By Doreen Hemlock/Cuba Standard
Equipment maker Caterpillar is preparing to re-enter the Cuban market as soon as possible, and a top executive suggests other U.S. multinationals start getting ready too.
In April, the Illinois-based giant sent an eight-member delegation to Cuba for a week of meetings with officials and industry experts to check out business opportunities. The group featured leaders from its three big divisions: construction, mining and power generation. It also included a representative from the company’s philanthropic arm, Caterpillar Foundation.
The team came back pleasantly surprised by strong optimism among residents, greater-than-expected appreciation of U.S. goods, and Cuba’s eagerness to attract foreign investment. The group now sees more opportunities for sales and Cuba’s market rising faster than they predicted before the trip.
“This is our chance to play catch up,” said delegation member Bill Lane, who leads global government relations, after the visit. For Caterpillar, rivals from Europe, Japan and increasingly from China now dominate equipment sales on the island because of Washington’s more than 50-year old embargo on Cuba. But the Obama administration’s new policy of engagement opens the door to resume company sales to Cuba, which had flourished in the 1950s. “There’s pent-up demand for American products.”
Caterpillar has publicly opposed the U.S. embargo on Cuba for more than 15 years. It argues that unilateral sanctions – imposed only by the United States and not by a group of nations – hurt U.S. business and shift sales to competitors. It learned that lesson the hard way when U.S. sanctions on the Soviet Union sent grain sales to Argentina and Canada, and pipeline-related sales to Japan, said Lane.
In the late 1990s, Caterpillar helped organize the USA Engage coalition to end unilateral U.S. sanctions, with executives even testifying on Capitol Hill. As momentum for change grew with the 1998 visit to Cuba by Pope John Paul II, the company sought to re-build ties with the island, partly through donations. It offered power generator sets to two hospitals in the Havana area. And it held ribbon-cutting ceremonies for the donated units in 2004, said Lane, who visited Cuba in 1998 and 2004 for those milestones.
But efforts to ease the U.S. embargo on Cuba then lost steam – until Obama’s Dec. 17 announcement that Washington aimed to re-establish diplomatic relations with the island of 11 million residents.
“If you are not focusing on Cuba now, I think you are missing out,” Lane told an audience of about 300 people at a May 4 panel on Cuba during the eMerge Americas tech conference in Miami Beach.
On his April visit to Cuba, Lane said he was amazed at how much things have changed in the past decade, starting with the food. Meals at private restaurants in Havana now compete with four-star eateries in cities anywhere, said Lane.
When Cuban officials spelled out opportunities in the special economic zone at the Port of Mariel, Lane said he felt like he was listening to a pitch from Invest New York, down to the offer of no taxes for 10 years: “It was a traditional presentation you get from state and municipal organizations in the U.S. or overseas.”
Caterpillar now sees business opportunities in Cuba for all its major divisions, said Lane. It expects construction to rise in roads and other infrastructure, as the island welcomes lots more visitors and tourist projects. That includes more U.S. arrivals since Obama this year eased rules for U.S. travel to Cuba.
In addition, Caterpillar sees expansion coming at nickel mines, led by Canada’s Sherritt. And it knows more electricity projects will be needed, as tourism and business pick up. Funding could be approved soon through such multilateral groups as the World Bank and International Monetary Fund.
“We don’t want to cede all that business to our European and Asian competitors,” said Lane in an interview. “Fifty-four years [of the U.S. embargo] is enough. It’s time to let us do business in Cuba.”
Just how U.S. policy to Cuba plays out remains an open question, however.
Lane said he’s heard that diplomatic relations could be re-established as soon as early summer, and then, Obama might use his executive authority to take more steps to ease business with the island.
While some parts of the U.S. embargo on Cuba are set in law, such as payment in advance for U.S. farm products sold to the island, Obama could act on other aspects. He might, for instance, permit sales to Cuba of non-farm goods and services without pre-payment, said Lane.
“I think we could see a lot of activity very quickly,” said Lane from his office in Washington, D.C.
Before the trip, Caterpillar’s team estimated that Cuba’s market could grow to the size of Dominican Republic’s and later to rival Puerto Rico’s, the largest economy in the Caribbean. Now, the team expects that growth faster – based on Havana’s welcoming stance to foreign investment.
“The feeling with the Caterpillar executives is that we underestimated the potential,” Lane said.
Caterpillar could use a pick-up from sales to Cuba. The 90-year-old company is widely known as the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial turbines and diesel-electric locomotives. But its business has been sagging.
Annual revenues fell about 1 percent in 2014 to $55.18 billion. And they’re forecast to slide to $50 billion this year because of slow growth in the world economy and low prices for metals and other commodities. Low commodity prices are hurting sales in the mining sector, executives have said.
Cuba might even become a service hub. Lane said Caterpillar was impressed by the skills of diesel mechanics on the island, who have had to be very innovative to keep decades-old machines and cars running.
Until U.S. business with Cuba is allowed, Caterpillar plans to keep studying the island market, visiting and deepening relationships. It also aims to begin building on the existing awareness of its brand in Cuba, possibly through donations, micro-finance or other philanthropic programs, said Lane.
His advice to other U.S. companies looking to grow: “Go down there and start scoping the place out – unless you’re a Caterpillar competitor. In that case, stay home.”