U.S. Companies Ready To Do Business in Cuba

April 22, 2015 3:05 PM ET

by: Bryan Tropeano

As I began packing for my trip with NewsWatch to Cuba, I started looking at the labels of everything I was putting in my bag.  J-Crew, Hanes, Nike, Crest (Proctor and Gamble), Levis, and Desigual were just a few that I packed.  Save Desigual, virtually everything going into my bag was an American company.  So I began to wonder, will these companies have a presence in Cuba in 1 year, 5 years, 10 years from now?

With President Obama’s historic announcement on Dec 17th, 2014 to re-establish business trade with Cuba, he opened the gateway for thousands of US companies to find a new market for their products and services. The President  also recently announced his plans to remove Cuba from the American government’s list of nations that sponsor terrorism, which could open the door for U.S. banks to gain a foothold in Cuba as well.

To back up a little bit, let’s take a look at Cuba and its economy.  Cuba has around 11.3 Million residents with the average income of around $250 a year.  Cuba imports around $6.5 billion worth of goods a year (what the US exports to Canada in a week), and around 75% of all Cubans work for the state-owned economy.

Currently, Louisiana, Florida and Virginia are the top states to export legally to Cuba.  Virginia, my home state, ships numerous goods to Cuba - among them soy milk, soybeans and apples.    The U.S. is actually the 4th biggest exporter to Cuba even with the embargo - behind China, Spain and Brazil.  This is because The Trade Sanctions Reform and Export Enhancement Act of 2000 allowed unprocessed agricultural products and raw forestry materials to be sold by U.S. companies to Cuba, although with very strict restrictions.  Some of these restrictions required that purchases must be paid in cash  in advance, and payments needed to go through an intermediary, such as a European bank.

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Even with our exports, Cuba has found many other countries willing to participate in trade. This has seen U.S. exports drop to the lowest it has been in over a decade, from over $710 Million in 2008 to $349 Million in 2013, according to the U.S.-Cuba Trade and Economic Council.

This could all change with U.S. companies selling to Cuba and Cuba selling goods to the U.S. According to a study by the Peterson Institute for International Economics, American merchandise exports to Cuba could reach $4.3 billion annually, and Cuba to U.S. could reach $5.8 billion annually – a drastic increase from zero as of today.

But what industries will see the biggest uptick?  When people think of the old days of Cuba they think of gambling, Cuba Libres, cigars, rum filled nights and cabaret.  Basically they are thinking of the tourism industry, and more specifically the hotel and resort industry.  This seems logical, but with the way Cuba runs its current resorts - take the Spanish resort of Meliá as an example- they could see tough barriers to entry.

Currently Cuba prefers to own the land and buildings for resorts, something that many U.S. resorts might find unworkable..  There is also the issue that large resorts take a great deal of planning, negotiations and building – sometimes this can take upwards of 10 or more years.  Combine that with the fact that Cuba’s infrastructure needs an upgrade to keep up with the amenities that many of the resorts offer and it might be a while before you see something like Miami’s Fontainebleau pop up in Cuba.

However there are many other companies that are very excited to join in on the newly opened Cuban market.  MasterCard began allowing transactions of U.S. based credit cards to take place starting March 1st of this year, and American Express recently expressed their intent to do the same.  Other companies like Amazon, Netflix, PepsiCo and Marriott have all expressed interest as well.

Combine that with many tourist, telecom, agriculture and construction firms, and you will see a multitude of American companies excited to establish a presence in Cuba .  And of course, there will be  companies that will want to make deals to bring back the many exports Cuba has to offer; rum and cigars obviously being two of the biggest.So as I embark on my trip to Havana with NewsWatch, I am excited to see all the businesses currently on the streets of Havana, and to imagine what it might look like 10 years from now.  I just hope we don’t see a McDonalds and Starbucks on every corner – taking away the old world charm that Havana can offer all of the tourists and business travelers bound for Cuba.