Better Economic Relations With Cuba Could Be a Win-Win

Katherine Peralta  |  US News & World Report  |  December 23, 2014


Ramon Espinosa, AP

Americans are warming up to the idea of closer economic relations with Cuba following President Barack Obama’s announcement last week of policy changes with the Caribbean nation.

And experts say that easing tensions – plus an eventual lift of a U.S. trade embargo, which Obama described as having been “self-defeating” – could be a win-win for both countries’ economies, specifically for U.S. trade and Cuban household incomes.

But change could be slow, they caution, and requires continued support from Cuban officials.

“It’s a big deal, this opening up, and it could really change Cuba and the whole trade with Cuba quite dramatically,” says Stephan Meier, an economist and professor at the Columbia University Business School.

According to a Washington Post-ABC News poll released Tuesday, 68 percent of Americans support ending the trade embargo with Cuba, up from 57 percent who said so in 2009. Seventy-four percent support lifting the U.S.’ travel ban, up from 55 percent five years ago. Support for increased trade and travel is widespread across party lines.

Among other changes, Obama’s policy shift will ease travel restrictions, quadruple the allowance of money people can send to relatives in Cuba, allow U.S. banks to open accounts in Cuba and increase telecommunications in Cuba – all of which could help heal Cuba’s economy enough to support stronger export purchases from the U.S.

Food product exports, already the biggest American export category to Cuba, have grown by almost 120 percent since 2001, when Hurricane Michelle ravaged the island and President Bill Clinton started offering food aid. And poultry is one subcategory that may flourish under loosened restrictions.

“If tourism [from] the U.S. opens, hotels and restaurants would be in a position to start importing … not just chicken products, but also turkey, deli meats, other higher-value products to put on their menu, which for the most part is not available right now in Cuba,” says Jim Sumner, president of the USA Poultry & Egg Export Council.

Sumner, who has visited Cuba “half a dozen times,” recalls that when he first met former President Fidel Castro in 2003, the country’s leader said he realized it’s more cost-effective to import chicken from the U.S. and focus domestically on other commodities like tobacco and sugar cane.

“Chicken is the lowest-cost animal protein available and we’re in the closest proximity,” Sumner says. “If product is going to be brought in from Europe or Brazil, we’re talking about weeks on the water. For us, it takes two days to get there from Florida or the Gulf Coast.”

For finances on the household level for Cubans, the increased remittance allowances – up to $2,000 from the previous $500 per quarter – will come as a relief. Carmelo Mesa-Lago, a professor of economics and Latin American studies at the University of Pittsburgh, estimates the median salary for a Cuban worker to be about $21 per month and the median pension distribution to be $6 a month.

“Remittances in terms of cash and remittances in terms of sending packages of food and other consumer goods are very important for the Cuban population. Otherwise it would be impossible for them to survive,” Mesa-Lago says.

The State Department estimates that remittances to Cuba range between $1.4 and $2 billion a year, though the U.S.-based Havana Consulting Group estimates remittances grew to $2.8 billion in 2013, according to a report from the Congressional Research Service.

But there’s also evidence, Mesa-Lago and Meier each say, that remittances exacerbate income inequality within the Cuban population along racial and ethnic lines.

“Probably half of the population is black or mulatto, but only a small percentage of that population, although increasing, is abroad. Therefore there are less people sending remittance to that ethnic group in Cuba than to whites,” Mesa-Lago says.

Loosening travel restrictions could also be a boost for Cuban incomes, especially for those with direct contact with visitors, Meier says.

“If you have $30 in monthly income and you’re a cabdriver and … normally per ride you might get a $1 tip, do the math: You could make like in a day as much as somebody makes in a month,” Meier says.

Despite the changes in policy, Mesa-Lago says the Cuban government needs to build on the economic reforms President Raul Castro has already undertaken – like reducing food rationing – to buttress the country’s economy.

“That is not going to make it a magic transformation. Cuba needs to have a significant improvement in their economic system in order to be self-sufficient and generate exports to pay for the imports that it needs,” Mesa-Lago says.

In a Dec. 19 end-of-year press conference, Obama said the Cuban economy “doesn’t work,” especially considering its reliance on Venezuela, which is itself on shaky economic footing.

Cuba, then, is still a risky place to do business, and the recent changes won’t necessarily alleviate the trouble it has in accessing credit to build up things like infrastructure, Meier says.

That means Cuban officials still have some work to do in making the country attractive to foreign investors.

“They will need not just that people come to Cuba and buy cigars there and drink rum, they need foreign direct investment. They need people to come from outside and invest in it. But that means they need to get rid of some of the restrictive policies they have,” Meier says.

This entry was posted in Exchanges. Bookmark the permalink.