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The Azucar Valley: The Grim Present For Business And The Tech Promise Of The Future In Cuba

August 03, 2016
The last remnant of the Cold War in the Americas is only 90 miles from Key West. Havana is in vogue as of late, and not only because the reestablishment of diplomatic relations between Cuba and the U.S means traveling to where 1952 Chevrolets are cabs is easier than ever before.

By: Mariela Morales, C’17

Cuba, a one party system communist state since the 1960s, is one of the last untapped consumer markets on the planet, and while political differences remain, President Obama assured the Cuban people in his recent visit that much can still be achieved between both nations [1].

Many American businesses have understood the remarks of the president as if at times when traditional diplomacy might reach a thaw with the Island, business diplomacy can still thrive. There are many good examples of this, of course. Recently Carnival Cruise line renegotiated with the Cuban government so that Cuban Americans can enter the country by sea, [2] a long-standing ban removed due to negotiations between the cruise line and the Cuban government. The hype about the future of business in Cuba is clearly shown in the enthusiasm with which American brands and companies have started flying to the Island to study its economic landscape.

However, weeks after president Obama delivered his remarks to the Cuban people in the iconic Teatro Marti in Havana, The Communist Party of Cuba celebrated its 7th Party Congress. The congress, in many ways, was ways a step back from the improvements that were achieved until and during president Obama’s visit at the beginning of the year. The congress showed historical leaders unwilling to step down and a new generation of Party leaders with no real voice or leadership. This could be bad news for American businesses hoping to expand their brand in Cuba. Because the Party is the leading force of society and of the state, [3] in order to ensure a smooth transition of power in 2018 when Raul Castro is set to retire, his predecessor must become apparent in the elections to the Politburo every five years. However, instead of giving the seat of Second Secretary of the Party to Mario Diaz-Canel, a younger party leader, Machado Ventura, a 86 year old historical party leader, was ratified instead. This situation has left only one thing clear: Cuba won’t be changing as fast as people hope it will and unclear regulations about the transition of power will create some political instability once historical leaders start dying. For American companies whose businesses demand large investments in the Island, this is not a favorable landscape.

In June, the Boston Consulting Group (BCG) released a study showing Cuba’s economic evolution and the evolving Cuban consumer. [4] BCG’s study shows that although there are many challenges ahead, companies can be slightly positive about the prospects of doing business in Cuba due to very little competition and growing disposable income. I will take the liberty of adding a time prediction to BCG’s findings: these changes won’t happen in the next five years. In Cuba, politics is a family business and business is family politics. For almost 60 years the Castro family has held the highest offices of the land. In addition, Cuba’s biggest business conglomerate, GAESA, is directed and overseen by Raul Castro’s son in law, Luis Alberto Rodriguez. GAESA owns the most important hotels in Cuba, along with a chain of stores, storages at the ports, tourism agencies and many more.

This conglomerate monopolizes business on the island. American companies with the intention of establishing business that might compete with those of GAESA will face a steep road ahead. Even if they can cut a deal that will establish the coexistence of both, right now it seems there are not enough guarantees for business in the island. This is an obvious discouragement, especially to businesses requiring large amounts of investments, in a Cuba with very little infrastructure. The embargo is still in place and although there has been advancement in diplomatic relations, the US government can only try to keep pushing the subject on diplomatic conversations instead of interceding.

However, the immediate future for American business in the Island is not as dark as it might look. Yes, Cubans are in dire need of many consumer packaged goods (CPG) and they will probably spend all of their monthly income in food and CPG’s rather than on a Kim Kardashian Hollywood app. Despite these needs, cell phone users in Cuba will continue to grow even in the middle of Internet blackouts, economic stagnation and political thaw. Cellular phones have consistently arrived in the island due to visitors and family members living abroad. The offline use of cellphones is expanding more than ever and significantly out of the reach of the government. Cellphones are allowing Cubans to connect with the world where no landlines have reached and, for those fortunate enough that live close to Wi-Fi hotspots, to see the face of their family members in the other side of the world.

In a recent event hosted by the Global Alliances Program of the Aspen Institute, a group of young entrepreneurs who recently participated in the first incubation program in Cuba, spoke about innovation within disconnection. As I looked through the app of one of participants of the incubator, I couldn’t help but to think that these Cuban tech entrepreneurs are accumulating something that no American business has been able to get their hands on: data, significant amounts of it.  

Although scattered because of the different demographics and people that they are serving, these apps and websites are accumulating data about Cuban businesses and consumers better than many government organism can. Yet, Incúbate is a mentorship program for the nascent Cuban Tech industry with no real funding for project development. Regardless, Cuban developers are finding their own ways to finance and produce their projects and American businesses are losing the opportunity to work with this group of people every passing day. All American companies can reap the benefits of working and helping fund Cuban tech scene, not only because it comes at a very affordable price but because when ferry approvals seem to sit ill at the desk of some Ministry in Havana, tech entrepreneurs are innovating on their living rooms, getting in contact with the Cuban consumer and are willing to engage in exchanges with American businesses immediately.

Ten years ago, we used to think of Africa as mainly a scenario of aid assistance; today cabbies in Nairobi prefer to get paid with digital wallets, a technology that is yet expanding in developed countries. Five years ago, a senior manager at Wal-Mart told Alibaba founder, Jack Ma that he was a young man with good hopes when Jack Ma pointed out that maybe in the future Alibaba will be as big as Wal-Mart. In times were two servers can compete with brick and mortar warehouses, American businesses, even those who are not tech companies per se, can benefit from building relations with Cuban tech entrepreneurs, equally or more than they would benefit from starting a relationship with the Cuban government. The future of politics in Cuba and diplomacy with the United States can seem at times unpredictable. The political scene will undoubtedly change without giving many guarantees. However, Cuban tech entrepreneurs have grown in a system of instability, know how to flourish through its cracks and will be Cuba’s best and brightest leap into the 21st century. More than to the white beaches, the business world should be paying attention to the amateur and audacious faces of Azucar Valley.

References

  [1] B. Obama, “Remarks by President Obama to the People of Cuba”, whitehouse.gov , 2016. [Online]. Available: https://www.whitehouse.gov/the-press-office/2016/03/22/remarks-president-obama-people-cuba. [Accessed: 27- Jun- 2016].

  [2] C. Herrera and D. Hanks, “Cuba will allow Cuban-born to arrive on Carnival cruise ship”,Miami Herald , 2016. 

  [3] Constitution of the Republic of Cuba . Havana: Department of Revolutionary Orientation of the Central Committee of the Communist Party of Cuba, 1976.

  [4] M. Fitzgerald, R. Stokes and J. Brennan, “Understanding the Evolving Consumer Cuban” BCG Perspectives , 2016.

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