US-Cuba Business Outlook and Overview – Part Two

This is part two in a series of articles on the US-Cuba Business Outlook by Sue Ashdown.  Ms Ashdown is Founder and President of IcarusCuba, a consulting firm located in Havana. She also writes for her own blog about life in Cuba.

Fundamental Misunderstandings

The fact that the US presence at FIHAV 2015 and 2016 was larger than this year’s is relatively meaningless. Even at the best of times, the tiniest nations represented at FIHAV have had a more professional presence than the United States. South Africa came to the fair for the first time this year and occupied an elegant and impressive space in the mezzanine overlooking the ragtag US section. The difference was appalling. FIHAV exhibit spaces are an important signal to the Cuban government. Spain expands its presence every year and this year occupied four entire pavilions. In 2014 it occupied two.

Beyond the problem of professional presentation, it is high time American companies grasp the reality of Cuba’s liquidity problem and move beyond the mindset of FIHAV as a display space to foster sales to Cuban buyers. Investment is the real key to doing business in Cuba, and while smaller companies are unable to participate at this level, there are still opportunities for businesses with products that can help Cuba improve its production.

The small tractors invented by the startup Cleber company were conceived and promoted with much fanfare as doing just that. They also happened to fit nicely with the plodding Obama plan to seize the Cuban beachhead one small business at a time, this time through small independent farmers. There aren’t many of those in Cuba, but an OFAC license was issued anyway, for Cleber to assemble its tractors at Mariel. But an OFAC license is meaningless inside Cuba – it’s the Cuban license that counts.

Cuba does not view Mariel as a maquilladora, or assembly hub, but as a manufacturing powerhouse for a highly skilled population. Most biotech investment – serious projects with high quality standards and price tags – is being directed toward Mariel. Software development is another category moving that direction. Tractors for a tiny, dubious market were never part of the plan. The difference is key to understanding Cuba’s overall approach to foreign business.

The Cleber tractors supposedly will now be manufactured in Alabama, but prospects for future sales in Cuba are poor. One farmer we spoke with questioned whether the tractor could fetch $10k in the US, let alone a developing country, and pointed out the lack of basic elements like 4-wheel traction to allow for more than one plow and wider surface cultivators. Not to mention a configuration that would force a farmer to attach a heavy implement underneath the tractor, between the front and back wheels, rather than the natural arrangement of attaching and dragging it from behind with the weight of a forward engine to compensate. But in the final analysis it was mainly the conceptual, not the design flaws that doomed the project.

John Deere and Caterpillar were both mentioned at FIHAV 2017 as US companies who have concluded successful deals with Cuba. It is important to understand the nature of the deals. John Deere has signed an agreement with Cuba for the testing of its equipment in Cuba, to meet Cuba’s regulatory certification process. It is a necessary step forward but it is not the same as sales, much less manufacturing. But it is an intelligent move for the time being. Since every company that hopes to eventually do business with Cuba must pass through a feasibility study process, one step of which is regulatory certification, it makes sense to get that out of the way – particularly while more fearful US competitors are hanging back. It puts a company one step closer to market than their competitors once the embargo comes down.

As for Caterpillar, the deal was a bit more flash than substance, since it involves a Puerto Rican family-run dealership that will be setting up a distribution center at Mariel. Considering the disastrous situation in Puerto Rico, Mariel is probably a better and safer distribution point toward the rest of the Caribbean, but sales to Cuban farms are impossible at the moment, both because of the embargo and Cuba’s liquidity problem. Longer term, the chances of Caterpillar selling its high end machines to Cuba through a dealer are still low, mainly because Cuba insists on eliminating intermediaries whenever possible in order to cut costs. Caterpillar occasionally sells direct and may want to keep this in mind. Regardless, it is an important goodwill measure, because it is a tangible expression of a major US company’s interest in Cuba, and provides an example for other US companies to follow.

Read Part One of Sue Ashdown’s article here.