-1970s opened a loophole for foreign-based U.S. subsidiaries. Indeed, since Moscow began cutting Castro’s subsidies in the late ’80s, that arm’s length trade has tripled to more than $700 million annually, principally grain sold via Canada but also everything from drill bits to ice machines. Panama’s free zone and other Caribbean entrepots also do a brisk trade in Cuba-bound Coke, Budweiser beer and Heinz ketchup. Cuban state television even pirates Home Box Office movies and MTV.

Exile groups:

U.S. businesses would like to do more, but there are big obstacles-such as prison terms up to 10 years for embargo violations. Beyond that, Washington is holding $5.8 billion in claims against Cuba for expropriated U.S.-owned property. And last month influential Cuban exile groups in the United States and Europe warned would-be investors that, should Castro be overthrown, foreign businesses that jumped the gun could be “considered as state property and disposed of accordingly.”

None of that, however, has stopped a booming mini-industry in newsletters and conferences about business prospects in Cuba. (Most are based in Miami or Washington.) The hunger for such research extends to firms like Hyatt Hotels, Bell-South and Royal Caribbean Cruise lines. They are among a dozen companies that have coughed up $25,000 apiece to help fund a Blue Ribbon Commission on the Economic Reconstruction of Cuba run by the conservative Cuban American National Foundation. Advised by Lazard Freres and supply-side guru Arthur Laffer, its goals include identifying investment opportunities “in a free Cuba” from public-works projects to phone systems.

There are many other examples of companies scrambling to strike gold in Cuba. Brokerage firms in Miami, Thomas J. Herzfeld & Co., for instance, already have applications on file with the U.S. Securities and Exchange Commission for post-Castro investment funds; there is also a lively market in Wall Street-traded prerevolutionary stocks and bonds. Meanwhile, United Airlines has acquired Pan Am’s dormant Miami- and Key West-to-Havana routes. And cruise-ship companies hungry for a “virgin” destination say they could be stopping in Havana within a month of any opening. ” It’s a no-brainer,” says Costa Cruise Lines president Bruce Nierenberg. And though no major fast-food chain would admit having already parceled out Havana, McDonald’s alone says it has more than 40 franchise applications on file. Said one New York-area beer distributor gazing from the tour bus in Havana earlier this month: “I can just see my own little trucks running up and down these streets.”

Cuban officials hope U.S. businesses can persuade Washington to ease the ban; otherwise, they point out, European and other competitors may get there first. But U.S. policy on Cuba remains firmly in the grasp of the hard-line exile lobby, which is pushing to close even the existing loopholes as a knockout punch. Castro at least seems to understand the dilemma: that his refusal to give an inch politically almost surely dooms any quick fix from U.S. investors. “Let’s see,” he said bleakly at a reception for this month’s visiting business group, which had to fly back to Mexico the same day to avoid violating the embargo. “They can’t even sleep here.” Unlike him, however, business can afford to sit back and wait.

Caption: Illustration: Castro (TIMOTHY CARROLL)