As of several weeks ago, the U.S. flag is once again flying high in Havana, following the reopening of the U.S. Embassy in Havana for the first time in nearly 55 years.
More recently, a flagpole ceremony took place on Friday, August 14, which included guest of honor Secretary of State John Kerry, the first U.S. Secretary of State to visit Cuba since 1945. Many speculate that the Kerry visit is a prelude to a possible visit by President Barak Obama before his term ends. Clearly, the days of the U.S. embargo on Cuba are numbered and the economic opportunities to follow are immense.
Since Obama and Cuban President Raúl Castro announced plans to work towards normalization in December 2014, many have speculated as to the impact of this historic political shift. How will social issues such as migration, human rights, law enforcement and narcotics be handled? How will a modern infrastructure such as telecommunications or Internet accessibility be approached?
Only Congress can lift the embargo with Cuba, but it is widely believed that Obama’s efforts to chip away at its impact will continue through the use of executive authority. Obama has already said that he wants Congress to work towards an end of the embargo and renew diplomatic and trade relations.
More likely, Congress will drag its feet on the issue and delay the confirmation of a U.S. ambassador to Cuba until long-standing issues get resolved, including outstanding claims for confiscated U.S. property and political freedom for Cubans. With the U.S. election cycle in full swing, it is rather unlikely any meaningful legislation will occur, and as such, uncertainty will continue.
The Cuba DATA Act bill has already been introduced in Congress to improve Internet access to Cubans by easing restrictions on telecommunication export and connectivity. Cuba severely lags on connectivity as the least connected country in the hemisphere, an island where only 26% of residents have basic access and less than 5% have unrestricted broadband access.
Recently, Google ($GOOG) executives visited and proposed a way to expand Internet access quickly and at minimal cost, but the Cuban government has interpreted the offer as a means of infiltration. In fact, only recently, 35 public Wi-Fi areas have opened that charge $2 an hour, a steep price given the median local salary of about $20 a month.
Many U.S. businesses have already begun or are planning to establish a presence in Cuba to prepare for the eventual time when the U.S. can trade freely with the island. AirBnB (Private) has already launched its platform, securing more than 1,000 listings for their launch this past spring. MasterCard ($MA) and Netflix ($NFLX) both opened their companies earlier this year with an eye towards future opportunities, once open financial transactions and better Internet connectivity become a reality. Caterpillar ($CAT) has advocated for active engagement for almost 20 years, rather than the current isolation. Even public relations agency, Burson-Marsteller (division of WPP, $WPPGY) has launched a team dedicated to assisting clients planning an entry into the Cuba marketplace.
Business of Tourism
Limits on tourism remain, but Americans can already take government-sanctioned trips to the island, and an estimated 100,000 have traveled to Cuba in recent years. But to put that in context, Cuba currently hosts approximately 3 million foreign visitors each year, most of them from Canada or Western Europe.
However the companies operating in the travel industry have begun to vocalize their interest. Using AlphaSense, we found statements such as:
- Norwegian Cruise Lines ($NCLH)
“Everyone is excited about China, and I believe that Cuba can have a similar positive impact on the industry as a whole.” (Earnings transcript, August 4, 2015)
- Royal Caribbean Cruises ($RCL)
“Clearly we’re excited about the potential opportunity that Cuba Presents … we are actively planning and preparing to incorporate Cuba into our cruise program to the extent that we’re permitted.” (Earnings call, July 31, 2015)
- American Airlines ($AAL)
“American Airlines has operated charter flights to Cuba for nearly 25 years, and we stand ready to begin scheduled service when it’s allowed.” (Press release, July 20, 2015)
- United Continental ($UAL)
“United Airlines congratulates the U.S. and Cuban governments on the historic reopening of their embassies today in both countries’ capitals, which have been closed for more than a half century. We look forward to continuing our constructive dialogue with both governments about providing our customers service between our two nations, subject to government approval.” (Press release, July 20, 2015)
- Norwegian Cruise Line ($NCLH)
“Cuba is of special interest to me — not only because I run a cruise line, but because I was born in Havana, and I haven’t been back in 54 years. Cuba was tailor-made for the cruise industry, given where it is; given the pent-up demand that there has to be for Cuba, after being closed to Americans and most of the world for all these years. We’re hopeful that progress continues, and that someday not in the distant future, cruising to Cuba will be allowed. It will be a great boon to the industry.” (Earnings transcript, May 7, 2015)
While expectations are that issues that involve Cuba and U.S. relations will evolve slowly, meaningful economic impact is likely to occur in the near future as issues such as travel and infrastructure improvement begin to take shape.
With that context, it is essential to monitor the on-going situation in Cuba with an appropriate email alert to track the unfolding impact on both U.S.-based and International companies. The opening of Cuba is certain to have meaningful economic ramifications, and the country’s entry to global commerce has already spiked the interest of many meaningful players.