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    Cuba – Very big fuss over very small economy

    Cuba: Very big fuss over very small economy
    BY ANDRES OPPENHEIMER
    aoppenheimer@MiamiHerald.com

    President 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.

    A dispassionate look at Cuba’s reality shows that, despite all the
    hoopla about last week’s U.S. removal of Cuba from its list of terrorist
    nations, which opened the way for re-establishment of full diplomatic
    relations between the two countries and international loans, Cuba
    remains one of the most backward countries in Latin America. And it will
    take many years to get its economy back to life.

    Yes, Obama’s opening to Cuba is by an large a good idea. And, granted,
    there will be opportunities in the tourism industry to build new hotels.
    But the scope of these business opportunities will be much more limited
    than the Obama administration — eager for a foreign policy
    legacy-setting victory in the aftermath of its Middle East failures — is
    leading us to believe.

    Consider the facts:

    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.

    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.

    Source: Cuba: Very big fuss over very small economy | Miami Herald Miami
    Herald –
    http://www.miamiherald.com/news/local/news-columns-blogs/andres-oppenheimer/article22638996.html