Mixed Signals From Cuban Markets

NestleCuba_Embedded-300x208Depending on who you ask about Cuba’s economy, you’ll get a different answer. It can be hard to look at the current tensions between the US and Cuban governments and be optimistic.

But rocky relations between the US and Cuba aren’t necessarily new, and some people are foraging ahead despite mixed signals. Between new developments in Cuba’s economic zone and a US airline pulling flights from Cuba, the message from the markets is far from clear.

Swiss transnational food and drink giant Nestle is the latest company to sign on for a space in Cuba’s Mariel special development zone on the northwestern coast of the island, just 28 miles west of Havana. The $55 million joint venture coffee and biscuits factory is the third joint venture between Nestle and Cuba, the company’s first presence on the island dating back to 1908.

The Mariel zone was created to attract international capital and to help modernize Cuba’s economy, offering significant tax and customs breaks for companies willing to invest in a Cuban presence. One US company – Rimco, the Puerto Rican dealer for Caterpillar – has signed a deal to build in the Mariel zone, getting approval just before harsh new regulations were issued by the US last month. Under the new regulations, doing business in the Mariel zone is banned for US companies.

Elsewhere, promising signs are growing in the agriculture industry, as a joint white paper was released by the Cuba Trade Magazine and the US Agriculture Coalition for Cuba, one of the largest of such coalitions in the US. The research, provided by the University of Florida and Texas A&M, provided “some of the most convincing evidence to date” regarding the negative effects that US trade sanctions towards Cuba have on the US economy.

Two Republican Congressmen from Arkansas have applauded the white paper, having championed bills that would ease barriers for farmers in selling their products to Cuba. The paper, along with proposed legislation by the Congressmen, criticizes the credit ban. Although US producers are already permitted to export commodities to Cuba, they must do so on a “cash for crop” basis. This requirement “renders export transactions nearly impossible, because foreign importers almost exclusively do business on financing and credit,” said Rep. Rick Crawford (R-Ark).

Between news about further investment in the Mariel zone, along with growing internal US pressure to lift certain trade restrictions, the Cuban market is not looking too bad. However, some experts in the air transport industry see grim signs for their market in Cuba.

Aaron Karp, a senior editor at Air Transport World wrote about the recent decision by Alaska Airlines to pull out of Cuba as the “effective death of the market for US airlines, at least for the foreseeable future.” Karp describes the daily Los Angeles-Havana flight as a “good litmus test for the viability of the US-Cuba air transport market.” Although a demand of some sort between Miami and Cuba will always be viable, he argues, the lack of activity between the US west coast’s biggest market and Havana signals that the US-Cuba market is facing some challenges.

Sources:

Nestle, Cuba lay first stone for new $55 mln factory (CAT)

White Paper Explores Opportunities for U.S. Ag in Cuba

Alaska’s Cuba pullout signals death of US-Cuba air transport market