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Optimism of businesses

December 18, 2014

Despite restoring diplomatic relations with Cuba, the United States still needs to lift the economic ban on the tiny island. Regardless, businesses on both sides of the Caribbean are already eyeing the possibilities.

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Havana
Image: Reuters/Stringer

A handful of stocks linked to Cuba have surged since US President Barack Obama announced the resuming of diplomatic relations between the two countries.

Obama is moving on his own to expand economic ties, open an embassy in Havana and review Cuba's classification as a "state sponsor of terrorism," but only the US Congress can fully lift the economic embargo, now in its 54th year.

Despite the trade restrictions, US and Cuban businesses are fully eyeing the possibilities of bilateral trade, in which markets are separated by only 90 miles (145 kilometers). Among those eager are US farmers, travel companies and energy producers, as well as Cuban rum and cigar producers.

US exports to Cuba could reach $4.3 billion (3.5 billion euros) a year, compared to less than $360 million last year, according to analysts at the Peterson Institute for International Economics. Cuban merchandise imports to the US could go to $5.8 billion a year - a big improvement from today's zero.

Rice and wheat

US law exempted food in the embargo with Cuba, but as transactions between the two countries were difficult and expensive, trade was limited.

Still, Cuba has imported hundreds of thousands of tons of poultry meat, soy products and corn and feeds from the US.

But wheat and rice remain two new opportunities.

Trade group US Wheat Associates said Cuba could import at least 500,000 tons of US wheat a year, if the policies weren't as cumbersome.

"We believe our market share there could grow from its current level of zero to around 80-90 percent," said its President Alan Tracy in a statement.

According to one rice exporter, Cuba's consumption of that grain could approach 700,000 tons a year, making it one of the region's top markets for US rice.

Warm waters, white sands

Americans used to flock to the picturesque beaches of Cuba with its warm waters and white sands. Only an hour's flight from Miami, it made the perfect getaway before the Cuban Revolution.

Now, airline, hotel chains and cruise enterprises are longing for a return to these bygone days, hoping a removal of the travel ban is in the cards sometime soon.

National Hotel of Cuba
National Hotel of Cuba stands a few meters from the seaImage: Hotel Nacional de Cuba

Some companies whose stock rose sharply had connections to the travel and tourism industry in Cuba. Among those was the Herzfeld Caribbean Basin Fund, which jumped 28.9 percent from $1.97 to $8.78 on Wednesday.

The closed-end mutual fund has been investing in "cruise lines, infrastructure [companies], any company that we will think will eventually have a role in Cuba."

"We've been positioning ourselves for this day for many years," said Erik Herzfeld, the fund's co-portfolio manager.

Last year, about 170,000 authorized US travelers made the trip to Cuba, including close relatives of Cubans, academics and people on accredited cultural education programs - according to the US Department of Commerce.

Katharine Bonner, a senior executive at Connecticut-based tour operator Tauck, said once travel opens, there will be a rush to see Cuba before it gets "Americanized."

"It's almost like a country that has been frozen in time," she said. "There's going to be a desire to see Cuba before it changes."

However, tourist travel to Cuba would remain prohibited for the time being, senior Obama administration officials said.

Uncertain timeline

In his address, Cuban President Raul Castro called on Washington to end its trade embargo, which "has caused enormous human and economic damage."

US's Obama shakes hands with Cuba's Castro
US's Obama shakes hands with Cuba's Castro in SowetoImage: picture alliance/epa/Kim Ludbrook

The lifting of sanctions may take years. The Obama administration recognized that Congress, already angered by the President acting alone to introduce immigration reforms, is in no mood to help him lift the embargo on Cuba.

"We support efforts to remove those restrictions," a senior administration official said. "However, we understand that Congress is unlikely to take those steps in the immediate future."

Some Cuban civilians are also skeptical that bilateral economic relations will warm anytime soon.

"We'll see if it's true, if it's not like everything here: one step forward and three steps back," local resident Pedro Duran, 28, said. "For now, I don't think there will be any immediate improvement after we've been living like this for 50 years."

The White House said it wants to see the embargo lifted by the time Obama leaves office in 2017.

el/hg (dpa, AP, AFP, Reuters)