What the ‘New Normal’ for U.S.-Cuba Business Relations May Look Like

Havana

Following President Obama’s announced loosening of the trade embargo and other restrictions with Cuba, there has been a rash of speculation about what that could mean for businesses on both sides. Some observers think that full normalization of trade could come as early as this year. Susan Segal, president and CEO of the Americas Society and Council of the Americas (AS/COA), and Alana Tummino, policy director at the AS/COA, spoke about where things are heading and what the ‘new normal’ for U.S.-Cuba business relations might look like on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111.

An edited transcript of the conversation appears below.

Knowledge@Wharton: Susan, when the announcement was made a few months ago that it looked like the U.S. and Cuba were once again going to have normal relations, what was your initial reaction?

Susan Segal: We were very, very excited, because we have been traveling to Cuba — we’ve been working on the Cuba issue now for over six years. We wrote seven steps that the U.S. government could actually do without lifting the embargo. We had taken two delegations, and Alana and another young group of people had gone on yet a third delegation. So when we saw the announcement that December morning — I actually heard about it on television — we were thrilled and very excited and pleased that the time had time.

Alana Tummino: This is an issue we’ve been working on very closely since we created our Cuba Working Group in 2007. This past year the momentum had definitely been building. And so we knew that there was going to be some big announcement from the White House after the midterm election. But I have to tell you, hearing that news in the morning that [detained American and USAID subcontractor] Alan Gross had boarded a plane and was on his way back from Havana to Washington, and that the president was slated to make a huge announcement at noon that day — … it was something that we’ve been working towards — exactly these types of goals — but, we were thrilled, and … taken by surprise that it happened when it did on December 17. And now, we’re just starting a long road of figuring out what this all means, and what the next steps are.

Knowledge@Wharton: Cuba has been a vital topic for a lot of people, especially back in the 1960s, 1970s and 1980s — the heyday of Fidel Castro. But it did almost seem like there was an assumption that normal relations between our two nations were never going to happen again.

“We are trying to overcome … over 50 years of not-normal relations…. We really need to start on a longer process of trust building from both sides.” –Alana Tummino

Segal: I think it was a big thing during the Cold War, and when the Cold War ended. … Cuba became less relevant in the hemisphere. And a lot of other countries were rising in the 1980s and 1990s to establish themselves with huge economic relevance to the United States — like Mexico, Brazil and Chile. And so, Cuba … wasn’t that it wasn’t relevant, [but] people didn’t focus on it, because there was no real opportunity for business to engage with Cuba. And there was a lot of opportunity for the private sector to engage in a number of other countries.

Knowledge@Wharton: Still, while there wasn’t that opportunity between Cuba and the U.S., there certainly were opportunities for business engagement between Cuba and a variety of different countries. And in some respects, they were able to take advantage of that.

Segal: I think that’s absolutely right. You’ll find that there’s Spanish investment, there’s Brazilian investment, there’s other European investment in Cuba. But the fact is, the private investment regulations in Cuba are now just beginning to be developed. So the real future and larger and more interesting opportunities, in many ways, are yet to come. Twitter 

Knowledge@Wharton: What is your expectation then of when you think we will see normal, open relations with Cuba?

Segal: It really depends how to describe “normal relations….” So, let’s start with what is “normal relations.” I think that the step that was just taken is a huge step. So now the next step — which both the Cuban and the U.S. government are working towards — is opening embassies, the Cubans opening an official embassy in Washington, and Washington opening an official embassy in Havana. And then the next step is really to get them off the State Sponsors of Terrorism list. That’s really important, because that will allow even more free flow of trade and investment. And then the big step is the embargo.

I think President Obama — I can’t speak, obviously, [for] the administration — but I think people’s expectation and what he said would indicate that, yes, he would like to see the embargo lifted. But that also depends on Congress. So I think we have to wait and see.…

You know what’s amazing? Everything in the world is a process. And the process in Cuba to change a policy that did not work, and to open up relations between the United States and Cuba, is started. And that is the most important thing, because you can’t get to normalized relationships until you start. And now, we’ve started.

Knowledge@Wharton: So, Alana, from a policy perspective, what are the most important things that need to be put in place to ensure that long-term relationship?

Tummino: I think from a policy perspective, what Susan was saying is that everything is a process. W0hat we need to keep in mind is that we are trying to overcome right now over 50 years of not-normal relations — a war of political estrangement between the United States and Cuba. And so we really need to start on a longer process of trust building from both sides.… We had the first round of negotiations happening, with a lot of fanfare in Havana, with our U.S. delegation to Havana. Then, one month later, they came to Washington and had another round of negotiations. And then, what we saw last week was things kind of simmering down a little bit, from the press standpoint. A delegation went to Havana. They announced it just two days before they went. They announced it on Friday, arrived in Havana on Sunday night, had just one day of negotiations….We’re starting to see both sides rolling up their sleeves and going into these issues that Susan talked about.

We’re talking about establishing embassies. They’re talking about state sponsors of terrorists, and terrorism within a number of other issues. I think it was a bit ambitious for the administration. You know, I think they set out on this process thinking that they could have embassies established by the Summit of the Americas…. We’ll wait and see if that happens. I think we just need to continue to see this as a process and that is has begun. [There’s a] long list of issues that both sides need to discuss, [and that] will be something that happens throughout the year.

“We’re starting to see both sides rolling up their sleeves and going into these issues.” –Alana Tummino

There are some big opportunities right now, based on announcements of President Obama. The changes are very significant in terms of many different sectors. So now it’s very important to take advantage of them from a business standpoint. [It’s time for] financial service companies, for telecommunications companies, to take the regulations that are now in place, and to go into Cuba and really start putting all of this into action. So we’ll have to see that play out.

Knowledge@Wharton: Susan, you have written a good bit about how entrepreneurship in Cuba is one of the areas that really has the opportunity to grow. Is entrepreneurship similar to what we’re seeing here in the United States? We’re seeing a lot of millennials really pushing ideas forward — the younger generation really trying to affect change. Is it the same in Cuba?

Segal: Well, entrepreneurship in Cuba is a little bit different than entrepreneurship in the United States. The spirit’s the same — people wanting to go out, take risks, create their own businesses, and be excited about that. But to a certain degree, entrepreneurship in Cuba right now is very grassroots. It’s really about very small businesses, opening a restaurant, [etc.]. We met one amazing entrepreneur that’s taken … a bunch of old cars, renovated them, and they drive tourists around when they come. … So, these are really small, micro-enterprises, as opposed to the way that we think of entrepreneurship in the States.

Tummino: What Susan is saying is true, that these are very small businesses. But it’s still extremely exciting. There are now close to a half a million registered self-employed entrepreneurs in Cuba, or “Cuenta Propistas ” as they call themselves. We’re seeing this now for the first time in 55 years — Cubans are now able to start their own businesses. It was prohibited, and in 2011 we saw a reform from Raul Castro. In order to help their own stagnating economy, he needed to lay people off of the state payroll. And in doing so, he allowed all these different areas where Cuban citizens can now open their small businesses.

So we’re seeing really interesting businesses, from the computer and tech space, to private restaurants, to the repair shop, to event planners. And we traveled across Cuba … and met with entrepreneurs…. We were in Santa Clara and Camaguey and Havana. And just listening to the stories of these entrepreneurs and understanding how much they’ve had to overcome in terms of trying to create these businesses, I think really is testament to the will and the great talent of the Cuban people to start their own businesses. It’s going to be one of the most exciting sectors to focus on in the next year, in the next two years….

Knowledge@Wharton: We also hear the stories about what potentially needs to be built out in Cuba, and that there are a variety of areas that really need focus. Can you put your finger on one or two areas that are the most important? Or are we talking about a variety of different things that really have equal importance?

Tummino: I think there is opportunity in so many different sectors right now. There are different challenges in each sector, as well. In terms of entrepreneurship and the challenges that we face there…. But real challenges remain as relates to access to finance, access to goods, access to markets. We’re going to see that change under the new regulation, which is really exciting. And in terms of opportunities across the country, there are huge opportunities beyond this entrepreneurial field — in telecommunications, in financial services, in different agriculture and healthcare markets, and infrastructure — it’s huge.

“When the Cold War ended … Cuba became less relevant in the hemisphere.… [People] didn’t focus on it, because there was no real opportunity for business to engage with Cuba.” –Susan Segal

The Cuban side needs a lot of investment in agriculture and infrastructure, and I think that increased trade between our two countries will be able to not only fill that need, but will be able to benefit a lot of the companies on the U.S. side, as well.

Knowledge@Wharton: Where are we in the whole process right now? Because since December, it seems like information is only getting out to the public in dribs and drabs, and we’re still a bit away from getting those formal relations going.

Segal: When you spend as many years without a relationship as the United States and Cuba have spent, a relationship doesn’t just happen overnight. So, we’ve started. The U.S. and Cuban officials have had three meetings — two in Cuba, one in the United States. The expectation is that there will be many more meetings, and that on both sides, there’s enormous amount of good will to move this process forward as quickly as possible. If you read the polls after the announcement in December, in the United States overall, the President’s actions received favorable response on a 2-1 basis.

So this has been an incredibly popular decision in the part of President Obama. So, there’s an enormous amount of excitement around Cuba. For an island with 11 million people, every day I wake up and I say, this is just incredible, the amount of excitement, the amount of hype, the expectations. It’s almost as if there’s something romantic about Cuba. And all of this is going to drive the United States and Cuba — they’re opening up, inaugurating a route, a direct flight from New York City to Havana once a week. All of these things are just going to bring us closer and closer. In a sense, the genie is out of the bottle, and the populations of Cuba and the United States, the people of the two countries are now getting closer and closer. And that will drive the governments, I think, to expedite whatever conclusion is out in front of us.

Knowledge@Wharton: It’s, it’s an untapped resource for the U.S. to Cuba, but also, Cuba to the U.S., isn’t it?

Segal: It’s an untapped resource. One of the sectors that’s really interesting, and I’ve found fascinating when I travel to Cuba, is the biotech sector.

For some reason, Fidel Castro decided that there should be a biotech industry in Cuba. And interestingly enough, it is quite a good sector. But if you think about it, it’s a sector where because of the restrictions, we didn’t have the right kind of interaction between the U.S. and their scientists, our drug companies, and the companies that are developing the drugs in Cuba. So, for example, this is an incredible, untapped opportunity for Cuba in the United States, and working with scientists here, and getting the kind of interaction that scientists like to have around the world. — the intellectual interaction.… And it’s also an enormous opportunity for the United States.

“At this point, it’s kind of a wait-and-see: Who is going to make these first steps? And what is the reaction going to be from the Cuban side?” –Alana Tummino

Knowledge@Wharton: As Susan mentioned, the genie’s out of the bottle — but the genie hasn’t been able to walk through the front gate yet.

Tummino: That’s a great point. We [had] this amazing historic announcement in December. The regulations were implemented very quickly, within a month after the president’s announcements. Treasury, Commerce … they had these regulations implemented and written. But, now we have to see what comes next, and the steps that companies are really going to take to move into this market. It’s a little more cautious on that end.

There was a lot of excitement and a lot of fervor around the announcements and the regulations…. But, now we have to see who’s going to take these first steps, what are the relations going to be like for companies that are going in? If you have a telecommunications company going in and working on Internet connectivity, how are they going to be [received]? What is their relationship going to be with the Cuban government, for example –because there has to be a lot of collaboration in terms of infrastructure development with the Cuban government?

The first step was the announcement, and the second step will be seeing who is going to be entering this market…. At one of our dinners, we were sitting around a table with a number of different ambassadors … from Brazil, from Chile, from Spain, from the European Union, from Mexico and Canada. And it was very clear that all of these other countries are creating commercial relationships with Cuba. And Brazil’s ambassador — we were laughing, [because] it was more like Brazil’s ambassador was actually a commercial attaché in Cuba, Brazil is investing so much in the Mariel Port, in other areas of Cuba’s economy.

So I think there is real opportunity — you know, especially under these new regulations. But at this point, it’s kind of a wait-and-see: Who is going to make these first steps? And what is the reaction going to be from the Cuban side?

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