Book review: How will your company fit into the new Cuba?

Look at the big picture!

Feinberg book reportBy Johannes Werner

As he was calling to tell me he was going to subscribe to Cuba Standard, the small-company owner from Miami wanted to point out a blemish: our occasional columns by analyst Richard Feinberg.

The gentleman from Miami told me he had been doing business in the island for years and, due to that, he had little respect for “all these so-called experts that now pop up, like Feinberg”. He went on to state that the “only book worthwhile reading” about business in Cuba was Michel Villand’s My Associate Fidel, the tell-all tale the French businessman (“Pain de Paris”) published after the Cuban state had compensated him in a multi-million dollar settlement for the hostile takeover of his company a decade earlier.

Fair enough, because My Associate Fidel offers wonderfully deep insights into how business was done under Fidel.

However, the implicit message our Miami reader was trying to get across was that, when it comes to learning about Cuba, you can only trust your own — people who have experienced the challenges of doing business in Cuba in their own flesh, foreigners who have learned to resolver. And the implicit message within the implicit message was that Cuba — reforms be damned — will continue to be marked by the stark contrast between a formal façade and the informality that’s hiding behind it.

I beg to differ, on two accounts.

For one, Cuba is changing. It’s not just the façade the reformers are re-doing, there’s a lot of change in the building behind it, too. Just use My Associate Fidel as a foil, and you’ll see how much has changed in Cuba under Raúl.

Needed: the big picture

But if you want to understand how your business might fit into this renovated building, looking forward, you need a big-picture perspective of what the reformers are trying to achieve, and how they do it.

In his new book, Open for Business, Feinberg accomplishes that task comprehensively and brilliantly.

Obivously, I don’t agree either with our Miami reader’s description of Feinberg as a “so-called expert”, and even less so with the suggestion that he is a newcomer.

Yes, Feinberg is a Washington wonk, and his ultimate goal is to shape the policy of current and future U.S. administrations. But he’s been a Cuba actor since the early 1990s. Although his voice for dialogue was drowned out by the Brothers to the Rescue shootdown and the loud anti-Castro lobby in the Bill Clinton administration, his credentials included special assistant to the president for National Security Affairs and senior director of the National Security Council’s (NSC) Office of Inter-American Affairs.

Back to non-government life for many years, Feinberg now uses the Brookings Institution — the think tank that probably tries hardest to stay middle-of-the-road in Washington’s political traffic — as his loudspeaker. Some components of this book first appeared as policy papers of the think tank, and Open for Business was published by the in-house Brookings Institution Press.

Adding to his credibility, he’s spent a lot of time in Cuba in the past few years. Doing actual business in Cuba is about the only thing Feinberg has not done, but he certainly has observed a lot of it. Taking the role of a visitor with a business mindset, Feinberg has, in a low-profile but systematic way, been listening to economic actors and observers in the island, including expat business executives, 25 emerging Cuban entrepreneurs, diplomats, and a handful officials. This has enabled him to fill in some of the big white spots official Cuba’s restrictive information habits leave of the full picture.

Where is Cuba on its march to reform?

Feinberg’s radar scan of the Cuban economy is one of the most refined, and this enables him to pinpoint with precision Cuba’s location in its march towards really being “Open for Business”.

As Feinberg puts it, Open for Business is “an advertising slogan but still an aspiration”. Analyzing the ‘why’ and ‘how’ of this march towards the goal is the biggest value of Feinberg’s book. His comprehensive analysis of Cuba’s foreign investment history and current practices and the insight in his chapter about private-sector business set the standard.

The seven case studies of joint ventures clarify that some foreign investors have learned to operate successfully, even within the limited parameters of Cuba’s state-dominated economy before the reforms. But one of them, Río Zaza, whose assets were confiscated by the government after a high-profile corruption trial, also shows the political pitfalls of investing in Cuba.

And the case of Dutch-British multinational Unilever, which had to leave Cuba first, after more than a decade of operating there, before it was able to get the Cuban government to grant it some of the flexibility it needed to be successful, shows that not only patience, but sometimes walking away is needed to succeed.

As Feinberg puts it: “No international economic strategy will work unless Cuba can transform itself into a more efficient and reliable business partner.”

Looking at the future

So what’s ahead?

Feinberg came up with three possibilities — a good “soft landing”, a bad “inertia”, and an ugly “decay” scenario. But wisely, Feinberg decided to let the readers decide what outcome is most likely, using anecdotal insights into Cuba’s rising entrepreneurial class: The best glimpse of Cuba’s future are the portraits of a dozen millenials he presents in the second-to last chapter.

“A common imagery fixes Cuba as a poor society whose middle classes departed in the wake of the revolution. Yet in Cuba today the middle class has been replenished (albeit with depressed levels of private consumption),” Feinberg writes about these entrepreneurs. “But it remains to be seen whether the powerful Cuban state is prepared to allow private business and the overlapping middle classes to extend their wings and grow.”

The cost of being Washington-centric

In some instances, Feinberg’s Washington-centric perspective clouds his otherwise fine-tuned judgment. For instance, he attributes to inertia Cuba’s ignoring of a presumed Google mega-offer to connect the island to the web, and the continued impossibility for U.S. companies to deal directly with private businesses in Cuba.

“Rather than focus on taking advantage of the Obama offers and building on them, the Cuban government preferred, in its public rhetoric, to continue to rail against the U.S. economic embargo, as if little had changed,” Feinberg writes in the opening chapters.

But there are sound economic reasons behind Cuba’s efforts to wiggle away from Washington’s bear hug, behind their choice of a Chinese IT corporation to wire the island, for Havana’s reluctance to let private businesses deal directly with U.S. entities, and for Cuban officials’ insistence on more executive action by Obama to ease fears among European and Asian banks. Cuban policymakers have been burned repeatedly by the lopsided dependency on one outside power, and normalization threatens to quickly pull the island’s tiny economy into the gigantic U.S. sphere of gravity again — something Cuban leaders want to avoid at any cost, with diversification as the main line of defense.

If you see the challenge from that perspective, given the trouble European, Latin American and Asian investors still face in pulling together funding, such as for $1 billion- plus in renewable-energy projects, a few actions from the White House could make a difference.

I call that wisdom.

To his credit, Feinberg, just a few paragraphs later, quotes Foreign Trade and Investment Minister Rodrigo Malmierca: “We won’t keep out American businesspeople, they are welcome, but we want to keep our relations diverse. We don’t want to be tributary to anyone.”

All things said, Open for Business is a must-read for anyone doing — or aspiring to do — business in Cuba

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