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Michelle Campbell

What’s Next for Cuba? Trump Is the Wild Card

by Michelle Campbell | Dun & Bradstreet Editor

March 7, 2017 | No Comments »

Within a three-week period in November 2016, Cubans began to assess the possible impact of two major events on their nation’s future: Donald Trump’s victory on the 8th and the passing of Fidel Castro on the 25th.

While Castro’s death was not entirely unexpected, the loss of Cuba’s revolutionary leader was a milestone for the country. The timing of his death is also noteworthy because Fidel’s 85-year-old brother Raúl, who took over the reins in 2008, will be stepping down next year.

Miguel Díaz Canel, the 56-year-old first vice-president of the council of state, is expected to replace Raúl Castro. The direction and speed of reforms to be made under Díaz are difficult to predict as Cuba struggles to get on a sustainable path to growth. The Cuban economy contracted by roughly 1% in 2016.

Trump’s presidency could have a larger, more direct, and more immediate effect on Cuba than Castro’s death. Given his “America first” stance, the new US president is unlikely to push to re-establish a full financial and economic relationship with Cuba as avidly as his predecessor did, if at all.

In 2014 US President Barack Obama announced the start of a process of normalizing America’s relationship with Cuba. This was viewed as a precursor to an eventual lifting of the then-54-year US embargo on Cuba.

In the two years since Obama’s announcement, the thawing of US-Cuba relations has progressed significantly. Developments have included diplomatic talks, the lifting of travel and business restrictions on US residents and companies, a US trade mission to Cuba, and the re-establishment of embassies in respective capital cities. Obama also visited Cuba — the first appearance by a US president in that country in nearly nine decades.

But the “thawing” can only go so far, as the Helms-Burton Act, which maintains the embargo, can only be repealed by the US Congress. Thus far, Congress has refused to repeal the embargo despite international calls, including the UN General Assembly’s annual resolution to end America’s economic, commercial, and financial embargo of Cuba. The UN resolution has secured an overwhelming affirmative vote for 25 consecutive years, including 2016.

Under Raúl Castro, Cuba has implemented a number of reforms. The state cut about 600,000 public-sector jobs. It additionally encouraged and supported the formation of micro and small businesses, as well as cooperatives in industries such as farming. Cuba is also actively wooing foreign investors. It first did so by approving a foreign-investment law in 2014 and establishing the Mariel Special Development Zone (ZEDM).

Located about 50 km west of Havana, ZEDM includes an industrial park and deep-water harbor, and provides investors with basic infrastructure for telecommunications, electricity, and water. The island is seeking $8 billion in foreign investment to fund nearly 250 priority projects; to date, Cuba has received proposals from companies in about 30 countries and two US projects are under consideration.

During his campaign, Trump threatened to reverse Obama’s executive orders if Cuba didn’t meet US demands. While he didn’t elaborate on the demands, two major issues that have stood in the way of complete restoration of diplomatic and trade relations are compensation of expropriated assets and Cuba’s human rights policies.

In terms of expropriated assets, an estimated 6,000 American-owned assets were expropriated or nationalized by Castro’s regime in the wake of the 1959 revolution. Some estimates place the value of these assets at $7 billion. Settlement of this remains a thorny issue.

Regarding Cuba’s human rights policies, exiles have vociferously cited alleged human rights abuses and the curtailment of freedom of assembly and expression by the Cuban leadership as important reasons for maintaining sanctions against the island.

Meanwhile, in the past two years there has been growing support by US businesses for dismantling the embargo. This is particularly the case among companies in the agricultural, telecommunications, tourism, and construction sectors, which have long eyed the untapped economic potential of the island. Given Trump’s own experience as a businessman and with more Americans now in favor of ending the embargo, lifting it cannot be ruled out.

Michelle Campbell is a Senior Economist on D&B’s Global Data, Insight & Analytics team. Based in the UK, she covers the Latin American region for D&B Macro Market Country Insight Products. In addition to her experience in the financial services sector, Campbell has worked as a visiting lecturer in the UK and in the Caribbean. Michelle holds a master of science degree in economics from the University of the West Indies in Trinidad.

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Photo by Cristian Viarisio, used here under a Creative Commons license.

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