Sharing, Solar and Social: One View of Cuba’s Economic Future

Havana

With U.S./Cuban relations continuing to thaw — as evidenced by President Obama’s recent trip to the island — a big question for businesses and investors is what kind of economy Cuba is going to build next. At the Second annual Cuba Opportunity Summit, hosted recently by Wharton in New York City, that question was picked up by Jillian Manus, managing partner at Structure Capital. What she’s hoping to see emerge there is not unalloyed capitalism. 

Rather, she sees a big role for companies that have both a profit motive and a social or community mission, or that reflect the sharing economy. And most important, she sees it was key that the Cuban government feels comfortable with how the economy evolves. Manus dropped in for a chat with the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111 to explain why she believes these social and sharing ideas could be an important part of growing the Cuban.

You can listen to the interview using the player above. An edited transcript of the conversation appears below.

Knowledge@Wharton: Explain where the concept, the linking between the sharing economy and Cuba came from for you.

Jillian Manus: Actually, it’s really not much of a link. It’s really organic. I perceive Cuba as being amongst the first iteration of the sharing economy, because it’s already a sharing mentality, because unlike any other country, nothing has been able to really go into Cuba. Therefore, anything that they are using has been repurposed.

So my investment thesis for Structure Capital is investing in underutilized capacity and excess assets — in other words, doing better with what we have, rather than building more and more and more.

Well, Cuba has never had more, more, more. They have been forced to do better with what they’ve had. So my thought here is, why not build upon that sharing mentality already?

Knowledge@Wharton: How do you play that out though?

Manus: How do we play that out? Well, my idea is thus: I sit on the Duke Engage board, which is the immersion service program of Duke University, and one of our programs was to build something called solar cybercafes.

What I’d like to do is take the existing infrastructure, which is limited as we all know — we have 35 WiFi hotspots in Cuba. Let’s take 20 of them, let’s take 10 of them, let’s take them in Havana, and let’s build solar cybercafes, a partnership with a solar company that would, first of all, introduce alternative energy to Cuba in a way that would be organic. It would be supportive, it wouldn’t be forced, and it would not have to be electricity subsidized by the government. It would just be a natural resource. We would have these cybercafes, we’d be designated points for Internet and specifically, for a marketplace that the government can create, which is what I think we should do.

“I think the key to all of this is that we should not be perceived in this insidious way as coming in and trying to turn on the Internet and trying to create this communication.”

I am calling it the buyer/barter marketplace. So essentially, you would create a marketplace where you would search with “I have” or “I need….” And either you can buy or you can barter skills. “I am a carpenter, I need a lamp. I will barter my skills.”

As an example, one of our companies in Structured Capital is Totspot, a very big marketplace for used children’s clothing, because children’ because children’s clothes — it’s a large turnover. Why shouldn’t a mother who has a toddler who has outgrown their clothes barter with someone who has an infant?

It creates a whole mother community, as well, of knowledge, as well as just the sharing. Now, what if you take that one step further? First of all, by creating this marketplace, you would create data. Data is very important to the Cuban government. As new corporations come in, they would be able to share that data — in fact, even essentially sell the data. But then, you have a two-tier currency in Cuba, right? Not tier — a two-form currency. [The Cuban peso (CUP), used for staple goods and non-luxury items; and the Cuban convertible peso (CUC), with a value 25 times higher, that is used by tourists, and by Cubans for luxury goods.]

So one of the companies in Structure Capital is called 99Gamers, and it’s basically a platform for the buying and selling of video games. But because there are regulations around video games, they couldn’t take a percentage of the transaction fees, so they created a virtual currency. And basically, that’s what I think we should do with this Cuban marketplace. You could enter by buying for two CUCs, let’s say, 20 virtual coins, and then you would use those coins in this closed ecosystem to buy and sell whatever you want.

It would allow the Cuban government to monitor whatever is being bought and sold. And it would create revenue.

Knowledge@Wharton: That control over it is still something the Cuban government is going find it very hard to let go of. They want to know what the people are doing.

Manus: That’s exactly right, but this is a way to know what the people are doing tenfold. What their behaviors are, what their needs are, how much they are buying, how much they are selling, and what the true resources of the Cuban society are. I think this eventually will then create what I would like to see as the consumer class. And with this consumer class, there will be policy changes.

Knowledge@Wharton: Is there any level of a consumer class in Cuba right now?

Manus: Yes, don’t you think?

Knowledge@Wharton: Well, you see so many people who for such a long time have had basically nothing. And then you have people at the higher end, who have had everything. What we don’t see is that middle tier as much anymore.

Manus: Well, the consumer class is the middle class. This is going to be the creation of the middle class. But there are two points of data here that we should understand: In the last two years, over half a million privately owned businesses have opened in Cuba.

That’s a lot. So that’s entrepreneurialism at its best. And then, those businesses then create jobs. Already, this is happening no matter what. Officials are projecting in the next five years, half the Cuban GDP will be created by the private sector. That’s huge.

Knowledge@Wharton: Now obviously, a very important piece to that is the connectivity…. That’s going to be a hurdle in itself to build out, because you’re going from nothing to the level that you need.

Manus: From what I understand, and if you talk to the University of Havana, they have tremendous Internet [service] … very robust, and basically, what a lot of people say in Cuba is that only 10% of the capability is being used right now.

Knowledge@Wharton: So it’s there.

“Whatever is introduced to Cuba will have a high trajectory, a very fast trajectory, because they don’t know anything else.”

Manus: It is definitely there. Now would they have to build out from that? Of course they obviously would, to really flip the switch.

Knowledge@Wharton: So it’s not as bad as we keep hearing? That only 1% or 2% have Internet access?

Manus: It’s the allowance, it’s the access to the WiFi, it’s the ability to access. It’s not that the Internet infrastructure isn’t in place. Actually, a lot of it is already in place. But now, they need to build out from that, and they’re not going to let anyone come in. Google wants to go in, right?

But I think the key to all of this is that we should not be perceived in this insidious way as coming in and trying to turn on the Internet and trying to create this communication.

Knowledge@Wharton: Right, to start a revolution.

Manus: To start a revolution, that’s right. That’s why I’m proposing these cybercafes. I think this is a way to utilize what is already there, and then build upon it and scale it in a way that the government feels comfortable with. It provides the government with revenues, as well as data, which they’re going to need. It’s a win/win.

Knowledge@Wharton: So doing it with the cybercafe model, you’re talking about also bringing in a technology in solar, which is very foreign to them, but doing it in a manner that’s just dipping a toe into the water.

Manus: That’s right.

Knowledge@Wharton: So they’ll see how effective it can be, and obviously, word gets around and solar then has the opportunity to grow even farther.

Manus: With businesses.

Knowledge@Wharton: Exactly.

Manus: So first, entering it into the business, right? And it seems that, judging by the conversation today, energy is a critical point of investment for Cuba. So this is a way of introducing it. I would love to see a bridge built from the Silicon Valley to Cuba.

Knowledge@Wharton: How big of a factor could a lot of those companies become?

Manus: Absolutely enormous. I could think of four of our companies that could actually expand in Cuba. Now, Cuba is an emerging market — let’s call it that. It’s one that we’ve never seen before; it’s a horse of a different color. But it is an emerging market. Instead of reinventing the wheel, why not use best practices from the way that we’ve scaled into emerging markets?

I know there are a lot of investors in Silicon Valley who would be very interested in coming together to try to create more of a disciplined way to introduce technology to Cuba — not in an insidious way, but really, in supporting what is already there, similar to what I am saying about the sharing mentality to a sharing economy.

“In the last two years, over half a million privately owned businesses have opened in Cuba.”

Knowledge@Wharton: But seemingly, the issue will be even more of the technology companies having to learn what Cuba is all about, as an emerging economy that is so different from those in Africa or Asia. It is something that hasn’t really been seen before.

Manus: No. In a way, it’s a blank slate. But interestingly enough, whatever is introduced to Cuba will have a high trajectory, a very fast trajectory, because they don’t know anything else. So, whatever you’re going to introduce, you’re going to have an early adoption and there is going to be a rapid trajectory.

Knowledge@Wharton: It is my impression that not only do you believe that this solar cybercafe concept can open the door, but that this type of model could work with a lot of other businesses as well.

Manus: Absolutely. One of the things I would like to see is I would like to build a startup accelerator in Cuba. We could build it in a way similar to the Singapore model. However, I would do a Singapore Silicon Valley model.

Knowledge@Wharton: There’s a combo I didn’t think we’d be talking about on the air.

Manus: We’re very innovative in Silicon Valley, so this is what I am coming up with…. In Singapore, as you know, the government has and funds small startup accelerators, and they do it through I think 30 different investment funding arms. There’s Vertex, there’s Spring, there are numerous other ones.

So they give the entrepreneurs a small bit of money, and then they create these accelerators, these buildings, these formats, for them to share ideas and to mentor each other. Then, whatever is created there, they pilot it throughout Singapore. It’s absolutely fantastic. Why not build an accelerator similar to that in Cuba, where the government provides, but it would be the government providing as well as Silicon Valley? It would be a co-investment model into a Havana accelerator.

Knowledge@Wharton: The one thing we do know is that whatever happens, it’s going to be a learning process not only for the Cuban government, but for a lot of people here in the United States as well.

Manus: Absolutely, but this is what startup mentality is. It is a learning process — the number one foundation of business is relationships. And the next one is trust…. Those are the two things that we are going to have to foster in Cuba. We have to go in there, not to take over Cuba, not to change Cuba….

Knowledge@Wharton: But to work with them.

Manus: Work with them, right. And that’s what I really would like to do.

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