Cuba’s new port offers a small opening to the global economy

October 3, 2013 6:00 pm



Cuba's new port offers a small opening to the global economy

By Marc Frank in Havana



Mariel container terminal is part of a larger scheme that will take over

all the facilities at Havana's ageing port

When Havana hosts its annual international trade jamboree next month,

officials will be sure to tout Cuba's new container terminal and

free-trade zone – the communist island's first strategic push to join

the international economy in decades.

Furthermore, although Havana usually treats the trade fair as a chance

to thumb its nose at the US, this year the new port may change the usual

playbook. That is because the ambitious $900m scheme, built at Mariel

port on Cuba's northern coast and just 120 miles from Florida, seems

predicated on an end to the 53-year-old US embargo.

As there is no sign of that happening soon, despite some signs that Cuba

wants a more pragmatic relationship with the US, analysts say Havana

will instead have to count on friendly governments in the region and

Asia to compensate for this apparent hole in the project's business

model – at least during its first phases.

"The United States is the obvious market for Mariel's FTZ exports and

trans-shipments," said Richard Feinberg, senior fellow at the Brookings

Institution and author of several Cuban studies. "In the meantime,

friendly governments, such as Brazil, Mexico, China, and Singapore, may

incentivise modest investments by their firms."

The Mariel container terminal, built by Brazilian construction company

Odebrecht, part-financed by Brazilian development loans and operated by

Singapore's PSA, is part of a larger scheme that will take over all of

the facilities at Havana's ageing port, and see the Havana Bay

transformed into what could be a spectacular tourism and recreational

playground.

But it also reflects broader changes sweeping the Caribbean and American

seaboards.

The widening of the Panama Canal is prompting many regional port

authorities to upgrade facilities in order to accommodate larger

container ships. Mariel's bay has been dredged to accommodate ships with

twice the draft of the Havana port, while Mariel's port itself, 28 miles

from the capital, will have 700m of berth and capacity of up to 1m

containers, three times Havana's.

"Bigger ships will need to make more use of transshipment to fill them,

and so we see a growth in transshipment activity in Panama and in the

Caribbean basin," said Neil Davidson, senior analyst of ports and

terminals at London-based Drewry. "Cuba is well located to take part in

this, but to do so needs a deeper port."

Despite the embargo, most experts agree the first phase of the plan is a

good one, with two provisos. First, transshipment is a price-sensitive

business, and Cuba's Mariel will have to compete with efficient existing

hubs, such as those in Panama and Kingston, Jamaica. A further

complication is that the embargo forbids ships entering US waters if

they have berthed in Cuba over the past six months. (One exception is US

food imports to Cuba, exempt from the embargo under a 2000 amendment.)

Second, enticing investors to set up in the free trade zone will be a

harder challenge than just attracting ships to use its container facilities.

"The big attraction of a FTZ . . . is that cargo is landed ashore, work

is carried out, such as assembly and packing, and this creates wider

economic benefits," Mr Davidson said. But "establishing an FTZ is a

tougher job as it requires companies to put down roots, and once again

the US embargo is a key challenge."

Cuba says the zone is the first of several across the country that will

increase exports, spur high-technology projects, and create jobs. It

also forms part of a broader push to encourage foreign investment, even

if that initiative has been honoured more in the breach than in observance.

That may change under the new rules governing FTZ investment, although

western diplomats and businessmen say that, while a step forward in a

hostile investment climate, the regulations still fall short.

Cuba "isn't like other places where all, not just some of, the rules are

clear and standard across the board," said one foreign investor, who

asked that his name not be used. "Every deal will have to be negotiated."

A common complaint also remains unaddressed: employers must still hire

and fire through a state-run labour company, which drives up costs and

potentially hurts Mariel's attractiveness.

"Labour costs will be twice what they are in the Dominican Republic," a

western economic attaché said.

Furthermore, investors will still face Cuba's complicated approvals

process, tough supervision, high communication costs and conflict

resolution through state entities, unless stipulated otherwise in

contracts, all of which could hold back the country's biggest single

investment since the fall of the former Soviet Union.

"Everything that has been going on here since Fidel Castro took ill has

been a work in progress, including relations with the United States,"

one foreign banker operating in Cuba said. "Mariel is no exception. Only

time and plenty of tweaking will tell if it is truly a success."



Source: "Cuba's new port offers a small opening to the global economy -

FT.com" -

http://www.ft.com/cms/s/0/bc2f5a54-2ab5-11e3-ade3-00144feab7de.html