Bienvenida—Maybe: Cuba's Gradual Opening to World Markets

Bienvenida—Maybe:Cuba's Gradual Opening to World Markets Richard E. Feinberg (bio) since the collapse of its former patron, the soviet union, cuba has successfully diversified its international economic relations. Initially, Cuba reached out to Europe and Canada. As a consequence, today Spanish and Canadian firms manage many of the expanding hotel chains in Cuba—making tourism the economy's most dynamic sector. Over the past two decades, Cuba has also forged valuable economic partnerships with major emerging market economies—notably China, Brazil, Mexico, and Venezuela. But the success of Cuba's international economic diplomacy has not been matched by an expansion of its internal economy; this contradiction has frustrated its economic partners and slowed the growth of commercial exchange. Similarly, while Cuban diplomats have touted a new openness to foreign investment—even to the point of emphasizing the critical contributions that foreign capital, technology, and markets could make to the Cuban economy—the on-island approval process has proven painfully slow. In a 2016 end-of-year address to the National Assembly, the powerful minister of the economy and planning, Ricardo Cabrisas, made this poignant admission: "We have not achieved the goal, that foreign investment play a fundamental role in the development of the nation, as was proposed in the reform agenda approved during the Sixth Congress of the Communist Party of Cuba [2011]. The current situation requires that all of us act with greater dynamism" (Reinaldo and Concepción 2016). [End Page 305] Cuba's diversification of its international commerce is an evolving process, and bilateral trade imbalances have frustrated expansion. A variety of factors lie behind the near-paralysis in relations with most potential foreign investors and the contradiction between hopeful official statements of intent and lethargic bureaucratic execution. Similarly, there are a variety of obstacles to and opportunities for expanded trade and investment flows, all of which must be confronted if Cuba is to move forward. CUBA DIVERSIFIES ITS INTERNATIONAL ECONOMIC RELATIONS1 Since the collapse of the Soviet Union, Cuba has opened its economy to the world. The island enjoys normal commercial relations with all but a handful of nations (most notably of course the United States). But its relations with the capitalist democracies of Western Europe have been volatile, plagued by ideological disputes over political and civil rights, contrasting foreign policies, and divergent views on the sanctity of commercial contracts. In contrast, the Cuban government is more comfortable with the economic systems and geopolitical postures of its key emerging market (EM) partners (Mexico being a partial exception, as will be discussed). While EM economies differ substantially among themselves, they have in common strong state sectors that command ownership of productive units (state-owned enterprises) and routinely intervene in private markets. Particularly in the case of Cuba's top two EM economic partners, China and Venezuela, official entities play a leading role in orchestrating international economic relations. In the case of Brazil, the Brazilian Development Bank (BNDES) seals the major Cuban transactions with its political weight and concessional credit terms. Cuba's EM strategy does not exclude ongoing economic relations with Europe and Canada, who remain important commercial partners. But the current EM tilt signaled an important shift in Cuba's international economic outlook. [End Page 306] Today, approximately 50 percent of Cuban trade (merchandise imports and exports) is with major emerging markets: Venezuela, China, Brazil, Mexico, and Russia. As figure 1 shows very clearly, the EM strategy initially bore fruit: two-way merchandise trade soared from under $2 billion in 2003 to over $8 billion in 2008. However, rather than being the early stage of a vibrant expansion in Cuban commerce, 2008 turned out to be the peak of achievement, after which Cuba's EM trade fell backward. It could not generate the exports required for balanced trading relationships, and its EM partners—tired of extending credits that Cuba proved unable to repay—were not able to develop sufficient on-island investments to generate the value-added exports to anchor sustainable commerce. Click for larger view View full resolution Figure 1. Cuba Merchandise Trade with Emerging Markets, 2000–14, in US$ billions Source: International Monetary Fund (IMF), "Direction of Trade Statistics" (www.imf...

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