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AS I SEE THINGS: Cuba: The effects of lifting the embargo

Brian M. Francis, [email protected]

AS I SEE THINGS: Cuba: The effects of lifting the embargo

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PART ONE OF THIS COLUMN focussed on the historical aspect of the United States (US) embargo on Cuba. This week’s contribution addresses the important question of the potential effects of the lifting of the embargo on the business environment in Cuba.

The business environment, you may recall, refers to all of the cultural, economic, legal, political and social issues that influence the operations of private enterprises within the country’s domestic economic space.

Undoubtedly, the easing of the embargo is going to have profound effects on the domestic political scene in Cuba, political relations between Cuba and the US, and economic ties between both countries.

Given the prevailing economic system in Cuba and the way in which the production, distribution and exchange of goods and services are organised, it is logical to expect significant changes in Cuba’s legal system if indeed the two countries are to benefit mutually from improved economic relations. And as Cuba opens more and more to visitors from the US and other western countries, one would expect there to be some effects on the Cuban cultural environment.

Despite the anticipated effects of the lifting of the embargo on all of the key aspects of Cuba’s business environment, given what we know about the government and people of that country, I firmly believe that pressure within the US for closer trade, cultural and academic ties with Cuba will not abate. Cuba will increase its international economic and political integration despite anticipated setbacks.

On the economic front, Cuba is expected to continue cautiously with its macroeconomic management and reforms in order to ensure some degree of economic stability given the possibility of increased trade and other exchanges with the US. Radical restructuring of the sugar sector, which began in the first half of 2002, will involve the diversion of substantial resources from sugar subsidies to new agricultural development programmes. The opening of the economy to foreign investment will remain tightly controlled in the first few years, but investors are expected to continue to enter the Cuban market.

Even though Cuba is a socialist country, there have been some movements towards democracy. Self-employment was authorised in more than 100 occupations in 1993, and by 1996, that figure had increased by 50 per cent. Other reforms, such as breaking up large government owned farms into smaller agricultural cooperatives, have been seen throughout the last decade. In May 1997, the government enacted legislation to reform the banking system and established a new central bank (Congressional Research Service, January 17, 2001.

More important, a study done by the International Trade Commission (ITC) estimated that US trade with Cuba, in the absence of sanctions, would be between $727 million and $1.1 billion. Therefore, this would be a reasonable estimate of the immediate short term trade potential now that the US sanctions are being lifted.

The limited discussions above suggest quite clearly that the effects of the lifting of the embargo on Cuba’s business environment could be pretty significant. Will the current regime in Cuba be willing and able to maximise the possible benefits from such an act of humanity on the part of the US? Will the Cuban people gain from the lifting of the embargo? Will US companies be able to take full advantage of the opportunities that will emerge in a changing business environment in Cuba?

Email: [email protected]