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So...You Want to do Business in Cuba? A Mini-Guide For U.S. Businesses, Social Entrepreneurs and NGOs

04/13/2015 11:48 am ET | Updated Jun 13, 2015

Since the December 17, 2014 joint announcement by Cuba and the U.S.A. that the two nations were re-establishing diplomatic relations, there has been heightened interest in the US over the prospects of developing relations with the island nation. Opportunities between American and Cuban businesses, NGOs, cultural and sports organizations, and academic institutions are certainly plentiful, and will be more so in the long-term. However, the media frenzy has overlooked the inconvenient truth that working in Cuba is still extremely difficult for foreigners, and will remain so for a long time to come, especially for Americans. Newcomers wishing to establish links in Cuba -- whether for profit, not for profit, as NGOs, universities or as social entrepreneurs -- need realistic, practical and up-to-date information. We have condensed a few highlights of our years long experience on the island into this Mini-Guide. We hope it can shorten learning curves and make the exploration of Cuba more rewarding and fruitful.

SOME THINGS TO KNOW ABOUT THE U.S. SIDE OF THE EQUATION

Cuba and the U.S. are currently discussing the reestablishment of diplomatic relations. But the complete normalization of relations may take years to achieve and, in a number of fundamental business-related areas, will require congressional approval in the U.S. Moreover, the U.S. government has not yet approved general tourist travel to Cuba. This means that the financial and commercial embargos, as well as portions of the ban on travel by U.S. citizens are still very much in place. Fortunately, there have been two Congressional Delegations to Cuba recently (January and February 2015), signaling support for, and interest in, normalizing business relations.

While the U.S. has made some progressive adjustments to a number of pre- December 17 regulations, including increasing approved travel categories and support for humanitarian efforts, a clear interpretation of what these changes actually mean in practice is not yet fully defined. The changes are being rolled out over time. Therefore, it is important to continually analyze the regulatory framework for approved commercial transactions and for travel before embarking on any potential business opportunity.

American newcomers are not going into 'virgin territory.' Though they have not been able to do business on the island for over five decades, the Canadians, Europeans, Latin Americans, Israelis and Chinese, among others, have. They are likely to fight tooth and nail to protect their business interests. Moreover, Cuban officials already know them, and more often than not, trust them.

AND ON THE CUBAN SIDE

While it is true that the Cuban government is in the process of implementing important economic reforms that will create new business opportunities, those seeking to take advantage of them must realize that Cuba is fully committed to remaining a socialist state, and it is not broadening its business opportunities as a precursor to embracing capitalism. The overall aim of reform is achieving a "prosperous and sustainable socialism," not adopting free-wheeling capitalism. Business people that want to do operate in Cuba must respect the tenets of socialism, be able to conduct business within the parameters of the state's political ideology, and adapt to the quantity of state control over business transactions. Those things are not likely change any time soon and take some real getting used to.

The Cuban government is not interested in attracting foreign business just for the sake of making money. Moreover, on the island, there are neither consumer sovereignty traditions, nor a large affluent consumer society with buying power. To get started, enterprises must have clear positive impacts on the population, the environment, and on the economy, as defined by state entities, not consumers nor the private enterprise itself. Corruption, though present, is seriously frowned upon and punished with severe jail terms for local and international partners alike.

All business deals between Cubans and foreigners, as well as any formal business deals between Cubans themselves, are made with the explicit knowledge and approval of the Cuban government. Moreover, normal business inputs such as local capital, updated plant and equipment and broad access to fast speed internet are not readily available. However, Cuba's highly qualified human resources are plentiful and eager to work. Be prepared to invest more than the normal time you usually schedule for a start up due to the extended time necessary to receive appropriate bureaucratic approvals and access to infrastructure and supplies.

Cuba's national commitment to the social and environmental well-being of its citizens will, nevertheless, require that all business activity be undertaken with sensitivity and accountability. Above all, it is important to remember that engagement with Cuba should be done in a mutually respectful fashion that helps Cubans preserve and enhance the achievements of their Revolution, while minimizing risk to the capital of inspired American entrepreneurs.

The Cuban government seeks large investments, not small efforts. Projects valued at under several million dollars will have a very difficult time getting reviewed. Keep in mind that the government bureaucracy that approves projects is very small and highly centralized. You will need local assistance just to get to the doorstep of the right government official. Even then, entry into his/her office may never happen due to understaffing. Also, it is also extremely difficult for NGO's to establish a physical presence in Cuba, even after investing large sums of resources in building relationships with local Cubans.

Mutual mistrust must also be overcome. In the U.S.A., there are powerful pockets of support for sanction against Cuba, and in Cuba, some remain highly suspicious and mistrustful of American motives. Both sides have good reason given decades of spy vs. spy shenanigans, so expect a certain amount of wariness when first exploring business opportunities

Entrepreneurs are generally self-confident "go get 'em" types. However, when scouting out entrepreneurial opportunities in Cuba, entrepreneurs will come to understand the depths of a popular and ubiquitous Cuban expression -- "No es facil / it's not easy." For their own health: financial, physical and mental, American entrepreneurs in Cuba should check their egos, and their preconceptions, at the airport gate, and be prepared to learn a whole new way of doing things "a la Cubana," the Cuban way.

CRITICAL DO'S AND DON'TS

  • Do your homework before you plan your visit. Given the U.S.'s fifty-five year embargo, many myths and falsehoods exist about Cuba. There is a lot of reading you need to do, starting with a careful scrutiny of the current U.S. government regulations for U.S. citizens and residents traveling to Cuba as well as any pending legal claims on the property or sector you wish to enter.
  • There are many informative publications about current economic conditions and policies being implemented in Cuba, on U.S. regulations, and on legal claims. There is also literature on the business interests of foreign partners on the island. And of course you will never go wrong by brushing up on Cuban history in your effort to understand this truly singular society. A suggested bibliography is listed at the end of this guide.
  • Make sure your business concept truly meets local social and economic needs as defined by the priorities of the Cuban government.
  • Don't assume the Cubans will be interested in your project, no matter how obviously good and relevant it seems to you. They operate under many constraints that are difficult for Americans to understand. It is crucial to listen carefully to what the Cubans actually want, and not impose what you think they should want.
  • To start a project, it is imperative to first establish a relationship with a Cuban counterpart organization vetted by the government to work with foreigners. Don't show up in Cuba without previous research and pre-established contacts with individuals and/or institutions.
  • How to find a counterpart? Go to Cuba to visit, learn, and explore. Seek out and participate in a Cuban conference in your area or sector of interest. Such travel should be much easier under the adjusted U.S. travel regulations. In this way you can make contacts and learn about the state of knowledge in your business sector cost effectively. Often, there is more transparency in a conference setting, especially when sponsored by a university or an academic association.
  • After the initial exploratory visit on a tourist visa, in order to establish a business relationship, you will need to travel to Cuba again on a more formal visa. In many cases government officials will not talk to you if you only have a tourist visa.
  • Don't think you will somehow figure out how to get around the rules of the game set forth by the Cuban government. You may do so temporarily, but never for long.
  • Don't under any circumstances accept funding from USAID or any of its subcontractors. In Cuba such support is tantamount to announcing you are working for regime change. Your venture will end right there.
  • By all means enjoy the beauty, history, and uniqueness of the place. Get to know the warm, humorous, proud and well-educated Cuban people. Take the time to smell the gardenias in what may well be a once-in-a-lifetime experience at an unprecedented moment in history. Increase your tolerance for contradictions and don't forget to have fun.

* The authors of this Mini-Guide are the founding members of the Socially Responsible Enterprise and Local Development in Cuba project, an international collaboration of experts on Cuban enterprises and development. Dr. Sagebien is a professor of business at Dalhousie University in Halifax, Canada. Eric Leenson served as President and CEO of Progressive Asset Management, a U.S. based socially responsible investment firm. For more information, contact Eric Leenson at eleenson@soleconomics.com