Doing-Business-in-Cuba
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.
