Frosty Shift in Cuba-USA Relations

Last week Trump announced reinstated travel bans to Cuba however, The Office of Foreign Assets Control, which is a subsection of the US department of Treasury, is still in the process of changing the regulations.

So in the immediate future, the contracts, business deals, and existing plans for travel that have already been signed, planned, purchased, are in the clear.

The change means that people-to-people travel will only allow for organized tours with full, very full, schedules — these are unlikely to take place in the private sector.

People-to-people travel is the the category that has allowed US tourists to travel to Cuba after Obama lifted the embargo in 2016. The other 11 categories that are permitted for travel are very narrow in scope, highly limiting who is allowed to get on a plane and go to Cuba.

Why?

This move was meant to put pressure on the communist political system in Cuba.

What did the initial lift of the US embargo do for the Cuban economy?

It was fantastic. In 2014 Cuba received 91,000 US visitors, in 2015 it was 161,000 and in just half of 2017 (January to May), Cuba received 285,000, which was what all of 2016 received. All of these numbers do not include Cuban-Americans who were excluded from the restrictions.

This mass influx of tourists meant high demand for accommodation which meant fast growth of the Cuban private sector. There were over 22,000 private listings on Air BnB that brought in after tax income of $2,700 per person and although that doesn’t sound like much — it’s 10X the average Cuban wage.

The reason that the US tourists had such a large impact was because of their purchasing behaviour when travelling. Where Canadian and European tourists have always favoured the government-run resorts and hotels (69% of all tourism revenue in Cuba), Americans favoured independent establishments which resulted in the emergence of a huge entrepreneurial sector in Cuba to satisfy demand.

Now

The new restrictions negatively impact the entrepreneurial sector and thus the private sector’s growth. However this change in policy will result in some winners.

USA hotel ventures

That are interested in expanding into Cuba need to chill because any entrance into the tourism sector requires partnership with the military-owned state tourism sector which will be prohibited by new USA regulations.

Starwood Hotels is the only company that already has operations in Cuba so their contract will not be revoked and with these new restrictions, they will remain the only US company in Cuba with no American competitors.

“Woohoo!” -Starwood Hotels, 2017

Other countries

Caribbean countries who saw a decline of visitors after the Obama regulation lift will be happy to see their US visitors come back to them.

Other governments will be able to increase their investment without any concern over American competition. China and Russia in particular expect to increase their roles played in the future of Cuba, while European countries who currently have no competition will be able to continue to dominate the market.

According to the Boston Consulting Group, the Cuban government has planned to double hotel capacity by 2030. The USA will receive no slice of that pie due to Trump’s new restrictions.

Cuban Government

The change allows the government to easily point the finger at the USA for causing the country’s less than satisfying economic behaviour, and using that as leverage for stricter economic policies and more government control. The news will also bring in the sympathy from other governments to increase investment, allowing Cuba to diversify political reliance which is currently heavily tied to the unstable Venezuela and the flip-flopping USA.

This is also a weight lifted off the shoulders of Cuban politicians who were uncomfortable with the growth of the private sector and rise in capitalism in the traditional communist society.

SO,

No, this does not achieve what it was meant to achieve. This probably gives more power to the Cuban government if anything and puts us back to the days of the embargo. If it didn’t work for 50 years, what the hell is the difference now?

All information is sourced from the Economist Intelligence Unit unless otherwise hyperlinked. Articles used: “Cuba politics: US policy shift generates winners and losers” and “Cuba politics: Quick View — US revises Cuba policy”