Thu Mar 20, 2008 3:12pm EDT
By Anthony Boadle
HAVANA (Reuters) - When ailing Fidel Castro resigned last month, stock
prices of U.S. companies that stand to benefit from more business with
Cuba rallied.
Six days later, those shares retreated as his brother Raul Castro,
Cuba's first new leader in 49 years, was installed and picked old-guard
revolutionaries to help him govern.
That dashed forecasts of a rapid transition from communism to capitalism
and the end to the embargo the United States has kept against Cuba since
1962, which bars American investment and travel to the island.
"Anyone who thinks there will be a 'for sale' sign up by a bankrupt
Cuban government is wrong," said the manager of a Canadian company, who
spoke on condition of anonymity because of the sensitivity of doing
business in Cuba.
As Raul Castro moves to raise living standards, welcomes new foreign
investment in mining, oil, tourism, possibly agriculture and even
ethanol, opportunities will open up, said the executive, but only for
non-U.S. companies.
European, Latin American, Israeli and Arab investors already have a foot
in the door in Cuba in the cigar, rum, citrus and hotel industries. With
no American competition to worry about, they are looking at a windfall
when U.S. sanctions are eventually lifted.
That day is still far off, even if a Democrat wins the presidential
elections in November, say Cuba watchers, who see no action by the U.S.
Congress until Havana releases jailed dissidents and reforms its
one-party state.
Raul Castro has vowed to maintain Cuba's socialist system and there are
no signs that he intends to follow the free-market path of China and
Vietnam.
However, he has already taken some small steps. Within weeks of formally
taking office, his government has moved to allow Cubans to buy consumer
goods that were banned until now, such as computers and DVD players.
The increased consumption longed for by Cubans will benefit European
companies already producing goods in Cuba, such as ice cream and soft
drinks by Nestle, beer by the world's second largest brewer InBev, soap
and shampoo by Anglo-Dutch giant Unilever, and cigarettes by Brazil's
Souza Cruz, a subsidiary of the British American Tobacco group.
Allowing Cubans to buy mobile phones and have more access to Internet
would boost sales for the state telecom company ETECSA, where Telecom
Italia has a 27 percent stake.
Even Austria's Red Bull GmbH has set up in Cuba, selling its energy
drink to young Cubans who can afford the silver cans.
MOJITOS, U.S. PENALTIES
Foreign businessmen have spent years struggling to make money in Cuba's
inefficient state-run economy since it opened up to foreign investment
and tourism after the 1991 collapse of the Soviet Union.
Many lost their shirts trying to do business with the communist
bureaucracy and were squeezed out or failed to collect payments. Others
had equipment stolen in joint-ventures that folded. Some small ventures
were just a pretext for businessmen to enjoy a life of mojito cocktails
and women in the tropics.
Foreign firms have had to endure sanctions by Washington for doing
business in Cuba. A dozen directors of Canada's Sherritt International
are still banned from entering the United States under the 1996
Helms-Burton law.
That did not stop Sherritt investing $1.5 billion in Cuba's nickel
industry and in coastal oil and gas production.
Another successful venture penalized by the United States was BM Group,
Cuba's biggest citrus exporter, co-founded by former Israeli
intelligence operations chief Rafi Eitan, who has divested since
becoming Israel's minister for pensioners' affairs.
The BM Group became Cuba's biggest commercial real estate developer with
the building of Havana's main business center, the Miramar Trade Center,
which is now owned by Ceiba Finance, a $100 million growth fund
registered in the Channel Islands.
Companies making Cuba's most famous exports, cigars and rum, are banking
on gaining access to the U.S. market one day.
French spirits giant Pernod-Ricard last year built a distillery for its
Havana Club joint venture to make dark rum that is partly aimed at
future sales to the world's largest rum market, the United States.
Havana Club managers are confident that by that time they will have won
a U.S. trademark dispute with their giant rival Bacardi.
Cigar maker Habanos, half owned by Britain's Imperial Tobacco since it
took over Franco-Spanish cigarette manufacturer Altadis, is expected to
double sales the day American smokers can buy its premium hand-rolled
cigars.
Lifting the travel ban could send millions of Americans to Cuba,
reviving its stagnant tourist trade and filling beach resort hotels run
by foreign firms such as Spanish hotel chain Sol Melia, which manages 24
of them.
The Qatari Diar Real Estate Investment Company last year began building
a $75 million 200-room 5-star hotel on Cayo Largo del Sur, Cuba's most
beautiful key.
State-owned Dubai Ports World, which relinquished control over six U.S.
ports in a political firestorm in 2006, has agreed to study the building
of a $250 million container terminal in the Cuban port of Mariel by
2012. Proximity to the United States could make the port a hub for
shipping cargo to the United States, which has limited dock capacity.
Meanwhile, U.S. interests have to wait until the embargo is lifted, said
Thomas Herzfeld, who runs a fund that invests in companies likely to
gain from the opening up of U.S. trade with Cuba, such as cruise line
companies based in Miami.
Shares of his closed-end Herzfeld Caribbean Basin Fund soared 28 percent
to an intraday high of $9.50 on February 19, the day Fidel Castro
announced his retirement, but then fell back when it became clear that
reforms would be gradual under his brother.
Herzfeld is optimistic the U.S. embargo will go some day soon and said
the U.S. Congress could start easing sanctions if Raul Castro frees
Cuba's political prisoners.
"Or it could be like the Berlin Wall at the end of communism. Sometimes
these things happen much more quickly than people think."
(Reporting by Anthony Boadle; Editing by Eddie Evans)
http://www.reuters.com/article/companyNews/idUSN1832440420080320?sp=true
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