Cigars, Etc.: Cuban Development on Cuban Terms

On the contrary, Entwistle said it’s paramount that investors acknowledge the importance of Cuba’s historical trajectory and respect it for what it represents. U.S. investors in particular need to know that Cuba has its own plan as far as economic liberalization and development go, he said. And although the country needs foreign investment and U.S. investment, when it gets going, will be particularly important, things will happen on Cuba’s own terms.

“Cuba is already a hustling and bustling place with lots of foreign investment going in,” Entwistle said. “Most Americans don’t realize this but the U.S. embargo is wholly unilateral and as much as there will be both need and opportunity for U.S. investment going forward, U.S. investors will need to listen very carefully to what the Cubans want and be in synch with their priorities.”

Above all, that means understanding that “Cubans don’t want to go back to a situation where the U.S. owned 80% of the sugarlands and two-thirds of business in Cuba, and even if Cubans are worn out and want a more open economy, Cuba is a mature country that places importance on the value of national assets,” Entwistle said. “U.S. businesses and investors that want to be in Cuba therefore have a steep learning curve and they will have to work in partnership with the Cubans.”

Thomas Herzfeld, Chairman and President of Thomas J. Herzfeld Advisors, Inc.

Since President Barack Obama’s December 17 statement on Cuba, investor interest in Thomas Herzfeld’s Caribbean Basin Fund has increased tremendously, based on anticipation that the embargo will be lifted and banking on the 20-year lead that Herzfeld has on the Cuban investment story.

His closed-end fund was set up in 1994 with the goal of investing in companies that would benefit from Cuba’s reopening and a resumption of trade and tourism from the U.S.

“We understood when we launched the fund that it was not sure when embargo would be lifted, so we planned a portfolio that would invest in companies throughout the Caribbean and that would do well even if there was no change in the embargo, but that would do really well if the embargo was lifted,” Herzfeld said. Now, the fund is shifting its focus to finding companies that are more direct Cuba plays, Herzfeld said, and his firm will also be starting a private equity fund to invest in Cuba, where the potential investment opportunities are ample, and exist in diverse industry sectors including telecom, food and beverage, cement, to name a few.

According to Jose Oro, a former Cuban minister of industries and mining who has been advising Herzfeld for the past 20 years, “we are in a different world and Cuba is a different Cuba.” Within the country, there has been a substantial liberalization, and though the Cuban private sector is still modest, a half a million Cubans are now self-employed, Oro said. Cuba is open and ready for foreign investment, particularly investment from the U.S., and in that vein, “a good relationship with the U.S. is what really counts,” he said. “The U.S. instrumental for Cuba and having that relationship will just make Cuba more attractive to other countries and investors and entice them to invest in Cuba.”

The Cuban government, he said, has a number of economic priorities and would look to promote sectors like tourism, agriculture, telecommunications, and construction, among others. If and when the U.S. embargo is lifted, U.S. investment can play a big part in developing these and other sectors, he said.