Friday, January 23, 2009
South Florida Business Journal
by Bill Frogameni
With Fidel Castro rumored to be near death and President Barack Obama assuming power, South Florida businesses stand to gain mightily from warmer trade relations with Cuba.
After 50 years of tension and an embargo that hardened under former President George W. Bush, it’s unclear how much or how fast the chilly relations between Cuba and the U.S. will thaw. But, if the two countries return to the free trade they enjoyed before Castro, South Florida would see big benefits, experts say.
In the immediate term, there’s wide agreement that Obama will lift Bush-era restrictions on travel and cash remittances, as promised during the campaign. The biggest impact in the tri-county area will be on the agencies that service the area’s many Cuban-American travelers, said Uva de Aragón, associate director of the Cuban Research Institute at Florida International University (FIU).
Obama has promised unlimited travel for Cuban-Americans visiting family on the island, but, under the rules imposed by Bush, “you can travel only every three years, no matter what,” de Aragón explained. This has resulted in lots of illegal travel through third countries and a siphoning of business away from South Florida, she noted.
Armando Garcia, co-owner of Miami-based Marazul Charters, said he expects his 30-year-old niche travel business to grow once the rules are lifted. In 2004, when Bush instituted the current rules, Marazul suffered a dramatic decline, Garcia said.
“We used to have 110 employees,” he said. “Within a month, we went down to 27 employees.”
The company now has 32 employees. It facilitated about 15,000 visits to Cuba last year, but that figure was closer to 40,000 in 2003, Garcia said.
Under Obama’s rule changes, he predicted that South Florida travel agencies will see a return to 2003 numbers within a year, and would benefit even more, should relations be normalized.
Given normalization, South Florida’s larger travel industry would benefit, too, said Dario Moreno, an FIU professor who studies Cuban-American politics. He envisioned full ships owned by South Florida-based cruise lines leaving local ports and heading across the straits. That scenario would also mean a boost for local hotels, restaurants and airports servicing the additional cruise passengers.
If a regime change happens or Cuba pursues Chinese-style market reforms, South Florida’s development and construction firms could also prosper, thanks to close geographical proximity and cultural ties, Moreno said.
“One of the great needs in Cuba is infrastructure development, so those kinds of firms would benefit in particular,” he said, mentioning Lennar Corp., James A. Cummings Inc. and the Related Group.
Huge growth potential looms
Exporting and warehousing have huge growth potential, too. While Obama probably won’t radically alter export policies at first, he may take incremental steps toward liberalization – depending on how Cuba behaves, FIU economist Jorge Salazar-Carrillo said. One Bush-era rule Obama may roll back is the requirement that shipments bound for Cuba be paid for in cash prior to departing. Bush made it so third-country banks couldn’t guarantee payment through letters of credit and extended terms, which makes shipping food and medical supplies – the only exports currently allowed – all the more prohibitive, he added.
“If [the credit restriction] is removed, I think U.S. exports will increase maybe 5 to 10 percent,” Salazar-Carrillo said.
But, since Cuba doesn’t buy much of the sugar or vegetables that South Florida produces, farmers and ports farther north would get the biggest windfall, he noted. Where local seaports and airports stand to benefit most is under normalization. That’s when South Florida would see a spike of goods moving to Cuba to feed a fast-growing economy, he said.
“You have the possibility of establishing here what I like to call the twin cities,” Salazar-Carrillo said. “It would be like Miami and Havana being the twin poles of a relationship that would be really important to South Florida.”
Jay Brickman, a shipping executive with Crowley Liner Services, agreed that the potential for exports to Cuba is huge. Every week, Brickman oversees the shipment of about 40 cargo containers carrying food bound for the island from Crowley’s Port Everglades operations. The load isn’t very significant relative to Crowley’s total operations – and it has to be delivered on a ship with goods bound for other Caribbean countries – but Brickman said Crowley is looking to Cuba’s future.
“It’s a market that has incredible pent-up desire,” he said.
But, sweeping changes in U.S.-Cuba relations will hinge mostly on whatever steps Cuba takes, said Carlos Saladrigas, co-chairman of the Washington D.C.-based Cuba Study Group, which advocates for more moderate relations. Saladrigas, who also sits on the board of Advance Auto Parts and Progress Energy, said it’s hard to know how much Raul Castro may embrace the U.S. since the communist regime has sustained itself largely by demonizing the embargo.
Yet, if normalization does happen, Saladrigas is bullish about South Florida’s economic prospects.
“I think it could really be a bonanza, in terms of creating a host of opportunities,” he said. “Imagine a market of 11 million people opening up.”
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