Port of Mariel Cuba Has Great Potential for U.S. Business

According to the Wall Street Journal, the new deep-water port at Mariel Cuba on the north shore of the island only 45 km. west of Havana has great potential for the U.S.[1] Below is a map showing where Mairel is located and an aerial photograph of the initial infrastructure for the port.

275px-Mariel_(Cuban_municipal_map)

 

 

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On March 25 officials of 18 U.S. logistics companies completed a trip to Cuba that included observation of operations at the new port. They also met with prospective partners, including ProCuba,, a promoter of foreign trade and investment in Cuba.

The U.S. business officials said this port is an ideal location for cross-docking, or re-sorting and distributing, cargo from large “post-panamax” ships to smaller vessels headed for U.S. ports. That could include ships from Asia with cargo bound for East Coast ports that aren’t equipped to handle the bigger ships.

They also observed that the new agreement for Starwood Hotels and Resorts Worldwide to manage hotels in Havana will start a flow of U.S. goods across the Straits of Florida for the hospitality business. In addition, many U.S. companies are looking to export commodities, frozen foods and consumer goods to Cuba, The Mariel port will also be useful for such shipments.

The port, as discussed in an earlier post, is strategically located along the route of the main maritime transport flows in the western hemisphere. As the largest industrial port in the Caribbean, it will be equipped with state-of-the-art technology to handle cargo from the larger container ships that are beginning to arrive with the new expansion of the Panama Canal. Those larger ships can carry up to 12,500 containers, triple the capacity of the current ships, and the port’s warehouse capacity is 822,000 containers. Here are some photos of the development of this port.

The Mariel project includes highways connecting the port with the rest of the country, a railway network, and communication infrastructure. In the adjacent special zone, currently under construction, there will be productive, trade, agricultural, port, logistical, training, recreational, tourist, real estate, and technological development and innovation activities in installations that include merchandise distribution centers and industrial parks.

The special zone is divided into eight sectors, to be developed in stages. The first involves telecommunications and a modern technology park where pharmaceutical and biotechnology firms will operate. Other sectors include renewable energies, agriculture and food, chemical, construction materials, logistics and rental equipment.

Cuba’s Office of the Special Area Development Mariel (ZEDM) is focused on attracting investors and boosting the infrastructure for the port. It follows a deliberate strategy of promotion, from market research and planning to governing the urban progress. In 2015 it made a promotion to countries, sectors and companies that have potential to settle in the ZEDM and can actively contribute to its development. For Sector A, just west of the Bay of Mariel, eight users have been approved and infrastructure development has proceeded. [2]

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[1] Chao, Logistics Experts See Shipping Hub Potential in Cuba, W.S.J. (Mar. 29, 2016).

[2] Felipe, The ZED Mariel in the focus of investors, Granma (Jan. 13, 2016).

New York Times Reiterates Call for Ending U.S. Designation of Cuba as a “State Sponsor of Terrorism”

On December 15th a New York Times editorial, “Cuba’s Economy at a Crossroads,” called for the U.S. to end its designation of Cuba as a “State Sponsor of Terrorism.” This recommendation first was made on October 11th in the Times’ initial editorial in its series “Cuba: A New Start.”

Summary of the Editorial

Now, however, ending the designation is seen as a way the U.S. could assist a struggling Cuban economy. Surprisingly this editorial does not mention ending the U.S. embargo of the island as another, and more important, way the Cuban economy could be aided by the U.S. Instead the Times makes a vague suggestion of the U.S.’ “relaxing sanctions through executive authority and working with the growing number of lawmakers who want to expand business with Cuba.”

Most of the editorial is devoted to discussing the many problems of the Cuban economy.

The 1959 Cuban Revolution’s “[c]ommunism brought an ever more anemic and backward economy, one propped up largely by Moscow. But after the Soviet Union collapsed in 1991, so did Cuba’s economy.” After that collapse, Cuba found Venezuela as a “new benefactor” that provided “heavily subsidized oil” to the island, but now that country’s “worsening economic and political crisis” threatens that subsidy.

Low wages and poor prospects have forced many Cubans to leave the island “in recent years in search of a better life.” This could be accelerated by the elimination of the country’s two-currency system, which the government plans to do.

“The country’s birthrate is declining, while its elderly are living longer.” Couple these facts with the exodus of working-age citizens presents Cuba with an enormous demographic challenge.

“The agricultural sector remains stymied by outdated technology and byzantine policies. A foreign investment law Cuba’s National Assembly approved in March has yet to deliver a single deal.”

Cuba’s leaders have adopted various measures to reform the economy, but the “pace [of economic reform] has been halting, with plenty of backtracking from the government’s old guard.”

Yet these reforms have created a “small but growing entrepreneurial class.” All of them “struggle with the [Cuban] bureaucracy, since they are unable to import legally items as basic as mattresses and pillows. Bringing items from the United States is onerous and complicated by American sanctions.” Changes in U.S. policies could make “it easier for Americans to provide start up-capital for independent small businesses. Doing that would empower Cuban-Americans to play a more robust role in the island’s economic transformation. More significantly, it would gradually erode the Cuban government’s ability to blame Washington for the shortcomings of an economy that is failing its citizens largely as a result of its own policies.”

Continuing U.S. antagonism, on the other hand, “is only helping the old guard.”

Reactions

I concur in the Times’ call for ending the U.S. designation of Cuba as a “State Sponsor of Terrorism.” It is an unfounded, stupid, absurd action that is only counter-productive as has been argued in posts in 2010, 2011, 2012 (with supplement), 2013 and 2014.

But I do not see ending this policy as the linchpin for the U.S.’ helping the Cuban economy. Instead it is ending the embargo, which the Times on October 11th recommended, but which is not mentioned in the latest editorial.

Moreover, I think the latest editorial understates the troubled state of the Cuban economy even though a prior post expressed optimism about Cuba’s attracting $8.0 billion of foreign investment for the Mariel port’s industrial park now under construction. Further reflection raises the following points that question that optimism:

  • First, the Cuban economy by itself is obviously unable to afford to purchase the many commodities that presumably will be unloaded from the new super-container ships that will be able to cross the expanded Panama Canal.
  • Second, for the commodities to go elsewhere will require the unloading of the super-container ships at Mariel and then reloading those commodities in smaller container vessels to go to the major countries on the northern and eastern sides of the South American continent: Venezuela, Brazil, Argentina, Uruguay and Paraguay. How big are those markets?
  • Third, presumably the major Latin American countries with coasts on the Pacific Ocean like Mexico, El Salvador, Costa Rica, Colombia, Ecuador, Peru and Chile will not be markets for commodities transshipped from Mariel.
  • Fourth, unless there is U.S.-Cuba reconciliation, the largest potential market for such transshipment, the U.S., presumably would not be importing commodities from the Mariel port.

Similar skepticism about Cuba’s ability to attract foreign investment for other reasons have been voiced by foreign investment experts. The Inter-American Dialogue, which is the leading U.S. center for policy analysis, exchange, and communication on Western Hemisphere affairs, has provided the following four such skeptics.

Matthew Aho, consultant in the corporate practice group of Akerman Senterfitt in New York, said, “While the [Cuban] rhetorical message was positive: ‘Cuba is open for business,’ little has changed to improve Cuba’s general investment climate, and foreign companies there report few changes to their dealings with Cuban counterparts. In fact, many businesses say the same bottlenecks, delays and idiosyncrasies that have long frustrated investors have been exacerbated recently by growing wariness among major banks to handle legitimate Cuba-related transactions.” He added, “While Cuba clearly has potential, most mainstream investors will steer clear until the Cubans define clearer rules of the road and improve their track record with new and existing partners.”

According to José R. Cárdenas, director of Visión Américas in Washington, “Eight billion dollars is a wildly exaggerated figure that Cuba has no chance of ever realizing. [Foreign investors] demand such things as transparency, legal guarantees and predictability, which the Cuban government is incapable of providing. Witness the widely publicized ordeals of Canadian businessman Cy Tokmakjian and Englishman Stephen Purvis, among others, who wound up in incarcerated in Cuba’s Kafkaesque legal system for unclear reasons. There may as well be a ring of flashing red lights surrounding the island warning foreign investors of the exorbitant risks to doing business in Cuba. . . . Any progressing economy needs the freedom to innovate, take risks and guarantee that one will reap the benefits of their efforts. Cuba, like China, cannot ultimately offer such conditions. As long as the primacy of the Communist Party remains the Cuban lodestar, the country will continue to head into an uncertain future.”

Scott J. Morgenstern, associate professor and director of the Center for Latin American Studies at the University of Pittsburgh also was skeptical. He said, “Cuba must create new opportunities for private employment. Thus, while the reforms are making some investment possible, investors will not find wide-open markets and streamlined bureaucratic procedures. In many areas, there are severe limits concerning where people can invest and the types of businesses they can open. Currency convertibility will also be a critical issue for any business; currently there are two currencies, only one of which is convertible. Foreigners, formally, are only allowed to use the convertible currency, and the official exchange rates distort the currency values. Reforms are promised, but the uncertainty will likely discourage some investors. One other important concern for investors is the size of the Cuban domestic market. The country is attracting several million tourists per year, and many Cubans do receive financial support from abroad, but purchasing power is still limited.”

Carlos A. Saladrigas, chairman of the Cuba Study Group and Regis HR Group offered these comments. “Cuba’s economic reforms so far have been too little, too late and too timid to result in significant economic performance . . . . [Cuba’s] continuing economic mismanagement, the numerous distortions in Cuba’s economic and political systems, a stubborn ideology, an obtuse and weighty bureaucracy and the fears of change harbored by Cuba’s leaders all play even more heavily in keeping Cuba’s economy from reaching its full potential. Cuban leaders continue to expect ‘silver bullet solutions’ to their economic woes. The port of Mariel is a perfect example. Pinning hopes of an economic recovery on mega-projects or a few foreign investments take attention away from the core distortions and inefficiencies plaguing the entire domestic economy. Fear of change and ideological rigidity can be clearly seen in Cuba’s eight-month-old foreign investment law. Since the law was passed, Cuban authorities still don’t have any significant major investment projects to report. The foreign investment law was a great missed opportunity to really send a message to the world, and specifically to the United States, that Cuba is ready for business. Such a message would have added great momentum to the anti-embargo movement, which is building momentum in the United States and in Miami. Yet, they chose more of the same, leaving arbitrariness, lack of clarity and burdensome regulations.”

Similar skeptical opinions about the Cuban efforts to develop the Mariel port were expressed by Richard Feinberg, the Brookings Institution’s Nonresident Senior Fellow, Foreign Policy, Latin American Initiative. He said, “the industrial sites are not yet fully leveled nor are they hooked up to basic infrastructure! But the problems run much deeper: previous Cuban efforts to launch free trade zones floundered on the requirement of hiring expensive labor through government employment agencies, and the continuing closure of the most logical export market, the nearby [U.S.]. Cuba’s newly revised foreign investment laws appear to allow investors greater flexibility in setting wage scales, but this potentially promising reform, and its impact on labor costs, remains to be fully tested in practice.”

Finally, Miguel Coyula, a retired Cuban government official on a trip to Washington before returning home to the island, stated ““Mariel is the most promoted place in Cuba, with special development zones for investors. But soon it’ll be a year after the opening of Mariel, and there is absolutely nothing. Even the container terminal in Havana was moved to Mariel to give it a sense of activity, but no one will invest there. For one thing, potential foreign investors in Mariel don’t like the fact that they can’t hire employees on their own, but instead must pay a government employment agency in dollars for that labor. The agency, in turn, pays workers in Cuban pesos. That’s because the Castro government wants to avoid creating a class of highly paid Cubans who work for foreign companies, ‘but inequalities are there whether you like it or not.’”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York Times Urges Normalization of U.S.- Cuba Relations

In an October 12th editorial the New York Times says, “For the first time in more than 50 years, shifting politics in the United States and changing policies in Cuba make it politically feasible to re-establish formal diplomatic relations and dismantle the senseless embargo.” Indeed, in the Times’ opinion, these changes in U.S. policy should be accompanied by ending the U.S. designation of Cuba as a “State Sponsor of Terrorism.”[1]

 Editorial’s Commentary on Cuba’s Current Conditions

The Times points out that Cuba has “taken significant steps to liberalize and diversify the island’s tightly controlled economy.” This includes “allowing citizens to take private-sector jobs and own property.” encouraging foreign investment, constructing a major deep-sea port in Mariel with Brazilian capital and negotiating a cooperation agreement with the European Union. Although the pace of reform may seem slow and inconsistent, these are significant changes.

On the other hand, the Times asserts that the Cuban “government still harasses and detains dissidents . . . [and has not explained] the suspicious circumstances surrounding the death of political activist Oswaldo Payá.” This is outweighed, however, by the Cuban government’s in recent years having “released political prisoners” and showing “slightly more tolerance for criticism of the [government’s leadership” while loosening travel restrictions “enabling prominent dissidents to travel abroad.”[1a]

Editorial’s Recommendations for U.S. Policy

End Designation of Cuba as a “State Sponsor of Terrorism.” The Times recommends that the U.S. “should remove Cuba from State Department’s list of nations that sponsor terrorist organizations . . . .   Cuba was put on the list in 1982 for backing terrorist groups in Latin America, which it no longer does. . . . [and Cuba now] is playing a constructive role in the conflict in Colombia by hosting peace talks between the government and guerrilla leaders.” [2]

End the Embargo. Just 16 days before the U.N. General Assembly is expected again to overwhelmingly approve Cuba’s resolution to condemn the embargo, the Times says the U.S should end its embargo of Cuba as it has become “clear to many American policy makers that the embargo was an utter failure.” In addition, now a slight majority of Cuban-Americans in Florida oppose the embargo.

“Fully ending the embargo will require Congress’s approval,” which may be difficult to obtain in this time of a dysfunctional Congress, but the Administration could “lift caps on remittances, allow Americans to finance private Cuban businesses and expand opportunities for travel to the island.”

Ending the embargo, according to the Times, “could also help American companies that are interested in developing the island’s telecommunications network but remain wary of the legal and political risks. Failing to engage with Cuba now will likely cede this market to competitors. The presidents of China and Russia traveled to Cuba in separate visits in July, and both leaders pledged to expand ties.”

In addition, ending the embargo would eliminate Cuba’s using the embargo as an excuse for the Cuban government’s shortcomings.[3]

Restoration of Diplomatic Relations. Says the Times, “Restoring diplomatic ties, which the White House can do without congressional approval, would allow the United States to expand and deepen cooperation in areas where the two nations already manage to work collaboratively — like managing migration flows, maritime patrolling and oil rig safety.[4] It would better position Washington to press the Cubans on democratic reforms, and could stem a new wave of migration to the United States driven by hopelessness.”

Closer ties could also bring a breakthrough on the case of an American development contractor, Alan Gross, who has been unjustly imprisoned by Cuba for nearly five years.[5] More broadly, it would create opportunities to empower ordinary Cubans, gradually eroding the government’s ability to control their lives.

In the opinion of the Times, Restoring relations would improve U.S. “relationships with governments in Latin America, and resolve an irritant that has stymied initiatives in the hemisphere.” The most current example of that irritant is “Latin American governments . . . [insisting] that Cuba, the Caribbean’s most populous island and one of the most educated societies in the hemisphere, be invited” to next year’s Summit of the Americas in Panama over U.S. opposition.

Moreover, “The [Cuban] government has said it would welcome renewed diplomatic relations with the United States and would not set preconditions” while a significant majority of Cuban-Americans favor restoring diplomatic ties, mirroring the views of other Americans.

Reactions to the Editorial 

I concur in all of the Times’ recommendations, but believe it understates the economic reasons for these changes in U.S. policy. Here is a fuller exposition of those economic reasons.

This month Dr. José Ramón Cabañas Rodriguez, the Chief of Mission, Cuban Interests Section, said that the U.S. was running the risk of becoming economically irrelevant to Cuba. Many foreign countries, especially China, and foreign companies are developing good commercial relationships with Cuba and its new private businesses with ordinary commercial terms, unlike the U.S. sales of food and agricultural products under an exemption to the U.S. Helms-Burton Law that requires Cuba to pay in advance and in cash for such products. This U.S. practice is not a good way to encourage future business. Moreover, the new Mariel port and its adjacent business park is attracting interest from companies all over the world, and if all the space in that park is committed to these foreign companies, there will be nothing left for U.S. companies.

The geographical setting of the new Mariel port is strategic in terms of trade, industry and services in Latin America and the Caribbean. On the northern cost of Cuba only 45 km west of Havana, it is located along the route of the main maritime transport flows in the western hemisphere. As the largest industrial port in the Caribbean, it will be equipped with state-of-the-art technology to handle cargo from the larger container ships that will begin to arrive when the expansion of the Panama Canal is completed in December 2015. Those larger ships can carry up to 12,500 containers, triple the capacity of the current ships, and the port’s warehouse capacity is 822,000 containers. Here are some photos of the development of this port.

Mariel PortMariel3

The Mariel project includes highways connecting the port with the rest of the country, a railway network, and communication infrastructure. In the adjacent special zone, currently under construction, there will be productive, trade, agricultural, port, logistical, training, recreational, tourist, real estate, and technological development and innovation activities in installations that include merchandise distribution centers and industrial parks.

The special zone is divided into eight sectors, to be developed in stages. The first involves telecommunications and a modern technology park where pharmaceutical and biotechnology firms will operate. Other sectors include renewable energies, agriculture and food, chemical, construction materials, logistics and rental equipment. For the last four sectors Cuba is currently studying the approval of 23 projects from Europe, Asia and the Americas.

The May 2014 visit to Cuba by a delegation from the U.S. Chamber of Commerce evidences U.S. businesses’ cognizance of these economic and commercial realities. The delegation’s head and the Chamber’s president, Thomas Donohue,  said in a speech in Havana, “For years, the US Chamber of Commerce has demanded that our government eliminate the commercial embargo on Cuba. It’s time for a new approach.” At the conclusion of the trip he said the delegation and Cuban officials had “talked about steps forward that might be taken by both countries” to improve U.S.-‪Cuba relations and that their meetings with President Raul Castro had been “positive.” In addition, the Chamber in congressional testimony has called for an end to the embargo and has supported proposed legislation to end the ban on U.S. citizens traveling to the island and easing restrictions on U.S. exports of farm and medical products.

Another sign of U.S. companies’ interest in Cuba is the visit to the island this past June by Google executives. They said they discussed increasing Cubans access to the Internet and Cuba’s need for improving its Internet technology.

These U.S. economic concerns were highlighted in February 2014 by U.S. Senator Patrick Leahy, who earlier had led a visit with four other Senators to Cuba. Leahy said, “Trade with Latin America is the fastest growing part of our international commerce.  Rather than isolate Cuba with outdated policies, we have isolated ourselves.  Our Latin, European and Canadian friends engage with Cuba all that time.  Meanwhile, U.S. companies are prohibited from any economic activity on the island.” Therefore, the Senator said, “It is time – past time – to modernize our policies and the frozen-in-time embargo on Americans’ travel and trade with Cuba that have accomplished nothing but to give the Cuban regime a scapegoat for the failures of the Cuban economy.  Change will come to Cuba, but our policies have delayed and impeded change.  It is time to elevate the voice of a crucial stakeholder:  the American people. Thanks to this [recent public opinion] poll, they are silent no longer. It is time to recognize that U.S. policy toward Cuba has been unsuccessful in achieving any of its objectives.”

Given the limited space for an individual editorial, the New York Times editorial does not discuss any of the other many issues that need to be addressed by the two countries in order to establish truly normal relations. Nor does it discuss how this normalization process can happen or be facilitated.

In contrast, this blog repeatedly has suggested both counties need a neutral third-party with the resources and commitment to act as mediator and has called for such a third-party to step forward to offer such services, rather than waiting for the U.S. or Cuba to make such a proposal unilaterally or for the two countries to agree to such a mediation. [6]

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[1] Interestingly the online version of the editorial is titled “End the U.S. Embargo on Cuba” with a linked Spanish translation while the print version is titled “The Moment to Restore Ties to Cuba.”

[1a] This month Dr. José Ramón Cabañas Rodriguez, the Chief of Mission, Cuban Interests Section, emphasized that Cuba now has term limits on every governmental office, including president: two terms of five years each for a total limit of 10 years, and Raul Castro has announced that this applies to him and thus ends his term as president in 2018. Dr. Cabañas also emphasized that many younger people are taking over many governmental positions and that there has been a decentralization of power to municipalities.

[2] This blog has provided detailed criticism of the ridiculous, absurd, stupid and cowardly rationales provided by the U.S. for such designations in 2010, 2011, 2012 (with supplement), 2013 and 2014.

[3] This blog has provided criticisms of the embargo.

[4] This month Dr. José Ramón Cabañas Rodriguez also said that the U.S. and Cuba in recent years have had bilateral discussions regarding migration, drug trafficking, search and rescue in the Florida straits, stopping oil spills in the Caribbean, airline security measures, scientific exchanges and restoration of direct telephone and mail services. In addition, the U.S. has invited or permitted an invitation to Cuba to attend a Clean Oil Conference in San Antonio, Texas in December 2014.

[5] Although it certainly is debatable whether Mr. Gross was unjustly convicted in Cuban courts for violating Cuban law, I agree that it is in the U.S. national interest to have him released and returned to the U.S. Cuba, however, has argued that the three of the “Cuban Five” still in U.S. prisons should also be released and allowed to return to their homes. At a minimum, I believe that negotiations between the two countries could and should lead to at least a one-for-one exchange with the U.S. President commuting the sentence of one of the three Cubans to time served.

[6] This blog has called for normalization of Cuba-U.S. relations and has criticized the U.S. for insisting on preconditions for holding any talks with Cuba to improve relations. Another blog post was a public letter to President Obama recommending reconciliation with Cuba. In addition, this year a group of 50 prominent Americans issued a public letter to the President urging him to take executive action to expand U.S. involvement with Cuba. Another blog post criticized recent opposition to pursuing such reconciliation.