Major U.S. Firm: Cuba Investments Are High Risk

Tuesday, June 23, 2015
From The Miami Herald:

Cuba investments are a high risk for U.S. companies, new report says

A firm that specializes in commercial real estate and investment management has issued a report stating that the time to invest in Cuba has not yet come.

The report by JLL (Jones Lang LaSalle) — among the nation’s 500 highest-earning companies according to the latest edition of the annual Fortune magazine’s list — cautions U.S. investors against diving into business opportunities in Cuba and concludes that the process of "integration with Cuba, even if the embargo is fully lifted, will take decades."

"What we have determined is that there is still a lot of risk involved, there is not a solid banking system, the physical infrastructure of the country is a challenge and with the current embargo, U.S. companies are not allowed to enter into a contract with the government" as required in joint ventures, said Steve Medwin, managing director of the firm.

"There are a lot of impediments in the way. We do not mean that there won’t be opportunities in the future but right now there are so many hurdles that it is rather a wait and see where things shake out. It's like a double-edged sword: There are opportunities but with a very high risk," he added.

The easing of sanctions by the administration of President Barack Obama could have an impact on increased trade with the island, according to the report, but "development plans and economic expansion" should come first.

The ability to directly export to small private entrepreneurs in Cuba — as new regulations now permit— is evaluated as a "marginal opportunity" to increase the volume of trade with the island.

The authors point out the shortcomings of the Cuban infrastructure, low purchasing power and dealing with the Cuban government as additional elements that hinder the American presence on the island.

While Cuban officials have conveyed a welcome message to the U.S. investors, the Cuban government has not yet ruled on many aspects of the measures announced in January, such as direct exports to private businesses or the granting of permits for ferry services.

"They may be saying that, and there may be those opportunities, but when it comes to an individual or company risking their capital to make an investment, people want to have reasonable assurance on getting a return. What we are saying to our constituency is that, what we see today is not a sound investment because of all impediments that are in the way, although there are opportunities," Medwin said.

In this regard, the report identifies telecommunications and the sale of building materials, as avenues where investment opportunities may be more immediately possible, "but it is not an open country with which to do business," he said.

The sector with the most potential for long-term development, according to JLL, is tourism and associated services, such as hotel services and transportation services specifically tied to the industry such as ferries. However, a substantial increase of U.S. tourism would require the complete removal of the embargo and a new legal framework in Cuba so that U.S. companies can legally invest in the creation of a "solid hotel infrastructure."

JLL also assessed business opportunities for Florida, which could benefit from the possible expansion of the demands of offices for financial and legal services to address businesses in Cuba, to the extent that relations and trade between the two countries move forward. Less clear are the opportunities in the agricultural sector, as the report notes, as a result of concerns from the Florida Farm Bureau Federation that competition could mean the arrival of Cuban agricultural products that are very similar to what is grown in Florida.