Rum & Cigars
It would be impossible to consider Cuban investments without tapping into the products that have been so coveted - tobacco and cigars, said Timothy Ashby, CEO of Pembury Capital, Inc., an investment consultancy specializing in Cuba.
Want in on the Cuban cigar boom? Think British. Imperial Tobacco
), a British tobacco company traded on the London Stock Exchange
, has stake in Cuban cigars, owning 50% of Habanos S.A.
while the Cuban state company Cubatabaco
owns the other half. This current scenario originated from a series of aquisitions In 2000, French-Spanish Altadis
purchased a 50% stake in Habanos, and in 2008, Imperial purchased Altadis an swallowed up the Cuba play.
Habanos is the maker of famed Cohiba
and Romeo y Julieta cigars
, and the company boasted $439 million in 2014 sales without having the U.S. as a direct play. Expectations are high for global sales
if the U.S.-Cuba embargo is eliminated; initially Habanos products would make up some 25% of the U.S. premium cigar market before jumping to 70% within a few years - similar to the Habanos control of the market in countries around the world. Pernod Ricard
), traded on the Euronext Paris, worked with Cuban companies in 1993 to create the successful Havana Club International brand, of which it's a 50% owner. Of course, Bacardi has been selling Havana Club to the U.S. market since 2012, when Cuban trademark on the name in the U.S. expired, but Ashby expects the trademark dispute with Bacardi to be resolved in the near future. When the embargo ends, the authentic liquor will be exported to the U.S., the largest market for rum in the world
. Private Sector Cooperatives
The only other option for a U.S. investor is to invest in the rapidly emerging but still small private sector in Cuba, especially the cooperative enterprise sector, according to Havana-based Gregory Biniowsky, a partner at Canadian law firm Gowling, Lafleur, Henderson LLP and founder of the "philanthropic" consulting firm Havanada Consulting.
“It is my belief that U.S. law does not prevent investment in private businesses in Cuba, and Cuban law appears to allow for foreign investment in private cooperatives, although the Cuban regulations still need to be fleshed out more,” he said.
As the dust settles and the rules become more crystalline, Americans can contribute to these emerging cooperatives, ideally by making some direct contact with their management leaders, or having a proxy do so.
"Cuba is a complex country, with an idiosyncratic political, social and economic terrain," he said. "The country holds enormous potential for economic growth, even under the present socialist regime. But investors need to familiarize themselves with the sui generis characteristics of Cuba to be in an optimal position to take advantage of the inevitable economic boom that will take place in the country."
Ashby says Cuba has a robust tech sector. "It's a smaller version of India," he says.
Entrepreneurs now make up 11% of the Cuban labor force, compared to 3% in 2010, according to Philip Peters, president of the Cuba Research Center. The Cuban government has incentivized foreign investors to steward this growth by instituting a foreign investment law in 2014 that cut investor profit taxes to 15%, half the previous rate, and protecting them from having to pay taxes for eight years. There’s also added security to these private investments. Cuba wants to attract at least $2 billion each year in foreign investment and is willing to incentivize investors to achieve that goal.
“Here's an adventurous prediction,” said Feinberg of UC San Diego. “American firms with claims for nationalized properties will be first in line to exploit these lucrative business opportunities.”
He’s talking about expatriates who left behind property in Cuba or U.S. enterprises that had property seized by the Cuban government in the 1960s.
There is the idea of creating an exchange fund for people who are entitled to claims but don’t want to go through the drawn out process of getting a settlement. Herzfeld has discussed taking claims in exchange for shares of such a fund.These people would give their claims to a particular property but have a share in a pool of claims. The aggregated money could be poured into businesses -- old factories or agricultural enterprises. Thomas Herzfeld, who founded CUBA, declined to comment for this article citing a quiet period of his firm's fiscal year ended June 30.
Another potentially robust part of the private-sector investment: telecom and internet. Cuba has not joined the 21st century in terms of connectivity. Only a handful of hotels in Havana have WiFi -- which costs about $8 an hour. Companies that can provide growth will be great investments. Internet has about 5% penetration on Cuban households.
Biniowsky notes the many advantages Cuba presents for growth:
-Imminent tourist boom with the eventual lifting of the U.S. travel ban.
-Medium term general economic boom with the eventual lifting of the US economic embargo.
-Best educated population in Latin America (both general education levels and specialized professional class).
-Low levels of political corruption.
-Low levels of violent crime.
-Largest land mass in the Caribbean, with extensive fertile agricultural land and undeveloped beach areas.
-Largest population in the Caribbean.
-Strategic geographic location for transport from Europe and transport emerging from the Panama canal and future Nicaraguan canal.
-Significant pharmaceutical and biotech potential.
-Significant medical services potential (health tourism)
Proceed with Caution
“It’s investment by romance,” said Kavulich about those eager to wade into Cuban investment waters. “People are reacting in an aspirational way – 'Cuba is crumbling it needs everything.’… We’re trying to sober people up.”
Of course, Fidel Castro has announced he wants the U.S. to pay reparations for the economic stagnation wrought on the island in the wake of the embargo. That should give investors pause as to whether this will be the bastion of growth many are expecting or if politics will stifle this ripe economic terrain further.
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