The recent thaw in U.S./Cuba relations has
many U.S. businesses thinking about the potential for travel and
hospitality in Cuba and providing consumer goods to Cuba's
11,000,000 people. Accountants and tax professionals serving
this market should be knowledgeable about the Cuban business
environment while providing advice to companies interested in
accessing this newly opening market.
The many decades of U.S. trade embargo have had a major
impact. The Cuban per capita GDP is currently only $6,000
which doesn't create a strong local consumer market despite the
pent up demand.
A good example is the recent change in early 2014 permitting
automobile sales in Cuba. In January 2014, Cubans
were afforded the right to buy new and used vehicles for the
first time in 50 years, however, price increases of 400 percent
or more quickly diminished their hopes. Despite the huge demand
(nine out of ten Cuban households are without cars), the prices
were so high very few Cubans could afford to buy a new car from
any of the international brands. For example, one of the lowest
priced cars is a 2005 Renault, which was on sale in Cuba for the
equivalent of $25,000, yet available outside Cuba online for a
mere $3,000. Another example is the 2009 Hyundai minivan that
was listed at the astronomical price of $110,000. Since the
average monthly wage in Cuba is $20, the majority of Cubans will
not be able to purchase any cars. Philip Peters, a
longtime Cuba analyst and president of the Virginia-based Cuba
Research Centre, pointed out that the exorbitant sticker prices
on the cars would mean fewer sales and, as a result, the state
leaving money on the table.
There are limited country resources and expertise for meeting
today's construction project requirements for hotels and
hospitality facilities. National hotel brands have
construction standards particularly for hurricane zones that
require high engineering, design and skill levels. Although
these skills are available in nearby Miami, Miami is
experiencing its own construction boom.
Accountants preparing project budgets need to be cognizant of
the cost of time delays related to resource limitations and
permitting requirements. For example, it took the recent
production of the Broadway play Rent over a year to get the
required permits to put on their show in Havana.
The type of recreational boating common to a major tourist
market has been severely curtailed in an attempt to limit Cuban
citizens from exiting the country. Cuba is not a party to many
of the major North and South America free trade agreements,
therefore cross border product transactions including import
regulations, customs duties, and other trade processes are
uncertain. Note, however, that in 2013 Cuba did create its
first free zone and there are select free trade agreements
(primarily with nearby South American countries).
The Wharton School of the University of Pennsylvania will host a
major conference in New York City on April 1st, 2015. Titled the
“Cuba Opportunity Summit,” senior U.S. executives will have the
opportunity to gain insight into the legal and business
challenges of doing business in Cuba. Additionally, they are
seeking to formulate a strategic roadmap for entry into the
market. The conference series is targeted at U.S.-based and
multinational companies formulating their board strategies on
Cuba, in the wake of the President’s announcement that the
United States will seek to forge diplomatic relations with Cuba.
Trade with Cuba has great potential; however, patience and
planning are required to manage the transition from a 1960's
economy to a 2015 business environment.