Cuba's Slow-Brewing Economy and Homegrown Opportunity

No, this is not a post about beer ... but about the risk of a missed opportunity.

President Obama's visit to Havana in March shined a spotlight on Cuba--a country that, one's political views aside, is regarded warmly by people around the world. Over the last two years, a new foreign investment law has sparked the interest of many companies (especially European ones) and the re-establishment of diplomatic relations with the United States has also made the possibility of trade and investment deals with U.S. companies seem closer.

In this context, a number of corporate leaders are wondering how they should view the Cuban opportunity while avenues to move beyond the embargo are pursued in Washington. In a new article on bcgperspectives.com, we address the question of what the evolution of the Cuban economy means for multinationals. The country clearly has great economic potential and there were high hopes that the recently concluded VII Congress of the Communist Party of Cuba would take further steps to create a more hospitable environment in which private enterprise can make greater contributions to accelerated economic growth and job creation.

Such steps--which the government officially refers to as aiming to "perfect" or "update" the Cuban economic model--could, for instance, be modeled on what the Cuban president in his main speech referred to as the processes of "reform" in China and "renewal" in Vietnam. But these market liberalization measures have not yet been adopted. They remain works in progress. Meanwhile, the Cuban economy is lacking a growth dynamo, and its slow "brewing" runs the risk of stagnating. Without stronger economic growth, the country will lack the resources needed to maintain the social achievements of recent decades.

Foreign investors have an important role to play in a number of industries (beer included) and in the sorely needed development of all kinds of infrastructure. In areas such as information and telecommunication services, their impact (especially in a competitive market environment) could be quick, positive and pervasive. But for the right kind of investor to be attracted--those who will contribute to adding value and jobs in Cuba--they will need more than tax holidays, incentives and special zones. They will need regulatory transparency, reliability in the implementation of policies and flexibility in the operating environment for businesses.

The experience of many countries shows that sustainable economic success cannot be built on a combination of only foreign investors and state-owned enterprises. Cuba is fortunate to have a well-educated and creative population--fertile ground for entrepreneurship, provided that an appropriate legal framework is established to facilitate private enterprise. In addition, there is another untapped homegrown asset: a large population of professionally experienced Cubans living outside the country, many of whom might be keen to return home and contribute to its prosperity with their skills, savings and connections.

Creating an environment in which returning is an attractive possibility could produce a great growth boost and reassure potential foreign investors that Cuba is a place where business can thrive. Few, if any, countries have ever had such an opportunity. Cuba is well placed to pursue it if decisive, transparent steps are taken soon to make it possible.