CUBA ECONOMIC UPDATE
June 2003
Since my last update there have been many events that are very negative to the world economy.
Cuba is now an active member of the Western world and its economy has not been isolated from the problems of a serious worldwide economic decline.
On the positive side, many US politicians, both active and retired, have visited Cuba and came back with positive reports. Both the US Food and International Trade Fairs in Havana were well received which resulted in +-$300 million US in purchases by Cuba. Most sales were for food to replace products damaged by the three recent hurricanes. Cuba also purchased lumber from the Southern States. It has been reported that these expenditures have left the government with limited US cash and credit.
The sugar industry was put into market mode, and many mills will be permanently closed. All of the sugar industry is currently now being restructured. The Cuban Minister in charge of construction was replaced, and European managers are now running the larger projects. Offshore oil leases for the Gulf of Mexico are also being negotiated.
During the latter part of 2002 the Government did a massive crackdown on illegal drug dealers, black marketers, and the “pay for play” sex trade. One foreign drug dealer/courier was sentenced to 35 years in prison.
The negative side of the contracting economy is very serious and started with the events of 9-11.
This resulted in a decrease of tourism and the related revenue. The recent war worry and the Iraq “shock and awe” kept many potential tourists close to home. The high price of imported oil made it impossible to harvest the recent sugar crop at close to profit. As the Venezuelan oil did not flow for some time, a great deal of the cane was not harvested. The cane harvest and milling normally employ 600,000 people, but this past season most have had very little work. Most of Cuba’s export commodities were at the low end of their price cycle.
This economic contraction put many Cubans into hardship and worry. My biggest concern is what this year’s hurricane season holds for Cuba. One major storm could result in a serious food shortage. There is very little new capital investment planned for the next few years, and some of the 20 international resort/hotel companies that operate in Cuba will experience severe financial problems by years end. The same is true for international airlines, and many flight schedules will be reduced. The summer tourist season for the Caribbean is not expected to be strong.
I predict the flow of US dollars to Cuba will be weak for the next 18 months.
The recent appointment of the US top diplomat in Cuba (James Cason) has not been a positive event. Many Cubans supported by James Cason were paid by the US Government to promote political change. Dr. Fidel Castro Ruz called these people “Political Terrorists” and 78 were tried and sentenced to long prison terms. I believe if this had not been done, very harmful civil problems could have resulted.
When people have little money, a shortage of food, and a split in direction, it is easy to entice them into a complete lack of respect for any type of law and order.
One of my concerns is that most Cubans now have access to US-produced video movies. Many of the younger generation are seeking answers to questions regarding their quality of life as compared to what they see via these same movies.
I do not envision any new capital investment in the Caribbean until the recent world problems seem to be under control. There are five ways Cuba can improve its economy with low costs.
These are:
No. 1: Adventure Tourism will be the major growth trend in the future. Cuba must get into this field by doing joint ventures with international companies that have large client files.
No. 2: Backpackers are now providing Australia with more revenue than mid and high-end tourists. Cuba has 87 campsites that have rental cabins that could easily be upgraded for long-stay budget tourists.
No. 3: Many tourists love to gamble. Ships with casinos should be placed in all major tourist areas. The international airport departure areas could also host VLT’s.
No. 4: The backbone of many tourist economies is composed of the small private companies that provide service/product for the visitors. More private enterprise is required. Private restaurant rules must be relaxed.
No. 5: Retirement communities should be put in place where non-Cubans can build “cottage-type” vacation/retirement homes.
On May 1st, 2003 Dr. Castro read a prepared speech to over 1 million people in Havana, and the speech was carried on Cuban TV. During the speech he stated the Military is now on alert and the Bush Government was acting in a “Hitler” like way. This speech was only two hours, and many points were put forth.
Two important facts is that Cuba now leads the world in population-doctors (162:1) and students-teachers (18:1) ratios.
Cubans and their economy are in a very complex and interesting situation. The Sixth Congress will be held later this year, and I expect to see many changes to be put forth. I hope these changes will improve the quality of life for citizens of the “Land of the Endless Summer”.
Note: A very good book regarding why Communism has not flourished is “The Mystery of Capital” by Hernando Desoto.