Hopes for Cuban revival fade after Fidel's brother takes reins

BYLINE: Anthony Boadle - Reuters

When the ailing Fidel Castro resigned last month, stock prices of U.S. companies that stand to benefit from more business with Cuba rallied.

Six days later, those shares retreated as his brother Raúl Castro, Cuba's first new leader in 49 years, was installed and picked old-guard revolutionaries to help him govern.

That dashed forecasts of a rapid transition from communism to capitalism and an end to the embargo the United States has kept against Cuba since 1962, which bars U.S. investment and most travel to the island.

''Anyone who thinks there will be a 'for sale' sign up by a bankrupt Cuban government is wrong,'' said the manager of a Canadian company, who is based in Cuba and spoke on the condition of anonymity because of the sensitivity of doing business in Cuba.

As Raúl Castro moves to raise living standards, foreign investment opportunities in mining, oil, tourism, possibly agriculture and even ethanol would open up, but only for non-U.S. companies, the executive said.

European, Latin American, Israeli and Arab investors already have a foot in the door in Cuba in the cigar, rum, citrus and hotel industries. With no American competition to worry about, they are looking at a windfall when U.S. sanctions are eventually lifted.

That day is still far off, even if a Democrat wins the presidential elections in November, say Cuba watchers, who see no action by the U.S. Congress until Havana releases jailed dissidents and reforms its one-party state.

Raúl Castro has vowed to maintain Cuba's socialist system, and there are no signs that he intends to follow the free-market path of China and Vietnam.

However, he has already taken some small steps. Within weeks of formally taking office, his government has moved to allow Cubans to buy consumer goods that were banned until now, like computers and DVD players.

The increased consumption longed for by Cubans would benefit European companies already producing goods in Cuba, like ice cream and soft drinks by Nestlé; beer by one of the world's largest brewers, InBev; soap and shampoo by the Anglo-Dutch giant Unilever; and cigarettes by Souza Cruz of Brasil, a subsidiary of the British American Tobacco group.

Allowing Cubans to buy mobile phones and have more access to Internet would increase sales for the state telecommunications company Empresa de Telecomunicaciones de Cuba, in which Telecom Italia has a 27 percent stake.

Even Red Bull of Austria has set up in Cuba, selling its energy drink to young Cubans who can afford the silver cans.

Foreign businessmen have spent years struggling to make money in Cuba's inefficient state-run economy since it opened up to foreign investment and tourism after the 1991 collapse of the Soviet Union.

Many were disappointed trying to do business with the communist bureaucracy and were squeezed out or failed to collect payments. Others had equipment stolen in joint-ventures that folded. Some small ventures were just a pretext for businessmen to enjoy a life of mojito cocktails and women in the tropics.

Foreign firms have had to endure sanctions by Washington for doing business in Cuba. A dozen directors of Sherritt International of Canada are still banned from entering the United States under the 1996 Helms-Burton law. That did not stop Sherritt investing $1.5 billion in Cuba's nickel industry and in coastal oil and gas production.

Another successful venture penalized by the United States was BM Group, Cuba's biggest citrus exporter, co-founded by a former Israeli intelligence operations chief, Rafi Eitan, who has divested since becoming the Israeli minister for pensioners' affairs.

The BM Group became the biggest commercial real estate developer in Cuba with the building of Havana's main business center, the Miramar Trade Center, which is now owned by Ceiba Finance, a $100 million growth fund registered in the Channel Islands.

Companies making Cuba's most famous exports, cigars and rum, are banking on gaining access to the U.S. market one day.

The French spirits giant Pernod-Ricard last year built a distillery for its Havana Club joint venture to make dark rum that is partly aimed at future sales to the world's largest rum market, the United States. Havana Club managers are confident that by that time they would have won a U.S. trademark dispute with their rival, Bacardi.

The cigar maker Habanos, half owned by Imperial Tobacco of Britain since it took over the French-Spanish cigarette manufacturer Altadis, is expected to double sales the day U.S. smokers can buy its premium hand-rolled cigars.

Lifting the travel ban could send millions of Americans to Cuba, reviving its stagnant tourist trade and filling beach resort hotels run by foreign firms like the Spanish hotel chain Sol Meliá , which manages 24 of them.

Qatari Diar Real Estate Investment last year began building a $75 million 200-room 5-star hotel on Cayo Largo del Sur, Cuba's most beautiful key.

The state-owned Dubai Ports World, which relinquished control over six U.S. ports in a political firestorm in 2006, has agreed to study the building of a $250 million container terminal in the Cuban port of Mariel by 2012. Proximity to the United States could make the port a hub for shipping cargo to the United States.

Meanwhile, U.S. interests have to wait until the embargo is lifted, said Thomas Herzfeld, who runs a fund that invests in companies likely to gain from the opening up of U.S. trade with Cuba, like cruise line companies based in Miami.

Shares of his closed-end Herzfeld Caribbean Basin Fund soared 28 percent to an intraday high of $9.50 on Feb. 19, the day Fidel Castro announced his retirement, but then fell back when it became clear that reforms would be gradual under his brother.

Herzfeld is optimistic the U.S. embargo would go some day soon and said the U.S. Congress could start easing sanctions if Raúl Castro frees Cuba's political prisoners.

''Or it could be like the Berlin Wall at the end of communism,'' he said. ''Sometimes these things happen much more quickly than people think.''

The International Herald Tribune

March 22, 2008 Saturday
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