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Blooming U.S. business interest in Cuba wilts under Trump

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11/10/2017 | 04:46pm CET
Tourists walk in Havana

Packed into a remote corner of a pavilion, just 13 U.S. companies took stands at Cuba's sprawling trade fair this year, in a sign of how firms' interest in doing business on the island has dwindled in the first year of Donald Trump’s presidency.

Last year, amid enthusiasm following a detente in relations agreed between former President Barack Obama and Cuban leader Raul Castro in 2014, 33 U.S. companies took stands at the fair, the premier event on Cuba's business calendar.

The mood was very different at this year's edition, which took place last week in Havana. While China brought a record company delegation, and more than 150 Spanish businesses packed into five pavilions, the handful of U.S. businessmen were downbeat.

"I've never seen it this deserted," said Jay Brickman, vice president of Florida-based shipping company Crowley Maritime Corp, who has been attending the fair for 15 years. "People have really gotten discouraged, and feel they maybe should be investing their time someplace else."

U.S. companies embraced Cuba in the wake of the detente, jostling for a foothold in an opening market of 11 million consumers.

Thanks to travel-related exemptions to the embargo, U.S. airlines restored regular flights. Starwood Hotels, a subsidiary of Marriott International Inc (>> Marriott International Inc), took over management of a Cuban hotel and cruise operators like Florida-based Carnival Cruise Line (>> Carnival Corp) included Cuba in their itineraries.

But worsening U.S. relations as well as growing awareness of the difficulty of doing business in Cuba put a dampener on that.

Trump in June ordered tighter trade and travel restrictions including a ban on business with the military, which controls vast swathes of the economy. The regulations were unveiled on Wednesday.

"This is a huge step backwards," said former U.S. Secretary of Commerce Carlos Gutierrez, the Cuban-born head of the U.S.-Cuba Business Council. "We had made so much progress."

An unfolding diplomatic crisis over allegations of attacks on U.S. diplomats in Havana is adding to the gloom.

Cuba Trade magazine, based in Miami, last month cut its issuance from monthly to bi-monthly, citing the deteriorating business environment under Trump. Several Cuba business conferences in the United States have also been canceled since June, including an agriculture conference in Chicago.

Following the Obama detente, U.S. farmers hoped for legislation allowing them to access credit for exports to Cuba. But Trump has made it clear he is not about to ease, let alone lift, the embargo.

"We need to get the diplomatic issue off the table first," said Louisiana Agriculture Commissioner Mike Strain, adding U.S. food exports to Cuba could total $1 billion if relations were normalized.

HARDER

Even before Trump took office, some of the interest fizzled as companies realized doing business in Cuba was hard with its red tape, shortage of hard currency, poor telecommunications and labor restrictions.

Online payments company PayPal Holdings Inc (>> PayPal Holdings) sent its chief executive in Obama's delegation on his historic visit to Cuba in March 2016. It had been interested in making its Xoom money transfer service available in Cuba but said operational challenges were too great.

"When we are able to deliver the speed, convenience and security our customers have come to expect from Xoom, we will launch in Cuba," a PayPal spokeswoman told Reuters.

Still, some companies made headway. After receiving all the necessary licenses under Obama, the Puerto Rican dealer for U.S. heavy equipment maker Caterpillar Inc (>> Caterpillar) last week agreed to open a distribution center in Cuba's Mariel special development zone.

Future deals with Mariel, which boasts tax and customs breaks, will not be possible, as it features on a list published Wednesday of 180 government entities that Americans are now banned from doing business with.

"The Mariel restriction particularly sticks out because it is the most dynamic and exciting opportunity in Cuba," said James Williams, president of lobby group Engage Cuba.

The diplomatic crisis has also complicated the logistics for U.S. businesses. The Trump administration in September expelled 15 Cuban diplomats, including all those dealing with U.S. businesses.

The following week, the chair of the port of Cleveland, Darrell McNair, traveled to Havana to sign an agreement with Cuba's port authority. He said the now-disbanded embassy commercial team had been instrumental in arranging his visit.

"Cutbacks obviously are going to slow things down," he said.

LONG-TERM PLAY

The tougher environment under Trump has separated the wheat from the chaff, some business consultants say.

"The serious players who understand the risks are staying the course," said Pedro Freyre, who heads the international practice at Miami-based law firm Akerman LLP.

Jeff Nelson said his firm Strategic Staffing Solutions, which provides companies with IT and other services, was prepared to put in the time laying the groundwork for business with Cuba given the potential of its educated workforce.

"Doing business in Cuba is a very long-term proposition," said Nelson, who has visited eight times in two years.

Some companies were pursuing deals behind closed doors so as to not lose capital with the Trump administration, consultants said. Many Obama-era exemptions to the embargo remain in place.

The publication of the new regulations at least provided clarity about what was allowed.

"Companies know where they stand now and there are definitely opportunities still," said Gutierrez. "Every day that goes by is just the missed opportunity where someone else is building a brand, someone else is building awareness among Cubans."

(Reporting by Sarah Marsh; Additional Reporting by Marc Frank in Havana and Anna Irrera and Alana Wise in New York; Editing by Daniel Flynn and James Dalgleish)

By Sarah Marsh

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