Cuba: Finding its Place in the Global Market?
October 29, 2013
Today, the United Nations will vote for the 22nd consecutive year on its condemnation of the U.S. embargo on Cuba, which has been in full force since 1962. Last year, only Israel and Palau voted with the United States in support of the embargo, while an overwhelming 188 countries voted to condemn it.
Even as U.S. government policy toward Cuba remains a relative constant, and human rights abuses on the island continue, Cuba is making some changes. Just last week, the Cuban government shifted its fiscal policy, moving the country to a one-currency system—a development that, at least in the long run, will likely increase the country’s appeal as an investment destination.
And the makeup of foreign direct investment (FDI) in Cuba is changing, too. In the past, China and India have been the island’s most reliable sources of FDI, but recently, Gulf States appear to be expanding their role in Cuba’s economy. In particular, Kuwait, Saudi Arabia, and Qatar have taken interest in Cuba, investing in tourism and funneling aid into development projects—and providing new fuel for Cuban growth despite the ongoing embargo.
So, then, what’s the nature of this new and growing FDI, and what are the implications for the United States?
Q1: What is the nature of Gulf States’ investments in Cuba?
A1: Diplomatic relations between Gulf States and Cuba began deepening about 20 years ago. And, over the past decade or so, those relationships have increasingly been bolstered by aid and investment flows into Cuba.
The Organization of Petroleum Exporting Countries (OPEC) has been particularly active in its interactions with Cuba. In 2001, OPEC provided US$200,000 of disaster relief aid in the wake of the tremendous damage wreaked by Hurricane Michelle. Two years later, the OPEC Fund for International Development signed a US$10 million loan agreement with the government of Cuba, intended to finance an extensive irrigation rehabilitation project.
Since then, much of Gulf States’ investment in Cuba has focused on the tourism and commerce sectors.
In the late 2000s, Qatari firms began investing heavily in Cuba’s emerging tourism sector, focusing on luxury hotels and resorts worth millions of U.S. dollars.
Recent efforts have focused on bolstering the capacity of Mariel, a key port in Cuba’s economic development plan.
The US$900 million to expand the port’s capabilities has already received major support from foreign investors: Brazil has contributed a massive US$640 million, and a Dubai firm pledged to contribute US$250 million as well.
If the ambitious and well-funded expansion goes as planned, Mariel will overtake Havana as the country’s primary commercial transit point and will likely become a major transshipment point in the Caribbean.
Q2: What threat, if any, does this new competition pose for Miami’s commercial well-being?
A2: Scheduled to open at the end of the year, Mariel was intended to revolutionize Caribbean trade, with a duty-free commercial zone capable of holding millions of cargo containers and surrounded by manufacturing plants with direct access to regional supply chains.
Through this reinvigoration, the port will likely take on a new role in the Caribbean economy—and is part of a well-timed strategic push to increase Cuba’s place in the regional economy. With the expanding Panama Canal and the potential for a canal project in Nicaragua in the coming years, Mariel may prove an ideal partner for transoceanic trade, as well.
Most important to U.S. interests is the port’s potential to tempt business away from Miami. PortMiami, the so-called Cargo Gateway of the Americas, currently contributes $18 billion to Miami’s economy—and it is impossible to estimate how much of that revenue will flow into Cuban coffers should Mariel prove as successful as the Cuban government hopes.
Q3: Is foreign investment in Cuba an issue of geopolitical influence?
A3: It is, of course, reasonable to ask if Gulf States’ investment in Cuba implies a degree of political influence—particularly given the often politically charged nature of investment and aid here at home.
Generally, however, such an approach may prove misguided. Most Gulf States pride themselves on their no-strings-attached investment model, insisting that any aid or investment originating inside their borders is not intended to carry coercive power elsewhere.
That said, diplomatic relations between the government of Cuba and its counterparts in the Gulf are strengthening. Just last year, Saudi Arabia appointed its first resident ambassador to Cuba, and 2010 saw the establishment of the Qatar-Cuba Friendship Association to commemorate 20 years of diplomatic relations and provide a framework for their relationship moving forward.
Still, the bulk of the relations between Cuba and the Gulf States remains focused on how they can best benefit economically from expanding their cooperative dealings.
Conclusion: Cuba’s efforts to attract investment from all around the world stem largely from its inability to deal with its most natural partner: the United States. And with Caribbean trade and security ever more important to U.S. national interests, it is never too soon to evaluate the place of U.S.-Cuba relations—particularly given the potentially expanding role of Cuba as an investment destination and commercial waypoint.
The Cuban economy continues to struggle, and reports of human rights abuses remain prevalent; that much cannot be denied. But even as aspects of Cuban political economy are still troubling, the potential of Mariel is growing with each major investment—and missed opportunities for U.S. investment grow in kind.
For now, though, U.S. policy remains clear: the embargo will not be lifted without significant democratizing reforms and improvements on human rights concerns—with a few exceptions, such as agricultural and medical exports, for which the United States is Cuba’s primary supplier.
Still, the outcome of the UN vote and the changing commercial and financial reality in Cuba suggest that, at the very least, an evaluation—which many regard as way overdue—of that relationship may be worth our while.
So will the changing commercial reality have any effect on U.S. policy toward Cuba?
Carl Meacham is director of the Americas Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Catherine Krege, intern scholar, and Jillian Rafferty, staff assistant, both with the CSIS Americas Program, provided research assistance.
Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2013 by the Center for Strategic and International Studies. All rights reserved.