Cuba: not quite libre for business

Cuba: not quite libre for business
By Tom Stevenson
Last Updated: 1:01am GMT 24/02/2008

Wardour Street is a shadow of Old Havana but the band had just flown in
from Cuba and the bar was a replica of the one "Papa" Hemingway propped
up in the Batista years. Even mid-week, Floridita London was humming as
I sipped my Daiquiri with Max, the general manager.

Andrew Macdonald, whose dream it was to bring Havana's most famous bar
to the world's capitals, chooses his words carefully when discussing
this week's power shift in Havana. And so he might. As one of very few
British entrepreneurs doing business with Fidel Castro's communist
government, the chief executive of Havana Holdings, the company behind
the Floridita restaurant, music and cigars group, knows silence is
golden when it comes to Cuban politics.

"It's our policy never to comment on anything political, but it's fair
to say that the economy is opening up," he said as he set out from Soho
for his once-a-month flight to the Cuban capital. "Whether it's the
presidential succession or just the growth of the Cuban economy, I don't
know, but there's been a step change in the desire to do business."

Macdonald, and his brother Ranald, head of the clan Macdonald and a
major shareholder in the Boisdale restaurant group, have made it their
mission to bring the glamour and excitement of 1950s Havana to the rest
of the world. Launched in 2004 after three years of negotiations with
Castro's government, Floridita was named London's number one bar a year
after it opened.

The announcement of Cuba's new president today could mark the beginning
of the end of the island's experiment with communism under Fidel Castro,
who announced his resignation this week. Politically, it is a watershed,
but no one expects dramatic economic changes to happen overnight,
especially if power is transferred to Castro's 76-year-old younger
brother Raul, de facto leader for the last 18 months.

In theory, the end of Fidel's rule opens the door to reforms that the
younger Castro has hinted at over the past year and a half. Some changes
have already taken place, reflecting his admiration of the Chinese
model, where capitalist practices are allowed on the understanding that
the political system remains unchallenged.
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Cubans have been allowed to open restaurants in their homes and a
two-tier currency has emerged with domestic pesos trading side by side
with a convertible version. Tourism, the mainstay of the Cuban economy
after the decline of its sugar industry, demands a grudging engagement
with overseas capital.

But the key to lasting changes remains the end of the trade embargo
introduced by President Eisenhower in 1960 and strengthened by the
Helms-Burton Act of 1996 which precludes the US from recognising an
unelected Cuban government.

A relic of the Cold War, the embargo is so strict Cuba can't buy
equipment abroad if it includes more than 10pc American components.
Ships that dock in Havana are banned from US ports for six months.

The aim of the embargo was to strangle Cuba and force change in the
communist island 90 miles off America's Florida coast. Opponents of the
embargo believe it has had the opposite effect, giving Castro a bogeyman
on which to pin blame for his country's economic shortcomings. It has
certainly been self-defeating for American firms, preventing them from
investing in Cuba's oil industry, agriculture and tourism.

Cuba has been a remarkable survivor under Castro, with predictions of
its imminent collapse consistently proving to be over-optimistic. Even
when Cuba faced its greatest crisis, the collapse of the Soviet Union in
the early 1990s, Castro introduced just enough foreign investment and
dollar-earning tourism to fend off catastrophe. Recently, Venezuela's
President Chavez has ridden to the rescue, supplying the island with an
estimated $2.6bn of oil a year.

The State Department ruled out an early end to the embargo this week,
dismissing Castro's resignation as a "transfer of authority and power
from dictator to dictator light". Foreign firms and investors are
resigned to waiting for a less intransigent US administration or the
death of the Castros, or both.

Andrew Macdonald is surprised by the lack of interest in Cuba from
British companies. "In November, I attended the Havana Commercial Fair.
There were 900 companies from around the world and not one of them was
from the UK," he said.

Already enjoying a healthy Cuba trade is Virgin Atlantic, which has
flown twice a week to Havana for the past three years and is considering
increasing its flights. Paul Charles, a spokesman for the airline, says:
"It's a booming market, flights are full and it's a very popular
destination."

Other companies likely to be the biggest beneficiaries of a thawing in
relations between Cuba and the US include cruise line operators such as
Carnival and Royal Caribbean which could see thousands of tourists make
the short hop from Miami.

Imperial Tobacco's acquisition of Altadis last month puts the UK tobacco
giant in pole position to cash in on the American love affair with
cigars. The US consumes 50pc of the world's cigars and Altadis's 2000
acquisition of a 50pc stake in Habanos gives it control over some of the
world's leading brands, including Winston Churchill's favourite, Romeo y
Julieta. An Imperial spokesman said: "It is early days and it would be
inappropriate to comment on events in Cuba but we are very enthusiastic
about Habanos." One analyst said the end of the US embargo could add 2pc
to Imperial's earnings.

The Herzfeld Caribbean Basin fund, one of the few publicly quoted plays
on life after Castro, jumped by 17pc this week. It invests in around 20
countries around the Caribbean that will benefit if Cuba opens up.

After the US elections later this year a new era of détente looks
likely. Until then, wannabe Hemingways without the time or money to fly
to Havana can raise a mojito in Soho to a happier Cuba.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/02/24/cccuba124.xml