August 30, 2010: October Suprise? Cuba Opens (A Little) For Business.

The planets are aligned for the entry of companies into Cuba. Yes, one of the worst places on earth to do business may well be open for business soon, and on terms to entice investment. True, this has been stated in previous years, but "this time it's different".

Think China and Richard Nixon's surprise detente that opened the communist giant to relations and profitable trade with the United States. The first inkling of a thaw was the arrival of a U.S. table tennis team, followed by an easing of student and professional travel, then a secret visit by Secretary of State Henry Kissinger followed by the big splash - Nixon, himself.

Now, Cuba. Last week, in a barely noticed news release, Cuba will allow foreigners to lease government-owned land on the island (which is almost the entire nation) for up to ninety-nine years. What are the initial plans for the land? Golf courses ringed by luxury resorts, according to Robin Connors, CEO of Leisure Canada. "We see the times are changing, so to speak", remarked Robin. In addition to the private long term leasing of land, the Castro Brothers also ruled last week that private agricultural operations can exist and prosper. Old commodities of sugar and tobacco may be significantly supplanted by 21st century product. This opens the way for organic and other specialty crop commodity operations to exist and thrive. Make no mistake, these are landmark decisions for Cuba as they move towards a Socialist/Capitalist blend, perhaps to preserve a ruling class.

The icing on the cake is President Obama's progressive agenda towards Cuba. Recently, he proposed the loosening student and professional travel to Cuba. He eliminated several layers of the half century-old embargo. Nothing much came of that move because it was not reciprocated by Cuba. That is changing now. All that is needed is a meeting between Secretary of State Hillary Clinton and her counterpart in Havana to precede a presidential visit to match the China connection of 1973. While Nixon wanted China as a foil to the Soviet Union, Obama wants Cuba as a non-belligerent and dependent trading partner to foil growing Russian and Chinese influence in the Americas - something Raul Castro may find interesting as he competes with Venezuelan El Presidente Hugo Chavez for hemispheric prestige and influence. Raul may also be tired of Mr. Chavex claiming to be the heir to The Revolution. Cuba needs to propel and enhance their stagnant and, in many respects, third world economy into the upcoming decade to insure against civil unrest and, perhaps a regime change. Cigars, sugar and rent-a-doctor schemes won't do the trick.

The United States is presently Cuba's largest food supplier and fifth largest import partner with the present rules in place. This decade, America has done over $2b of business with Cuba, not counting donations from Cuban exiles (millions of dollars more). Counting all humanitarian aid, the U.S. ranks right behind China and ahead of Venezuela in total dollar volume as the Castro Brother's business partner.

What in Cuba looks profitable for companies in the near future?
Land-based tourism,telecommunications, organic and specialty commodity agriculture, fossil fuels and minerals.

Here are a few companies that have an active interest or may have an interest in Cuba (they have something to trade for franchise grants) and vice versa:

Vodaphone (VOD)
Statoil ASA (STO)
Petrobas (PBR)
Freeport McMoran (FCX)
Sherrit International (SHER.PK)
Repsol (REP)
Leisure Canada- Toronto Stock Exchange (LCN)
HJ Heinz (HNZ)
JM Smucker (JSM)
Monsanto (MON)
PetSmart (PETM)
Hain Celestial Group (HAIN)
Marriott (MAR)

Participation in the Cuban economy will not necessarily translate into a significant bottom line growth story for many of the above. All will be interesting to follow along the journey when it commences.

Companies that do business within Cuba will negotiate with the strong hand of the Cuban government. A lion's share of State profits from taxes and joint ventures will go into the socialist till to perpetuate opulence for a relative few, and perhaps marginally raise the standard of living for the many. That hasn't stopped the globalisation effort of companies elsewhere in the world - it is business as usual.