Charting a new course for business in Cuba

11th September 2015

After decades of hostility between the U.S. and Cuba, diplomatic relations are being restored. U.S. companies with an interest in exploring business in this new market are watching developments carefully.

Events have moved quickly since President Obama and his Cuban counterpart Raul Castro made the announcement in July, and embassies are now open in both Havana and Washington.

But U.S. companies must still navigate a complex set of laws, regulations and procedures. The trade embargo remains in place and there is no timeline for the U.S. Congress to remove it.

Nevertheless, there are opportunities for certain industries and businesses even within the existing sanctions regime. This is especially the case for companies who can contribute to Cuba’s economic and social development (such as food/agribusiness and healthcare), build its infrastruc­ture (building materials, telecoms, technology and finance) and eventually create private sector jobs (tourism).

Doing business in Cuba will be a difficult venture for any company based in the U.S. Travel by American citizens to Cuba is still only permitted under 12 licenses that promote specific types of people-to-people exchanges.

Cuba lacks modern infrastructure, a functioning private sector, or efficient governance. In addition, there is no Bilateral Investment Treaty (BIT) in place between Cuba and the United States; this means there is no legal protection for foreign investors, or a means to resolve disputes that might arise.

The Cuban state also typically insists on having a majority stake in any partnership with a foreign company, and U.S. companies are still prohibited from entering into such agreements.

Of course, many European firms already do business in Cuba. For them, the opening up of the Cuban market – combined with the reforms the Cuban government is making – may present a need to revise their own plans for doing business in Cuba.

For instance, Cuba currently has one of the lowest rates of internet penetration in the world: while the latest figures from the International Telecommunication Union show that 25% of Cubans are online, bandwidth is limited and it is estimated that less than 5% of the 11 million people on the island are actually able to connect to the full global internet. Telecoms providers will now be allowed to improve infrastructure so more Cubans can access the internet.

We’re already advising many clients who are interested in doing business in Cuba on how to establish and build a corporate reputation, identify and nurture partnerships that will facilitate future business, and the importance of communications and corporate social responsibility as part of a market-entry strategy.

It will be years before there is a full normalisation of trade and investment ties between Cuba and the United States. But a new course is being charted today, and companies interested in being market leaders should closely monitor legal and regulatory developments and begin to explore opportunities for future engagement.