https://www.imn.org/Conference/ABS-East-Conference/News-1648.html Cuba Commits to Private Enterprise and Foreign Developers Want In
12/23/2010 | Source: emii.com
For a country that claims to want to open its economy after five decades of
communism, Cuba has chosen an unlikely poster child for its efforts to attract
foreign tourists: Che Guevara. A photograph of the revolutionary leader dressed
in combat fatigues and swinging a golf club adorns walls at the Ministry of
Tourism and at the Havana offices of some of the foreign companies that are
teaming up with the government to develop golf courses, luxury hotels, vacation
villas and condominiums. Never mind that Che posed for that photo op to thumb
his nose at Yankee capitalists during the 1962 Cuban Missile Crisis. The
picture’s message today is that there is nothing counterrevolutionary about golf
— or about seeking to lure the game’s well-heeled practitioners from abroad.
“The Cubans have been astute in gauging the competitive climate in tourism and
coming up with new product offerings to meet foreign consumer demand,â€says
Robin Conners, president and CEO of Vancouver-based Leisure Canada, a leader
among private developers planning high-end resorts in partnership with the Cuban
government.
Foreign companies like Leisure Canada have dreamed about the potential of the
Cuban market for years. Now they hope the political conditions are finally right
for turning their plans into reality.
In August, President Raúl Castro announced that the government would lay off
half a million workers — roughly 10 percent of the labor force — by March
and open up new sectors of the economy to private enterprise. Also that month,
the government declared it would allow foreigners to take out 99-year leases on
state property; industry executives regard this measure as crucial for
developing high-end tourist resorts in the country.
The layoff decision, if implemented, would signal a historic policy shift by
this Caribbean nation. Since Castro’s ailing brother, Fidel, led a Communist
revolution here in 1959, the government has maintained an iron grip on the
economy and remains virtually the sole employer in the country. Now, decades
after China and Russia abandoned central planning for their own forms of
capitalism, Havana appears to have decided that it too needs to unleash market
forces to revive the island’s stagnant economy.
“We have to erase forever the notion that Cuba is the only country in the
world where one can live without working,â€Raúl Castro, 79, said in announcing
the layoff plans in a speech to the National Assembly.
Is Cuba serious about opening its economy or just making a feint toward
capitalism? Observers have their doubts. Consider the regime’s heavy
bureaucratic hand. Supposedly to free up the economy, the government has
designated 178 specific businesses — including family-run boardinghouses,
small restaurants, tourist boat rentals, taxi owners and even party clowns —
that will be eligible to operate privately under state licenses beginning next
year. “This enumeration of private work seems more in tune with a feudal
village than a 21st-century country,â€wrote Yoani Sánchez, Cuba’s most famous
dissident blogger, in September. Private businesses, ranging from small farms to
market stalls to barbershops and beauty salons, currently employ just 144,000
workers, and they have no access to credit from the state-owned banking system
or to microfinance. It’s hard to see how this tiny private sector can absorb the
looming army of unemployed, few if any of whom have entrepreneurial experience.
“It is challenging to suggest that the least productive 10 percent of the
labor force will become a juggernaut of commercial enterprise,â€says John
Kavulich II, a senior adviser to the U.S.-Cuba Trade and Economic Council, a New
York–based organization that advises U.S. businesses on Cuban affairs.
In short, the new era does not yet appear to be a Cuban version of 1978, the
year Deng Xiaoping unleashed market forces in China by allowing peasants to
cultivate private plots. Yet Castro’s gesture marks a welcome change after five
decades of suffocating state control. “This is no opening of the floodgates,
but it may mean the beginning of a new socialist era,â€says Ted Henken, an
expert on the Cuban private sector who teaches at New York’s Baruch College.
If private sector employment is to take off, tourism is bound to play a leading
role. The island — the largest in the region — boasts white-sand beaches and
expanses of unspoiled nature. Havana itself is a virtual museum of architecture.
The old town center, Habana Vieja, features scores of Spanish colonial buildings
dating to the 16th century, while Centro, the downtown district, has hundreds of
neoclassical, art nouveau and art deco structures.
Along with oil exploration and nickel mining, tourism is one of the few areas of
the economy open to foreign investment, and it has grown rapidly over the past
two decades to overtake sugar as Cuba’s largest source of hard-currency
revenues. The sector pulled in $2.1 billion in 2009, compared with $2.88 billion
for all the country’s exports of goods and services. “I believe the economic
reforms are cause for optimism,â€says Andrew Macdonald, chief executive of
Esencia Hotels & Resorts, a privately held company based in London that is
seeking government approval to develop a $200 million luxury resort east of
Havana complete with a golf course, 800 luxury apartments and 100 villas.
“Anything that increases the private sector and reduces the role of the state
in the economy is a favorable development.â€
Cuba began developing its tourism industry nearly two decades ago. The country
was hit hard by the 1991 collapse of the Soviet Union, which had propped up the
Castro regime with subsidies. Cuba’s economic output contracted by a third in
the three years after 1991. In a bid to cover the shortfall, the government
ordered ministries to devise commercial strategies to help fund their budgets.
The Ministry of Education sent teachers to Nicaragua and Venezuela, and the
Ministry of Health dispatched an army of doctors overseas to earn hard currency.
The armed forces, then under the command of Raúl Castro, plunged into tourism.
In 1991 the new Russian government abandoned plans to build a naval base on the
coast east of Havana, forfeiting tens of millions of dollars that the old Soviet
regime had placed in escrow for the project. Castro’s Ministry of the
Revolutionary Armed Forces used those funds to expand its fledgling tourism arm,
Gaviota, into luxury hotels, travel agencies, car rentals, marinas and
restaurants. The company currently operates 38 hotels.
Gaviota’s success has spawned several imitators. The Ministry of Tourism is
considering proposals from several joint ventures to develop a dozen golf
resorts — this in a country with only one 18-hole course, at Varadero, a beach
resort town 86 miles east of Havana. Foreign investors know the wait can be
painfully long. “In normal countries joint ventures are quickly created and
assume high risks for potentially high profits,â€says a Cuban working with a
foreign developer. “In Cuba decisions are so centralized and slow that it can
take years to form a joint state-private venture. On the other hand, once it is
created, the business risks are very low and high profits are almost
guaranteed.â€
Leisure Canada hopes to prove that hypothesis correct. The small company (market
cap $31 million) focuses exclusively on the Cuban market and has been lobbying
the government for more than a decade for the right to develop tourism projects.
The company has a ready market: Canadians are avid snowbirds, accounting for
933,000 of the 2.4 million foreign tourists who visited Cuba last year. The U.K.
ranked a distant second with 171,800 visitors. The half-century-old U.S. trade
embargo continues to keep American companies and tourists out of Cuba, although
an estimated 200,000 Cuban-Americans (who are not counted as tourists by either
Havana or Washington) visit relatives in Cuba each year.
Last year, Leisure Canada finally won approval to set up a 50-50 joint venture
with Grupo Hotelero Gran Caribe, a fully owned entity of the Ministry of
Tourism. The company plans to break ground in early 2011 on a $200 million,
716-room hotel in Miramar, a Havana district popular with wealthy Cubans and
Americans before the revolution that today houses a number of government
agencies and foreign multinationals. “Now they are reacting pretty quickly to
feedback from us,â€CEO Conners says of the authorities.
In August, for example, the government announced it would allow foreigners to
take out 99-year leases on state property, up from a previous maximum of 50
years. The move followed lobbying by Leisure Canada and Esencia, which regard
long-term leases as essential to developing resort properties for upscale
foreign tourists. “We explained to our Cuban partners just how important a
99-year lease is for this sort of client and to obtain better financing terms
for the project,â€says Conners. “Banks view it as virtually full
ownership.â€
The new long-term leases are crucial for Leisure Canada’s other two projects,
which are pending approval. The company wants to develop a $130 million luxury
resort with 425 hotel suites, condo apartments and villas at Cayo Largo, an
islet 50 miles south of Cuba’s main island that has an air force base with a
runway large enough for transatlantic aircraft. Even more ambitious, Leisure
Canada hopes to build a $900 million resort with a golf course, marina, hotels,
condos and villas at Jibacoa, some 40 miles east of Havana.
Both of those projects could take years to get started. The site currently
houses a state-run campground and cabins for the Cuban proletariat. Conners is
optimistic that economic necessity will ultimately prevail. “Cuba has a large
pool of workers available for the hotel construction and service industry,â€he
says. Groups of people hanging around the Jibacoa village square attest to that
fact. Nearby, a bare-chested watchman stands guard at the entrance to the
planned development site. After letting a company executive enter the area, he
pleads, “Hurry up with the project — and sign me up for the first job.â€
At the other end of the tourist industry spectrum, family-run bed-and-breakfasts
and restaurants are also expected to expand in number as a result of the
economic reforms, but that will require new sources of financing. Thus far the
state banks that monopolize credit do not lend to the private sector. The most
obvious source of foreign capital is the Cuban-American community. “But will
the Cuban government allow somebody in Miami to send a relative in Havana
$50,000 to start a business?â€asks U.S.-Cuba Trade and Economic Council adviser
Kavulich. “And will the U.S. government allow it?â€
To survive and succeed as a private innkeeper in socialist Cuba demands the sort
of entrepreneurial spirit, ingenuity and persistence that Carlos Repilado has
displayed over a quarter century. Repilado rents out three rooms to foreign
tourists for about $30 a night in a bed-and-breakfast called Carlos&Nelson that
he has created in his second- and third-floor apartment in a 1920s Havana
townhouse.
Repilado, a broad-shouldered 72-year-old who looks two decades younger, began
his adult life as a computer programmer for IBM Corp. in the mid-1950s. When the
Castros and Che entered Havana triumphantly in 1959, Repilado was among the
revolutionaries’ excited sympathizers. IBM pulled out of Cuba in the early
1960s, leaving him without a job, but Repilado took advantage of the new
regime’s large cultural affairs budget and found work in the theater, eventually
gaining a reputation as a lighting designer. He has worked in Havana and abroad
on Cuban theatrical and musical productions, from highbrow European plays to the
high-kicking Tropicana Cabaret. But even with his renown, Repilado earns barely
double the average monthly wage of $20 in his profession; the B&B provides the
bulk of his income.
Becoming a jack-of-all-trades during a half century of theater assignments has
made him an expert at the home repairs necessary to running a thriving
guesthouse. Finding specialized labor and ready-made products is nearly
impossible in Cuba. “Here you have to learn to do many things on your
own,â€says Repilado as he goes about reupholstering an ancient sofa on a hot,
humid afternoon. Later in the week he and a friend will stanch a leak in the
20-foot-high ceilings and repair the wooden window shutters that have been
lashed by tropical storms.
Repilado became an innkeeper through luck, skillful bargaining and a Rolodex of
foreign contacts. With aging parents and aunts to care for, he traded his own
small apartment and theirs for the large duplex apartment, which had been
occupied by a friend whose growing family required more than one residence. This
is the usual horse-trading that goes on in Cuba, where there is no legal right
to sell one’s dwelling and where there has been almost no urban residential
construction for 50 years. Repilado’s relatives moved in with a bounty of
heirlooms that later turned his B&B into a comfortable living museum of armoires
and tables with matching carved wood chairs, European paintings and sepia
photographs, porcelain statuettes and alabaster chandeliers.
After his parents and aunts died, Repilado began to offer free lodging to
foreign theater colleagues. When a 1985 government decree authorized a limited
number of B&Bs in private homes, he opened his residence to paying guests
recruited through the grapevine of his acquaintances abroad. Now there are 138
B&Bs — known as casas particulares — in Havana and more than 200 nationwide,
according to the Casa Particular Association. But few have lasted as long as
Repilado’s. In a country where hardly any innkeepers speak foreign languages,
his serviceable English has allowed him to expand his guest list to Canadian,
British and even U.S. travelers.
Only a robust occupancy rate enables Repilado to survive the onerous taxes and
fees that scuttle dozens of casas particulares every year. Like other guesthouse
keepers, he hopes the government’s reforms will include lower fees and taxes.
“But until now we have heard nothing,â€he says. He must pay the government
about $300 a month in guesthouse fees regardless of how many clients arrive. And
taxes rise steeply depending on his occupancy rate. Other casas particulares are
known to underreport income or secretly rent unauthorized rooms. “But I’m not
going to do anything that is against the law — it’s just not worth it,â€says
Repilado.
Determination and serendipity in the face of a hostile state bureaucracy have
also been keys to success for restaurateur Omar González Rodríguez. Lean,
angular and white-haired, the 64-year-old González bears an uncanny resemblance
to the late Gregory Peck in the lead role of Old Gringo, which is why he named
his Havana restaurant after the 1989 film based on the Carlos Fuentes novel.
“We met when Mr. Peck came to Cuba for a film festival, and he did say we
looked like each other, except he was a head taller,â€recalls González.
González opened Gringo Viejo 15 years ago in a basement in Havana’s Vedado
neighborhood, right after a 1995 decree allowing entrepreneurs to go into the
restaurant business. These private restaurants, known as paladares (from the
Spanish word for “palateâ€), were permitted only 12 seats each and had to be
located in the owner’s home and staffed only with family members. They were
prohibited from serving lobster and beef, which were available only in state
restaurants catering to foreigners. Taxes were steep and have continued upward,
ensuring that the government takes well over half of reported profits. Little
wonder that after reaching a peak of more than 200 paladares a decade ago, the
number has dropped to fewer than 100 today.
González has made the most of his cramped, windowless dining space. The room is
unexpectedly splendid, lined with photographs of prominent diners and a poster
of Peck in Old Gringo. There are exposed racks of imported wines against the
walls. A flat-panel television above the bar plays a video of Aretha Franklin
belting out “Respect.â€The menu offers dozens of main courses, mostly pork
and chicken dishes. All the clients are foreigners, including a Chinese family,
an Italian couple and two German friends. At the equivalent of $15 to $30 a
meal, Gringo Viejo is far beyond the reach of ordinary Cubans.
González was a graphic designer by training and made a living by producing
handmade sandals and wallets as well as metal sculptures, one of which hangs in
his paladar. The dining area used to be his workshop, in the basement of his
home. “At night friends would come by because they knew there was always a
bottle of rum,â€says González.
When the decree permitting private restaurants was announced, González opened
his paladar with encouragement from his friends. He hired his son as bartender,
his daughter as chief waitress and other relatives as cooks and assistant
servers. González himself enrolled in cooking and wine-tasting classes. His idea
was to infuse traditional Cuban dishes with European and Asian ingredients.
Today one of Gringo Viejo’s most popular entrées is a typically Cuban pork
cutlet topped with fried quail eggs and a soy-based sauce, with flash-fried bok
choy and bean sprouts on the side. “I’m always experimenting with recipes, and
then I turn them over to the cooks,â€says González.
A government decree issued in October allows paladares to expand to 20 seats,
hire employees who aren’t related to the owner and, finally, serve lobster and
beef. But the measures don’t evoke much enthusiasm among private sector
advocates. “They are just enough to survive,â€says Baruch College’s Henken.
“Obviously, the government doesn’t want paladares to become full-scale
restaurants and compete against the state.â€
Becoming too well known and successful can incite a government backlash. Only
last year the authorities shut down one of the top paladares, El Hurón Azul,
because the owner had purchased forbidden luxury imports, including a
refrigerator and a stove. González is savvy enough to navigate these political
shoals. But he does complain that it is hard to compete with government-owned
restaurants that have no capacity restrictions and lower costs.
He is optimistic, however, that the government will expand its tepid reforms.
“Joblessness will push the growth of paladares,â€he predicts. His son, the
bartender, is already planning to start his own tapas bar. For now, González
would be content if he was permitted to expand his paladar to the cramped
terrace, located between the street and the basement entrance, to accommodate a
barbecue grill and a smoking area. “After a meal, people should be allowed to
enjoy a good Cuban cigar,â€he says.
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