Dateline: Kuala Lumpur, Malaysia
One year ago, in December 2014, the United States and Cuba shocked the world by agreeing to begin partially normalizing relations.
Since then, investors have been clamoring to become a part of a potential inflow of growth into a country that had received the largest US-based investments in Latin America (outside of oil rich Venezuela) up until Fidel Castro came to power.
What has happened to Cuba since then is a classic example of what happens to any country that practices economic isolation. Propped up by the Soviet Union until it fell in the early 1990s, (when Cuba soon after fell into famine), Cuba’s economy has faltered as it has been isolated from much of the world until recently.
In addition to its strategic geographic location, a country so lacking in basic services, and all sources of investment for such a long period of time, seems to many to be a huge opportunity for those interested in both long and short term returns.
In fact, I recently read an article on CNN proclaiming that Cuba could replicate what Vietnam has done for its own economy over the past few decades, all while being just a little over one hundred miles from Florida.
Vietnam as a model for success
Vietnam’s success is indeed something to strive for.
In 1995, the US normalized relations with Vietnam — another formerly isolated communist country — and, since then, American companies like Microsoft and Intel have poured $11 billion into more than 700 projects in the country. Many are calling Vietnam the next China due to its lower costs for manufacturing and emerging middle class market.
Today, Vietnam is on pace to become one of the largest economies in the world. As a signing member of the Trans-Pacific Partnership (TPP) it’s ensured its place as a trading partner with the West and has provided a model for Asian countries wishing to do so. In addition to TPP, the country has also recently passed trade pacts with the EU and with South Korea.
In Cuba, there are several reasons that this enthusiasm is warranted, but a healthy bit of peppered caution is also necessary.
Ninety-five percent of the country does not have access to the internet and the vast majority of the populace do not own their own homes. While tourism is already showing signs of taking off before commercial flights have even been allowed, when people can’t even own property it’s not reasonable to expect a middle class in the country to grow quickly.
Secondly, the infrastructure in the country is not well cared for at all, with a weak banking system, shoddy roads and frequent power outages. And, as one of the more corrupt countries in the world, doing any form of business will be difficult as all business goes through the state.
Finally, the dictatorial Cuban government has shown that it operates out of short term convenience. And while the steps to economic liberalization and US-Cuba normalization that have been taken are very encouraging, there are no guarantees that the process will continue along smoothly and unimpeded.
Despite its inherent advantages, rather than being another Vietnam, Cuba is much more likely to follow the path of Myanmar, at least to start out.
Investment opportunities in Cuba following US-Cuba normalization
That being said, there are still several reasons that Cuba could be a good investment, long term.
The country does have a decent education system and, according to the World Bank, it’s actually the best in Latin America. While Cuba is often heralded as having a great medical system, doctors in the country often leave their jobs to become taxi drivers and waiters, as those positions pay better.
Being able to draw on this talent and reward highly skilled labor that requires an education is definitely an opportunity for those looking to invest long term.
Many of the negatives of doing business in the island nation are also long term positives for those willing to invest. Cuba is lacking decent businesses in every sector from banking to transportation, to the more obvious options like tourism, food and entertainment. Coming into the country with an open mind, experience and a will to succeed presents an opportunity for anyone willing to adapt to the government and culture.
What’s most exciting about Cuba opening up is what it means for the entire Caribbean region.
As Cuba achieves its potential, like Vietnam, it will soon become a valuable customer for both the United States and its immediate Caribbean neighbors. Outside of small countries that benefit from tourism and favorable banking and tax laws, much of the region is highly underdeveloped, despite its close proximity to the US.
As the largest country in the Caribbean, Cuba’s success will only help those surrounding it.
What does this mean for you?
The bigger lesson to be gained here is how much a government’s decisions can affect your life.
Countries like Myanmar, Cuba and even Argentina were once some of the wealthiest and most powerful in their respective regions, but today all are known for their backward policies, shoddy infrastructure and as places for “project” investments as they finally begin to turn things around.
It’s simply foolish to believe that just because your country has been powerful and wealthy for a period of time that it will remain in that position regardless of its government’s behavior.
Here at Nomad Capitalist, we’re continuously looking for the countries across the world that are doing things the right way, so you can “go where you’re treated best”.
If you are ready to invest (in Cuba or elsewhere), let us know and we can begin today to develop the right plan for you.