JetBlue flight 387 taxied away from the throngs of media in the terminal at Ft. Lauderdale International airport, under an arc of water coming from an airport fire engine – a form of salute to the first commercial flight between the United States and Cuba in 55 years. Of the 150 passengers on board, about half were media, twenty or so were JetBlue employees, including their CEO, Robin Hayes, and another dozen included U.S. Secretary of Transportation Anthony Foxx and his staff. So that left perhaps forty real passengers like myself, who managed to claim a seat on this historic flight, bound for Santa Clara, Cuba on the bright sunny morning of August 31st, 2016. Soon, JetBlue will have some 110 flights per week traveling to various airports in Cuba, as will at least a half dozen other carriers. The race is on to cater to five and a half decades of pent up U.S. travel frustration. The novelty will no doubt quickly wear off, and travel to Cuba will soon be the norm again, as it was back in the 1950’s, and for many decades prior. Ernest Hemingway crossed the Florida Straits in 1939 to take up residence near Havana, and left his indelible mark on the capital city and wrote some of his most famous works while in residence. Perhaps a new generation of creators will be inspired there as well.
TOURISM IN MODERN CUBA
While the door to Cuba is as open to U.S. citizens as it has been in more than five decades, it is by no means open all the way. When the Cubans lost support from Russia after the end of the Cold War, they turned to tourism, and for a long time Canadians, Europeans, and other Latin Americans have vacationed in limited numbers, largely in Havana and the beach resorts of Veradero, a few hours east of Havana. The expectation, however, is that by allowing U.S. commercial flights into Cuba, that the total Cuban tourism industry will double immediately. Whether the Cuban tourist infrastructure is ready to accommodate this influx of tourists remains to be seen. Americans entering Cuba should be aware of a few things. First, tourism is technically still illegal under U.S. law, and I had to fill out a survey explaining the reason I was traveling to Cuba. While this is somewhat of a ridiculous formality, my selection of “Support of the Cuban People” as my reason for traveling, seemed accurate enough. Secondly, you have to purchase a “tourist visa” for $50 in order to enter Cuba for any length of time. Let’s say for the sake of argument that there will be 500 flights a week entering Cuba from the United States from all different airlines. That’s roughly 25,000 flights per year. Now, assuming there are 100 paying passengers on each flight, each of whom pays $50 for a tourist visa, and you have a cool $125 mil going into Cuban coffers. Not bad. But that isn’t the only place you’ll pay. American credit cards don’t yet work in Cuba, nor do Cuban ATMs allow you to withdraw the Cuban Unified Currency (CUC, pronounced “Cook”, like the captain). So if you want to have spending money in Cuba, you have to exchange your dollars for CUC at the government run exchange desks. While the CUC is pegged to the U.S. Dollar, the exchange transaction is not. So my 400 US Dollars quickly turned into 348 CUC at the Santa Clara airport. Another $52 to the Cuban government! I paid for my hotel via credit card in British Pounds to a travel agency that operates in Cuba prior to going there, and had a printed voucher that I had to take with me to present to the hotel. This skirted the need to pay for the hotel in person or use a credit card while in country. Rental cars work much the same way, and while perhaps easier to come by in Havana, they were pretty scarce in Santa Clara. And ridiculously expensive. Most of the agencies I emailed required a 5- day minimum rental. I was able to get a quote through the same agency that booked my hotel for a two-day car rental, but that rate was more than $300 for two days. After searching around, I found a website called www.yotellevocuba.com(roughly translates to “we’ll take you”), which is sort of the Cuban answer to Uber. I found a driver, Juan, who agreed to drive me to all of the places I wanted to go in my two days there – for $50 less than the rental car would have cost. The added bonus of having a driver was having a tour guide and a conversation partner for the entire trip, which alone was worth far more than the price I paid. Juan knew a great deal about his country and was very willing to discuss anything and everything – from religion to politics to the economy. I do want to dispel several myths about the perceptions of a “communist” country. For starters, crime is fairly uncommon in Cuba, particularly outside of Havana. Peoples’ basic needs of housing, health care, and education are provided by the government. So the “have not” excuse for committing crimes is largely absent. There is also likely some reasonable fear factor of the national police that is similarly preventative. The people in Cuba are warm, friendly, and reasonably happy. They are extremely well educated, they enjoy music, art, and culture, and perhaps most of all, family. Sure, there are things to complain about, as the economic model in Cuba is highly inefficient, but life is certainly by no means bleak, and as compared to other CARICOM nations, the standard of living is pretty decent. The GDP per capita in Cuba is higher than that of China. And that’s with limited trade with the United States. Visiting Cuba is an absolute must. It is safe, reasonably inexpensive, and now there are numerous flights between the US and Cuba. There is a lot of history there, and a ton of culture. And if you like 1950’s American cars, go see them while they’re still on the road. There’s no telling what a major influx of U.S. tourists will do in terms of “modernizing” Cuba. Will fast food franchises, condos, and Ford Fusions be everywhere in five years? My advice is to go soon, while Cuba retains its authenticity and charm.
BUSINESS OPPORTUNITIES IN MODERN CUBA
Of course my own interest in Cuba is for what opportunities might exist for business and investment in such a beautiful place, now that 55 years of frost is melting away between our countries. As Fidel Castro’s revolutionary policies have given way to his brother Raul’s more progressive modern policies, opportunities seem to be fairly abundant. But Cuba is a very unique place to do business, so there are certainly some things to think about before investing or operating there. Real estate is largely state owned, but Cubans can own property as well. For a brief period in the 1990’s, foreigners we even allowed to own property, and there is still a secondary market for some of these types of properties which can still be sold by and between foreigners. Otherwise you either have to be married to or partner with a Cuban national to own property. We’ll see if this changes any time in the near future. The Cuban government still tries to maintain a dual economy – one for the local citizens, and one for the tourists/foreigners. And there is a mass black market economy in Cuba as well. With a major growth in tourism, it seems less and less likely that the Cubans will be able to maintain this dual economy, but they’ve done it for decades, so anything is possible. Here’s an example of the issue. An engineer in Cuba, like my driver Juan, who has a Master’s degree in Electrical Engineering, and spent years working on hydroelectric projects, commands a salary of about $30 per month. Yes, you read that right. Conversely, I paid him $250 for 48 hours’ worth of driving that included, Cayo Santa Maria, the museum at the Bay of Pigs, a trip to Lake Hanabanilla, and a tour of the local sites in Santa Clara, including the Che Guevara museum/mausoleum and the Battle of Santa Clara/Armored Train monument. So in two days he made more than eight times the monthly salary of his profession. Juan’s dream would be to be a professor/teacher, but the dual economy forces him to work in the tourist industry where he can make much more money. Similarly, when I visited Cuba as a student in 2001, we had people with Masters’ degrees making the beds in our hotel rooms. Doctors might make $60 month in Cuba. As Juan explained, even with free housing/healthcare/education it would take at least $200/month to live decently. So pretty much every Cuban with a State job, must earn income outside of that job to live reasonably well. One interesting thing we discussed was the outsourcing of Cuban labor overseas. Since Cubans can get as much education as they desire, there is an abundance of skilled labor but few jobs for them on the island in their fields of expertise. So shipping them off to countries in Africa and South America where they can get paid perhaps $4000 per month is very common. But here’s the rub – the government controls the process, collects the expat’s salary and only pays them a small fraction of that amount, perhaps $500. And, the expat Cuban goes to the foreign location without his/her family, giving them significant reason to return. According to Juan, this industry is 2-3 times as large as tourism in Cuba, at least for the government. It’s a considerably better deal for the professional, aside from being away from their family in a foreign land. Earning $500/month certainly beats $60. Still, this pales in comparison to what one could make in the tourist economy, like driving a taxi. The black market of course is large and thriving as well. Juan said most goods are far cheaper on the black market than they are from the government. Take for instance a government bus driver making $30/month. That driver can syphon off several hundred liters of diesel fuel a month from the government, and sell it on the black market for less than the gas stations charge. This type of thing is very common and drives a significant chunk of the Cuban economy. What struck me as odd, was when I wandered into a retail store on the main square in Santa Clara. This was a department store that carried everything from dining furniture sets, to flat screen TVs to bicycles. Strolling through the store, I found the prices were pretty much in line with what you would pay in the United States – $800 for a small refrigerator, $100 for a small microwave oven, etc. So how can Cubans making $30-60 month afford to pay this? Of course, they can’t. But clearly this store stays in business and sells these goods. The day I was there, a Friday morning, there was plenty of traffic in the store, and purchases were being made. So clearly, the tourist/secondary/black market economy is driving the overall economy to a large extent. This brings us to the topic of small business. Many reforms have brought small business and entrepreneurship to Cuba in the past 10-20 years. For the most part, however, they are really small scale mom & pop type businesses that require a license from the government. In Juan’s case, he has a taxi driver’s license. The government taxes him on the expectation that he will drive a certain amount and make a minimum income. Anything above and beyond that, goes into Juan’s pocket to help him support five family members. In this age of the digital economy, the Internet is an interesting subject in Cuba. The Cuban government controls Internet access. Tourists, like myself, have to purchase a prepaid card that gives you a certain amount of time when you log in to the servers. Most Cubans don’t have Internet access, although restrictions have eased somewhat recently. People in certain professions are allowed access. Similarly, cell service is somewhat limited. GPS is also “illegal”, but can be worked around in different ways. So it remains to be seen if this attempt at control over technology will/can remain in effect for long. Despite having Internet access while there, I note that I could not make a Skype call out. My guess is the ports needed for such are and will remain blocked. That said, where there’s a will, there’s always a way. And via email, I was able to communicate with Juan and YoTeLlevoCuba in advance of my trip. Similarly, business owners wishing to set up shop in advance of the coming tourist boom, will be able to operate – either by performing financial transactions outside of Cuba, as was the case with my hotel and potential car rental, or by dealing in cash within the country. It won’t be easy, but I suspect as time goes by, and the government realizes additional inflows of capital from the business sector, that doing business in Cuba will become ever easier. For now, there is certainly opportunity for first movers.