In the first three months of 2016, media has been abuzz with the news that the United States elected to ease its business and trade relations with Cuba. The March visit to Cuba by President Barack Obama reflected a noted sea change in US-Cuban relations. Already, there are reports of pending new airline service, the opening of expanded tourism and the potential for new opportunities in supply chain and manufacturing sourcing.
Supply Chain Matters recently received notification from Knowledge@Wharton of a newly published E-Book, The Road to Cuba, The Opportunities and Risks for US Business, Revised and Updated Edition. This Editor had the opportunity to review this E-Book publication and we are passing along a reference for those multi-industry readers who may be thinking of Cuba as a potential for added business and supply chain activities.
The Wharton School authors point out in the document Forward:
“While significant political and ideological differences still separate the two governments, Obama’s historic visit, the first to Cuba by a US head of state since Calvin Coolidge traveled there in 1928, is an opportunity to widen the space for unfettered communication, trade and business between the United States and Cuba, for the mutual benefit of their citizens.”
“Whether you run a US business, are an investor, or are interested in exploring the opportunities, you need to know what now can and cannot be done in Cuba amid the complexities that surround the constantly evolving negotiations and normalization process between the two countries. If you already do business in Cuba, you need to understand the competition that is on its way.”
We specifically reviewed two pertinent chapters: Longer-Term Prospects: Manufacturing/Retail, along with Longer Term Prospects: Pharmaceuticals/Biotechnology.
From the manufacturing lens, Cuba’s close proximity to large U.S. consumer markets indeed makes this country attractive as a production and assembly center for consumer goods that are exported to the U.S. Noted is the current establishment of the Mariel Special Development Zone at Mariel port just west of the city of Havana. This development zone, initiated in 2013, offers tax breaks and duty-free concessions is already the home of food and beverage processing, light industry assembly, vehicle assembly and alternative energy ventures. The report cites Cuban authorities as indicating that more than 400 companies including US firms have expressed interest the Muriel Zone.
In January, Unilever, which has been investing in Cuba since 1994, announced an intent to build a $35 million soap and toothpaste processing facility within the Muriel Zone. The consumer goods producer established a 60-40 joint venture with the Cuban state company Intersuchel SA as a means to expand its presence. There is also mention of Nestle’s production of soft drinks and mineral waters with a Cuban partner as well as AB In-Bev, whose Cerveceria Bucanero venture distributes beer to the local market.
Another promising opportunity is that of biotechnology and pharmaceuticals and the report indicates that pharma exports are big business for the island. This sector is noted as growing with sales made to emerging market economies in Latin America, Asia and Africa. The report notes:
“Fidel Castro’s government pumped billions of dollars of domestic investment into the development of Cuba’s biotechnology industry, mostly based in Western Havana but with outlying clusters in other parts of the island.”
Main products thus far have been developed vaccines for combating Group B meningococcal meningitis, hepatitis B along with PPG, cholesterol –lowering product developed from sugar cane. Further noted is ongoing development of potential vaccines to combat HIV/AIDS, cholera, leptospirosis, dengue fever, hepatitis C and cancer.
Cuba also represents a market for U.S. medical and pharmaceutical exports.
The report includes noted words of caution: “The Door has Opened, But needs to Swing Wider.”
An important insight:
“However, an early boom in interest by US companies and entrepreneurs to trade and invest in Cuba has yet to be fulfilled in terms of concrete business deals and opportunities. These are still being held back, both by the persisting economic embargo, which can only be completely lifted by Congress, and by the Cuban government’s own apparent reluctance to fully embrace liberalizing reforms that would open up the state-run economy.”
We interpreted that statement as indicating that more time and patience is required in order to fully evaluate or take advantage of investment and new business opportunities for the island. It has over a year since the U.S. government announced its intention to loosen restrictions, and the actual visit by the President, and perhaps, the next phases will come sooner rather than later. The current U.S. Presidential and Legislative election cycle, currently underway, has to run its course as-well.
The overall transportation and logistics infrastructure for the island further needs modernization as witness to existing vintage delivery vehicles.
However, after our review, we certainly sense lots of long-term potential from product export and import lenses, and especially from a pharmaceutical supply chain perspective. Check it out for yourself by clicking on this web link.