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Cuban Trade in a New York State of Mind

By Lawrence Gutman

On April 20, Andrew Cuomo became the first U.S. governor to lead a trade mission to Havana since the renewal of U.S.-Cuban diplomacy in December 2014. Though the half-century-old U.S. trade embargo remains firmly in place, Cuomo arrived in Havana from New York with representatives from JetBlue, Pfizer, and MasterCard, among others, to lay the groundwork for an historic economic partnership.

The New York delegation is unique in that it reflects a willingness among Albany’s officials to engage their Cuban counterparts directly (unlike Tallahassee’s officials, for the time being), and the fact that the metro New York area is home to the second largest Cuban-American community in the U.S. But Cuomo is hardly unique among his colleagues. Virginia governor Terry McAuliffe, whose state ranks with Florida and Louisiana among the top U.S. exporters to Cuba under narrow terms of trade, announced plans for a similar delegation later this year. Other state executives will surely follow suit.

The New York mission arrives on the heels of last week’s announcement that the White House will no longer identify Cuba as a state sponsor of terrorism, a designation bestowed in 1982 when terrorism and western hemispheric relations were understood very differently than they are today. The decision may pave the way for the construction of U.S. and Cuban embassies, assuming it passes congressional review. More broadly, it marks the latest step in a process of U.S.-Cuban diplomatic de-escalation and economic integration that will continue beyond the Obama presidency and improve the standing of the U.S. in Latin America and the Caribbean.

Concern that bilateral diplomacy would be marred by quibbling over superficial details, pushback from the Cuban-American community, and roadblocks from embargo supporters in Congress has yet to be realized. Indeed, diplomatic momentum has accrued over the past four months such that each new agreement registers more as a formality in a process whose conclusion is already known than as a diplomatic breakthrough.

When Raul Castro referred to President Obama at last week’s Summit of the Americas as “an honest man” and apologized for the sour relationship his administration inherited, it seemed less like an historic olive branch offered by a hardened adversary than just another step toward more amicable relations between neighboring countries. In other words, the negotiations seem to be working.

Diplomatic hurdles such as the imprisonment of Cuban dissidents and USAID contractor Alan Gross, Cuba’s presence on the U.S. terrorism list, and the opening of embassies on both sides of the Florida Straits are being addressed in swift fashion. The larger economic terms of normalization are coming into sharper view as well. Netflix in Cuba? It’s already there, if only for a small audience. Airbnb? Over 1,000 tourist rentals are currently available across the island (with 60 percent located outside Havana). The “Ship to Cuba” button may not work yet, but that hasn’t stopped Amazon’s executives from putting it up on their site. And Conan O’Brien has already danced down Calle Obispo to the bemusement of local observers. While these developments may not have a significant economic impact at the moment, they underscore the eagerness of U.S. firms to pursue Cuban markets and a recognition by their officers that doing business with the Castro government in 2015 carries little, if any, political price at home.

Many Cubans have reason to be optimistic. Increased annual limits on U.S. remittances from $2,000 to $8,000 are expected to grow Cuban purchasing power at a rate of nearly 5  percent per year through the end of the decade. Rising consumer demand in Vedado will likely drive increased lobbying on Capitol Hill by U.S. firms eager to see the embargo lifted. Banks and global financial institutions that would never consider doing business with a U.S.-designated terrorism sponsor will see their compliance costs fall and will soon be able to process transactions routed through Cuban banks.

These changes will likely accelerate the demise of the impractical and socially disruptive dual currency system that Havana created amid the scramble for tourist dollars during the post-Soviet Special Period, though the process may be a rocky one. Over the next year, Cuba will be able to procure loans from development banks, engage financial markets as never before, and, potentially, float a unified Cuban peso.

These changes present an array of opportunities for ordinary Cubans. Yet the ongoing thaw in U.S.-Cuban relations may also present the greatest economic challenge that the post-revolutionary Cuban state has ever faced. In addition to the demands of enacting new economic policies amid the rapid arrival of foreign capital, the Cuban system faces a widening economic divide as its most seasoned leaders are aging out of office.

As the expansion of tourism in the 1990s brought mobility to Cubans with access to tourist dollars—hotel employees, taxi drivers, and tour guides, among others—the growth of Cuba’s remittance economy is now bringing mobility to those with family and friends in the U.S. This is certainly a welcome development. However, Cubans without access to remittances or proximity to tourism will find themselves lost in the economic shuffle unless they and their leaders can develop new markets in the country’s promising but underdeveloped communications, energy, infrastructure, and commercial sectors.

If remittances continue to flow, U.S. capital floods into tourism, and other key sectors stagnate or shrink in the short term, economic diversification and growth will be that much tougher in the long term. The Cuban government will find itself less able to maintain political support, protect the Revolution’s gains in education and health care, and avoid the economic asymmetry that predominates across much of the Caribbean and drives the highest poverty rates in the hemisphere.

Tourism will continue to play a defining role in Cuba’s economy. Remittances will continue to increase the spending power of some Cubans with U.S. ties. But growth beyond these sectors will hinge on the willingness and capacity of Cubans to expand domestic industries and build effective partnerships in and out of their country.

For this reason, trade delegations to Cuba can help lay the groundwork for U.S. investment and long-term economic growth. Cuba needs capital, but its leadership will not take a fast and loose approach to choosing which firms to engage. As the White House continues to adjust its trade regulations, investor attendance in public-private missions will be an effective strategy for engaging key policymakers in both countries. In the interest of increasing market share and contributing to regional economic development, potential investors would be well advised to contact their governor’s office.

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Lawrence Gutman has conducted research on governance and foreign investment in Cuba as a Fulbright Hays Fellow and Tinker Foundation Fellow. He holds an M.A. in Latin American history from the University of Texas at Austin, and is based in New York. He tweets @lawrencegutman.

[Photo courtesy of Gareth Williams and Bryan Ledgard]

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