Smith Brain Trust / October 25, 2017

A Sonic Setback for Cuba's Economy

U.S. Companies Left Unprotected in Havana

SMITH BRAIN TRUST – No one is quite sure what's behind the wave of sonic attacks in Havana that are said to have harmed at least 21 American diplomats and their family members. The matter remains a mystery. It's also a setback, says Rebecca Bellinger, managing director of the University of Maryland's Robert H. Smith School of Business Office of Global Initiatives and Center for International Business Education and Research (CIBER).

In the wake of the reported illnesses, the U.S. ordered home its non-emergency, non-essential personnel. It is otherwise maintaining embassy operations.

Still, the reduction in staff there is already hampering some economic development in Cuba, with fewer embassy workers there to advocate for the advancement of U.S. private business interests in Cuba.

“It leaves U.S. companies almost on their own to protect their interests and their agreements with state-owned enterprises in Cuba,” says Bellinger.

She expects some of the larger expansion projects to continue, such as the ones that JetBlue, United, Airbnb and American Airlines are working on. “However, it is really unclear at this point how many other U.S. companies are going to be stalled from developing interests on the island,” she says.

Meanwhile, in Washington, D.C., some 15 Cuban Embassy staffers in D.C. were expelled from the United States, staffers who were working in the area of business and commercial development. Those staffers had been serving as a first-point-of-contact for U.S. companies who are interested in expanding to Cuba, says Bellinger.

“The Cuban Embassy in D.C. had been providing a matchmaking service for U.S. companies and state-owned enterprises,” she says, explaining that, because of lingering restrictions, U.S. businesses who want to operate in Cuba as a foreign entity must enter into a joint venture with a state-owned enterprise there.

“The Cuban Embassy’s Economic and Trade Office,” she adds, “performed other important functions as well – leading business investors on fact-finding missions to Cuba and providing business visas for companies looking to expand operations in Cuba.”

“Those services  are vital for U.S. businesses in an economy that is very difficult to break into,” she says.

The U.S. State Department has also issued a travel warning to Americans considering travel to Cuba, a fairly routine move, but one that risks stemming the still-small but growing tide of travelers.

“That has the potential  to harm small businesses in Cuba,” Bellinger warns.

Already, Bellinger notes, the Cuban economy has begun to stagnate, with fewer business licenses granted and slowing growth.

Cuba’s hospitality-driven small businesses had seen the start of a boom since former President Barack Obama announced a lifting of the long-standing embargo. In the past year alone, Cuba saw a 74 percent rise in the number of U.S. travelers to the country.

Now, Cuba is facing a steep dip in the numbers of U.S. travelers. “Soon, we’ll see the economic response. We might see small Cuban businesses that cater to foreign tourists going under.”

Meanwhile, the U.S. embassy in Havana has suspended, indefinitely, the issuance of U.S. travel visas, a move that Bellinger says has been highly unpopular and potentially damaging to Cuban small business owners, many of whom have been traveling to the U.S. to buy supplies -- things like spices, furniture and uniforms.  Cuban small business owners are banned from importing goods from other countries. “New small business owners without travel visas for the U.S. will be denied the opportunity to come to the U.S. to stock up on supplies.”

Cuban small business owners are not permitted to import goods directly and are instead reliant on state warehouses and other places where they compete to buy goods with local residents.

But U.S. economic expansion in Cuba should be about more than just profits for U.S. companies. “It’s about all the things that commercial diplomacy and public diplomacy are meant to do,” Bellinger says. “It’s about advancing democracy and capitalism by providing access to U.S. products and services and people.”

For now, however, amid the ongoing mystery, that’s on hold.



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