Post Embargo: U.S. Exports to Cuba Could Grow By $1 Billion
The United States is positioned to become the main economic winner once the ban on trade with Cuba is lifted. The end of the embargo could lift U.S. exports to Cuba by $1 billion per year, according to a new report from Euler Hermes, a trade credit insurance company.
The report also indicated U.S. export revenue could reach $6 billion by 2020, 25 percent of Cuba’s total imports, up from 3 percent today.
Euler Hermes expects that Venezuela, currently a major trading partner, will suffer the biggest loss. As Cuba begins to diversify its oil and petroleum imports, Venezuela’s export share will drop substantially from $5.4 billion in 2015 to about $1.5 billion in 2020.
“This new landscape will give a tangible boost to the Cuban economy,” said Daniela Ordonez, a Euler Hermes economist. “Cuban GDP will accelerate from a five-year average of two percent to five to six percent per year from 2016 to 2020. This activity will largely be driven by foreign investment, which will grow by 15 to 20 percent in the coming years.”
Cuba’s traditional partners will also benefit, according to Ordonez, with China increasing its exports by $360 million per year; Spain, by $200 million; Brazil, by $120 million; and France, by $100 million per year.
The lifting of the embargo will also present investment opportunities. In November 2014, the Cuban government presented a wish-list to foreign investors. The “Cuba Portfolio of Opportunities for Foreign Investment” includes 246 projects seeking over $15 billion of capital. It includes critical sectors such as biotechnology, construction, energy, food, and pharmaceuticals.
The portfolio also puts an emphasis on the Mariel Zone development. Cuban officials hope to transform the Mariel Bay, 28 miles west of Havana and 112 miles from Florida, into a major cargo traffic hub, including a free-trade zone and a container port able to host some of the world’s largest cargo ships. By offering low tax and few regulations, the Cuban government expects to attract enough foreign capital to build industrial factories and enlarge the Mariel Zone’s import-export services.
However, currency, political, and business climate risks will remain high according to Euler Hermes. The government has expressed interest in unifying the country’s two currencies—the convertible peso and the Cuban peso—but no concrete steps have been taken. The anticipated increase in foreign tourism and capital inflows could push the country toward currency collapse, according to the report. Access to credit will remain limited in the short-term.
Foreign investments will remain tightly controlled by the state, with most foreign ventures requiring majority Cuban ownership. In the short-term, non-payment risks by Cuban companies will remain high. Despite economic improvements, the private sector is projected to develop only gradually.
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