Meet the Entrepreneurs Breaking Into This Long-Forbidden Market
Less than 100 miles south of Key West sits a socialist country forbidden
from doing business with the U.S. for 57 years. Now it's on the brink of
being opened to American entrepreneurs. Meet the ones hoping to cash in
first.
By David Whitford
The Friday before Halloween, Josh Weinstein was set to take his first
trip to Cuba: bags packed, visa in hand, leased Beechcraft turbo-prop
booked for Sunday pickup at Sarasota Bradenton International. Then the
dispatcher called. We have verbal approval to fly to Havana, he told
Weinstein, but we're still waiting on one last stamp from the Cuban
government. Don't worry, he explained, this happens all the time.
Unfortunately, the government offices were now closed for the weekend.
"we'll keep pushing," he promised.
Weinstein is president of Witzco Challenger, a $12 million family
business that builds heavy-haul trailers in Sarasota, Florida, and ships
them all over the world. Witzco lost about half its sales in '08 and '09
during the Great Recession. That was not long after Weinstein, former
treasurer of his local stagehands union and grandson of Witzco's
founder, took over the company from his aunt and uncle, and he's been
scrambling to recover ever since. Exports are a big part of his
business, about 35 percent, but they've been slipping lately. The
stronger dollar hasn't helped.
His unlikely solution: Cuba. The forbidden market less than an hour's
direct flight from Witzco's central Florida factory is suddenly bursting
with pent-up demand. Tourism in Cuba is soaring, on pace to exceed
2015's record 3.5 million visitors, including a growing number of
Americans who find a way to qualify for one of 12 exceptions to the
Treasury Department's limits on travel. (U.S. tourism is technically
still banned.) Weinstein's betting on a construction boom, spurred by
the Cuban government's plan to double the number of hotel rooms in the
country by 2020, in pursuit of economic growth. "The first thing they're
going to have to do is infrastructure," Weinstein says excitedly.
"Water, septic, cable, electricity, communications. They're going to
need heavy equipment. My trailer moves the heavy equipment." Not exactly
a Cuba expert, Weinstein wants to see for himself. "I don't really know
the market, only what I've been able to Google," he says. So he booked a
booth at Cuba's international trade show, slated for the fall.
Sunday night, the stamp came through. Monday morning, he was on his way,
a day later than hoped. (The first lesson anyone learns when dealing
with Cuba: It'll happen when it happens.) Forty-five minutes across the
Everglades to Miami to top off the tank--gas is much cheaper in the
U.S.--and then another 45 minutes across the Straits of Florida to
Havana. Upon landing at José Martí International Airport, Weinstein and
his posse of two--all wearing khakis and Witzco golf shirts--were met in
an otherwise deserted terminal by unsmiling customs officials, who
opened one of Weinstein's bags. In it was a stash of trade-show
paraphernalia--candy, logoed pens, and sales pamphlets in Spanish,
English, and Russian (in case there were any Russians left in Cuba,
Weinstein figured). The pamphlets raised eyebrows. Propaganda, declared
one of the officials. Where is your approval? A discussion ensued.
Weinstein turned on his charm. Maybe a little bit of money changed
hands. "It's the cost of doing business," Weinstein says. "I'm OK with it."
And the Witzco delegation was in.
When President Obama flew to Havana last March, it marked the first
visit to Cuba by a sitting American president since Calvin Coolidge in
1928. His posse numbered more than 1,000. Among them: Brian Chesky,
founder of Airbnb, Dan Schulman, CEO of PayPal, and Fubu founder and
Shark Tank judge Daymond John. The president drove straight to the Meliá
Habana Hotel, where he addressed the staff of what used to be the United
States Interests Section of the Embassy of Switzerland in Havana (it's a
long story) but is now a full-fledged U.S. embassy. There he spoke of
his desire to "forge new agreements and commercial deals" with Cuba, in
line with the main thrust of U.S. policy as of December 2014, when the
current wave of reforms began.
A lot's happened since then, including the death of Fidel Castro; the
removal of Cuba from the U.S. list of state sponsors of terrorism; the
restoration of full diplomatic relations; the resumption of regularly
scheduled flights by U.S. airlines, including American, Delta, United,
and JetBlue; authorization for U.S. hoteliers Marriott and Starwood to
pursue Cuba deals; service agreements involving U.S. cell-phone
providers; and glory, hallelujah, the granting of permission for
American visitors to bring home Cuban rum and cigars.
But that doesn't mean Cuba is open for business. There's still the
nettlesome matter of the embargo--a dense web of constraints,
restrictions, and outright prohibitions, some in place since 1960, that,
despite the recent thaw, prevents anything approaching normal business
relations. Most commerce between the United States and Cuba is banned
outright. Everything else is a hassle. For instance, while U.S.
companies have been permitted to sell food and medicine to Cuba since
the Clinton administration, the U.S. government often requires Cuban
customers to pay the full amount up front. (That, in a nutshell, is why
Cuba buys nearly all its rice from Vietnam, rather than from nearby U.S.
growers.) And if you're an American trying to do anything in Cuba, you
had better bring plenty of cash, which is all anyone accepts. Unless you
happen to have a credit or debit card from Stonegate Bank--a Fort
Lauderdale, Florida, institution that has a temporary continental
American monopoly on Cuba-ready cards--plastic credit is worthless, and
ATMs barely exist.
The embargo is like an argument that's been going on for so long, nobody
remembers anymore how or why it started. Initially, under President
Eisenhower, it banned only sugar imports. After Cuba responded by
confiscating the assets of U.S. companies, it was broadened to cover
nearly all trade between the nations. Soon it morphed into a Cold War
weapon to punish Castro for aligning with the Soviet Union, and
supporting communist-led insurgencies in Nicaragua and Angola. Cuba's
dismal record on human rights didn't help.
But attitudes toward the embargo have changed. In a CBS News/New York
Times poll conducted on the eve of Obama's Cuba visit, more than half of
Americans (55 percent) said they supported doing away with it. A more
recent Florida International University poll of Cuban Americans living
in Miami-Dade County--traditionally ground zero for the no-compromise
camp--found an even bigger majority who would be happy at this point to
move on. But we're still stuck.
Washington, D.C., attorney Robert Muse has been advising U.S. companies
on Cuba for 25 years. He says that lifting the embargo is up to the
United States. He equates Cuba's position to that of an abused wife
whose husband says he'll stop beating her if she'll start putting dinner
on the table: "Her attitude, quite rightly, is, 'It's you attacking me!
You have to stop. Then we can have normal relations.' "
If and when the embargo is lifted, American companies need to remember
what kind of market they're dealing with. Cuba indeed dominates the
Caribbean, by landmass (it's roughly the size of Virginia) and by
population (11.3 million). But it's poor. The average state salary is
$25 a month. In 2010, according to the CIA's latest estimate, its gross
domestic product per capita was $10,200, one rung up on the world ladder
from Swaziland's. That's partly why John Kavulich, longtime head of the
U.S.-Cuba Trade and Economic Council, sees "a lot of inspiration and
aspiration chasing very little reality" in Cuba. Americans assume, not
unreasonably, that Cubans "need everything, they want everything, and
they put a period there," Kavulich says. "But there's a next sentence:
Do they have the resources to purchase everything? Dubai isn't 93 miles
south of Florida. Cuba is."
Even so, Weinstein and other eager Americans are stubbornly optimistic.
Entrepreneurs like Saul Berenthal, for instance, a 72-year-old in
Raleigh, North Carolina, who wants to sell small tractors to Cuban
farmers. And Darius Anderson, a political consultant, lobbyist, and
investor who's been visiting Cuba since he was a college student, and
now has a scheme to sell California wines to Cuban restaurateurs.
Everybody wants to believe that we're at the beginning of the end of an
era; that no one--not unforgetting Cuban émigrés in Miami, not Fidel's
ghost, not a brash and unpredictable President Trump--can halt the
momentum now. That the embargo must be, will be, swept aside, and the
rivers of commerce will flow.
But Cuba is not for innocents or neophytes. "People get besotted with
Cuba," Muse warns. "If you're a little guy, you might think that because
the big guys aren't there, you can play in those waters. It's exotic.
You're a pioneer! All these things combine to make some people abandon
basic business principles."
The fairground for Cuba's international trade show is 12 miles south of
central Havana. It's a slow cab ride, on crowded roads filled with
midcentury Fords, Chevys, and Cadillacs, many of them refitted with
diesel motors, not one of which would pass a U.S. emissions inspection.
A mural of Che Guevara hovers omnisciently over the Plaza de la
Revolución, while billboards flaunt slogans like socialismo o muerte
("Socialism or Death") and normalizar no es sinónimo de bloquear
("Normalization and Blockades Don't Go Together"), a blunt reminder of
Cuba's all-or-nothing stance on the embargo, which Cubans call "the
blockade."
The American pavilion is a hike from the trade show's main entrance, in
the farthest corner of the grounds, beyond the scattered remnants of
past exhibitions--a petrified pump jack, a stilled windmill, a parked
Air Cubana airliner repurposed as a restaurant. JetBlue banners flank
the entrance. Inside, ordinary Cubans who have managed to snag coveted
trade show credentials graze the American booths, scooping up free hats,
pens, and pistachios. Perhaps because there is no conventional
advertising in Cuba (it's illegal), Cuban consumers are adept at
ferreting out whatever's available, wherever it can be found.
The National Auto Parts Association has a booth, looking toward the day
when it can begin populating Cuba with its stores. So do a smattering of
state-sponsored trade delegations representing poultry farmers, soybean
growers, and the Port of Virginia; and all manner of small and midsize
U.S. manufacturers, displaying motors, electronic controls, and other
industrial gear, none of which are yet on the list of permissible
products. The U.S. embassy's chargé d'affaires, Jeffrey DeLaurentis,
roams the aisles in a seersucker suit, chatting up exhibitors and
awkwardly ducking reporters. ("There is still an embargo," his aide
explains apologetically.)
Overall, attendance by American exhibitors is lower this year than last,
when Obama's first round of reforms created a kind of euphoria that has
since dissipated. Those who have returned see the potential but
understand the need for patience. Among them is investor Noel Thompson,
decked out in a blue blazer advertising his ties to the U.S. Olympic
Committee. Thompson is a former Goldman Sachs banker now running his own
hedge fund in New York City. He's been coming down to Cuba every few
months for the past couple of years, working his way into the culture,
gathering intel, developing contacts. He imagines doing a lot of
business in Cuba one day-trading currencies, advising on deals, helping
privatize government assets, and otherwise capitalizing on the explosion
he thinks will surely come when the embargo lifts and America fully
engages with Cuba's suppressed capitalist passions. It won't happen
tomorrow, he knows, or even next year, but one day. "Maybe it's my
Goldman training," Thompson says. "When you see a butterfly flap its
wings ... "
Manning a nearby booth with sunglasses propped on his forehead and an
unlit cigar clenched in his teeth, another American, Darius Anderson,
presides over a winetasting led by his pal Fernando Fernández, Cuba's
preeminent blender of rums and cigars. Anderson first visited Cuba in
1986 as a student at George Washington University, where he had a poster
of Che Guevara on his dorm room wall. When his pals went to Florida for
spring break, he went north to Toronto, from which he was able to get to
Havana. His total visits since then: "Somewhere in the mid-60s," he
guesses. Every time the border agents run his passport, they ask, "Why
so many times?"
Originally, he went because it was forbidden, Anderson says, and now
it's because he's long since fallen in love with "all things Cuban: the
music, the culture, the cigars, the baseball." After college, Anderson
worked for a Democratic congressman on Capitol Hill, was an advance man
for Bill Clinton in California, and apprenticed seven years at the right
hand of supermarket billionaire Ron Burkle--a useful résumé for
navigating a market in which business and politics are inseparable.
With his company U.S. Cava Exports, Anderson, 47, is trying to bring
expensive wines from Napa Valley to Cuban consumers. He's been laying
the groundwork for years, hosting a seven-day tour of Napa and Sonoma
wineries for his Cuban friends, and leading a party of more than 100
California vintners on an educational mission to Cuba, where they met
with chefs and sommeliers. Like Weinstein, Anderson is hoping to make
money on tourism. Unlike Weinstein, he's peddling an embargo-exempt
agricultural product that's not contingent on new construction. This
should be easy.
And yet, 2,500 miles northwest of Havana, in a refrigerated warehouse
near Napa County Airport, sits a shipping container filled with
Anderson's stranded inventory: 1,200 cases of carefully curated
California sauvignon blanc, zinfandel, pinot noir, cabernet, and
chardonnay. Total value, just under $400,000. It's been there all fall,
costing him at least $500 per month, and not for want of a buyer. In
fact, Anderson has one all lined up, a Cuban state-owned distributor
willing to pay full price in advance, per U.S. law. But there's a
holdup. Anderson is waiting on final approval from the highest levels of
government--in this case, Cuba's foreign ministry.
U.S. Cava Exports is only one of Anderson's ventures at the moment, so
he has the luxury to wait this bureaucratic purgatory out. He still sees
a chance to have "a real, viable business and grow it over time." The
rest of the world is already here, he points out. Not just Cuba's
biggest trading partner, China, and Spain--it's oldest--but also Brazil,
Canada, Mexico, the Netherlands. The list goes on. "A whole litany of
countries are here doing business," Anderson says. "They trust the
system well enough to invest hundreds of millions of dollars. This idea
that it's not happening? It's happening, but it's happening without us."
Saul Berenthal went to high school before the revolution. He was born in
Havana, where his parents met after fleeing the Nazis in Eastern Europe.
His father worked his way from Holocaust refugee to sole GM parts
supplier for Cuba, which helped land Saul at the elite Havana Military
Academy. In 1960, his parents sent their 16-year-old son to study in the
United States. They visited him the following year, expecting to stay
for a few months. Then came the failed Bay of Pigs invasion. Suddenly,
they were unwilling to return to Cuba, refugees once again, this time in
America.
Bespectacled and trim, still at home in a loose-fitting guayabera,
Berenthal has a complicated relationship with his birthplace. He belongs
solidly to the generation of exiles whose grim resolve and political
clout have defined U.S. aggression toward Cuba. But he's also become a
full-fledged American, having had spent 18 years at IBM, where he met
Horace Clemmons, his future business partner. They bonded over their
frustration with IBM's stubborn attachment to proprietary product lines
when the future was all about open-source computing. "We worked hard,
lived the American dream, created three companies and sold them, and set
ourselves up for a nice retirement," says Berenthal.
But, a couple of years into retirement, Cuba beckoned, and starting in
2007, Berenthal was finding excuses to visit his birthplace. "It was
curiosity more than anything," he says. The surprise was that he felt
instantly at home. The language, the mannerisms, the customs, the
operating in a culture where it's hard to make appointments ("You'll be
here next week? Look me up") and a meeting might not happen because
somebody's car won't start or he can't find gas. Where checking email on
the fly means locating a Wi-Fi hotspot and making sure you've got enough
minutes left on your government-issued access card. "Not very well
organized, but I understand why," says Berenthal, revealing a trace of
his native Spanish. "People take care of things as they come up. They
don't know where they'll be at any time until it's that time."
Berenthal still knew people who knew people in Havana. He was introduced
to professors in the economics department at the University of Havana,
organized academic exchanges, and got involved in studies that led to
Cuba's accelerated reengagement with the global economy in 2011. But it
was Obama's dramatic announcement on December 17, 2014--"Today, the
United States of America is changing its relationship with the people of
Cuba"--and the policy changes that followed that convinced Berenthal it
was time to reunite with his old partner, Clemmons, and come up with a
business idea for Cuba.
Berenthal knew that an American company could succeed in Cuba only if it
was sensitive to the socialist country's motivations for doing business
with outsiders. Cuba is not interested in inviting foreign companies in
to make a few players wealthy. If Cuba is to embrace capitalism, it will
be on socialist terms: to generate revenue and become less dependent on
imports, and so protect what Cubans consider the lasting achievements of
the revolution--free education, free medicine, subsidized housing, and
subsidized food.
Clemmons, a farm boy from Alabama, thought of tractors. Inexpensive
tractors designed to meet the needs of small farmers in a poor country
that's rich in arable land but where many still work the land barefoot,
behind a mule or an ox, without basic equipment. An alternative to a
company like John Deere, which could come into Cuba with an expensive,
proprietary product. Instead, Cleber, as their company is called, would
assemble tractors according to open-source manufacturing principles,
using standard components, making them easy to maintain and infinitely
customizable. By creating an opportunity for Cubans to build an
ecosystem of products around Cleber's tractor, they would help
kick-start the creation of a homegrown agricultural manufacturing industry.
Berenthal and Clemmons proposed building their tractor factory in
Mariel, a planned economic development zone about an hour west of
Havana. When Cuban officials expressed support, the pair began working
to persuade their own government to create an opening in the embargo
that would allow them to proceed. "We spent a lot of time in the Office
of Foreign Assets Control and the Department of Commerce, trying to get
it through," says Berenthal. In February 2016, after months of meetings,
they succeeded. Cleber won U.S. approval to build the first
American-owned factory on Cuban soil since the revolution. It was a
happy story, shot through with hopeful symbolism, coinciding perfectly
with the Obama administration's initiatives. They even got a shout-out
in a White House press briefing.
But they still needed final approval from Cuba, and by last summer,
Berenthal didn't like the signals being sent from officials at Mariel:
pushback on environmental standards and workplace safety, and worrisome
doubts about whether Cleber fit with the development site's larger goal
of promoting high-tech manufacturing. Berenthal was baffled. None of the
other projects in the Mariel pipeline--cigarettes, cosmetics,
meatpacking, none of them U.S. backed--were obvious ways to achieve that
goal. Here he was, trying to persuade higher-ups who opposed a simple,
practical idea that somehow threatened them. He had flashbacks to his
time at IBM. "Everybody is acting in their own best interests," says
Berenthal. "IBM wanted to protect the proprietary lab where they were
building the proprietary technology and not accept change, because that
would mean loss of power or prestige or even their jobs."
In late October, Berenthal drove to Mariel for a meeting with
development zone officials. "They were very cordial," Berenthal says.
Then they proceeded to tell him that after much consideration, they had
decided not to approve Cleber's proposal after all.
Weinstein had a good trade show. He didn't arrive until late on the
first day--after the delay at customs, and an errant cab ride to the
wrong fairground--but he hit the ground running. Within an hour, every
bottled-water peddler in the building had a Witzco bumper sticker on his
cooler, and most were wearing Witzco baseball caps. He made no actual
sales to actual Cubans, of course. The embargo forbade him, which he
knew going in. But he met a lot of people there, and went home happy at
the end of the week with a long list of proposals to prepare for buyers
from Canada, Panama, Mexico, Belgium, and Spain.
Then history happened. Days after the trade show ended, Donald Trump was
unexpectedly elected president. Then Fidel Castro died. Suddenly
American entrepreneurs with dreams of doing business in Cuba were forced
to reevaluate everything.
When it comes to Cuba, Trump the politician appears to have a different
mind than Trump the entrepreneur. At least twice since the late '90s,
emissaries associated with Trump companies have visited Cuba to scope
out investment opportunities for hotels and golf courses--acts that may
well have violated the embargo. Since the election, however, Trump's
been all bluster and ill will. When the news broke of the former
dictator's passing, he tweeted gleefully: "Fidel Castro is dead!" He
soon followed up with, "If Cuba is unwilling to make a better deal for
the Cuban people, the Cuban/American people and the U.S. as a whole, I
will terminate deal."
In reality, Trump's tough talk is off base. As attorney Muse points out,
there is no Obama-era "deal" between the nations. Only a "series of
rolling measures" issued from various realms of the federal government
that would be next to impossible to untangle one by one, and which few
Americans object to anyway. But what Trump could do, says Muse, is "go
big and go unilateral," in a way that plays to his strength. That is, he
could leapfrog Obama's measured steps toward normalization by announcing
his willingness to negotiate America's $1.9 billion in outstanding
property claims against the Cuban government as a "necessary predicate"
to ending the embargo once and for all. "Where the embargo began is
where the embargo should end: With a resolution of the certified
claims," Muse says.
After the Cuban government derailed Berenthal's factory plans, he was
discouraged but not devastated. He understands why his company, in which
he and Clemmons have invested $5 million, was used as a political pawn:
Cuba wants the embargo gone; as long as it remains in effect, Cuba has
little incentive to grant piecemeal exceptions that reduce the pressure
on Congress to demolish it once and for all. At least, that's the best
explanation he or anyone else can come up with to justify what happened.
So Berenthal and Clemmons have shifted plans. Now they're building
tractors for export at a factory in Paint Rock, Alabama. Clemmons, the
more frustrated of the two, is focusing his energy on selling them to
other markets--small farmers in Australia, Ethiopia, and Peru.
Meanwhile, Berenthal's contacts at Mariel have told him, "Commercialize
your tractor and your products, and bring them to Cuba," and he's taking
them at their word. Cleber's new business model may in the end be more
lucrative, albeit less transformational for Cuba than Berenthal had
hoped for.
Still, there's one more wild card. Cuba's current president, Fidel's
brother Raúl Castro, is scheduled to end his term in 2018. "In my
opinion," says Berenthal, "this will trigger the final removal of the
embargo." Castro's likely successor, Miguel Díaz-Canel, was born nine
months before the revolution. If there's going to be real
change--generational change--in U.S.-Cuba relations, that'll be the
turning point. "I hope others will take the long view and continue the
efforts to bring the two countries together through commerce," Berenthal
says. He understands, as best as anyone can, how it works in Cuba. That
things happen when they happen. But, eventually, they do happen.
Source: Meet the Entrepreneurs Breaking Into This Long-Forbidden Market
| Inc.com -
http://www.inc.com/magazine/201702/david-whitford/crashing-into-cuba.html
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