CNBC Business | Rumba Crunch

Rumba Crunch

As Fidel fades from the scene, investors are circling Cuba like suitors in a Havana nightclub, says Vito Echevarria

Esencia Hotels & Resorts wants to be the first UK company to make a big investment in Cuba’s leisure industry. The “six-star” €350m Carbonera Golf & Country Club, set to open near Varadero in 2011, is a joint venture with the Cuban tourism office Palmares and reflects the Cuban government’s aim to attract high-end tourists, offering 18 holes, 720 properties, and design by Sir Terence Conran. Esencia’s parent is Havana Holdings, owner of the Conran-operated Floridita restaurants in London, Madrid, Dublin and Moscow, named after the famous Havana bar.

While Esencia chief executive Andrew Macdonald tub-thumps that Carbonera “will be the first truly integrated golf resort in Cuba” he believes there is plenty of scope to develop other upscale resorts on the island. One of the dozen or so projects believed to be planned with international buyers in mind is in Bahía Honda, about an hour west of Havana, which has reportedly received preliminary government approval. This will include three golf courses and a 500-berth marina. 

Meanwhile, last April, London-listed fund Ceiba Investments, which had transformed the dilapidated Hotel Saratoga in the colonial section of Havana into a style editor’s dream, raised €88m in a share placing. Sebastiaan Berger, the Havana-based Dutch corporate lawyer who manages the fund, says the fact that it was 70% oversubscribed, confirms investors’ current interest in the country.  

Although EU countries accounted for more than half of the 400 joint ventures active by the early 2000s — a result of cash-strapped Fidel Castro’s 1995 Foreign Investment Act — Europe’s dalliances with the island were made conspicuous with the inflow of tourists. By 2006, more than 2.2 million Europeans were visiting annually, with tourism eclipsing sugar as Cuba’s leading foreign exchange earner, in effect creating a two-tier economy. 

Encouraged by then Spanish prime minister Felipe Gonzalez’s rapport with Castro, Spanish investments in Cuba, by hospitality groups such as Sol Meliá and Occidental and airlines such as Iberia and Air Europa, spiked in the mid-1990s. By 2003, Spain had 98 ventures in Cuba, including banking interests. 

Corporación Financiera Habana, a joint venture of Spanish bank Caja Madrid and Cuba’s Banco Popular de Ahorro, finances various ventures in Cuba, as well as providing international banking services to the Cuban government. There is even a Havana-based trade group representing Spanish business interests. Its head, Víctor Moro Suárez, is president of Spain-based food manufacturer Vima World, whose products can be found in supermarkets, hotels and resorts throughout Cuba.  

It isn’t only Spain with longstanding ties to the island. When Cuba briefly opened real estate investment opportunities in the late 1990s, Ceiba took a major stake in the construction and development of the Miramar Trade Centre, an 18-building complex launched by Israel’s BM Group. In early 2007, a 25-story condo tower, the Edificio Atlantic, which faces the seaside boulevard the Malecón, opened — the fruits of Azul Inmobiliaria, a joint venture of state entity Cimex and its Milan-based partner, Bi & Di Real Estate. With its first five floors for commercial use, including space rented by Adidas, the rest of the tower comprises luxury apartments.  

With so many billions of dollars required to replace the country’s corroded infrastructure — even before the damage inflicted by the devastating 2008 hurricane season — most observers expect Cuba to be far more accommodating towards foreign investment in the very near future. “Dozens of beaches offer huge potential for residential development, and this will be the focus of future real estate development aimed at foreigners,” says Christopher P. Baker who has written six books on travel and tourism related to Cuba.  

But there are other prosaic opportunities exciting would-be investors, even discounting the prospect of offshore oil exploration. For example, Exotix, a London-based specialist, in brokering the sale of government-generated illiquid debt instruments, has Cuba (alongside Serbia and North Korea) within its portfolio. “At the end of 2000, the price [for Cuban debt instruments] was around 13 cents on the dollar. [In mid-2008], they’re trading at 17 to 18 cents on the dollar,” says Stuart Culverhouse, Exotix’s chief economist. “Cuba defaulted in 1986, when it announced a moratorium on its debt with Western banks. We mainly trade these loans but also look at more recent performing trade-related debts.”  

The inauguration of Barack Obama who advocates a loosening of sanctions against Cuba, may mean “the price of Cuban paper could at least double, but investors may have to wait beyond 2009,” to benefit from a new US president on the scene, says Culverhouse. Reportedly, one deep-pocketed bettor of the value of such Cuban debt is London multimillionaire Nicholas Berry, who, by 2005, had bought as much as €148m in Cuban paper.  

A bigger potential honeypot for investors is telecoms. Cuba, with its long-exorbitant rates, has the lowest mobile phone penetration in the Caribbean and Latin America and, until mid-2008, Cuban telecom monopoly Etecsa (27% of which is held by Telecom Italia) restricted mobile use to foreigners and government officials. Etecsa spokesman Máximo Lafuente Vázquez says with Cubans now allowed to own mobiles, there could be 1.6 million subscribers within five years. Last year, less than 300,000 cellular lines were in use.  

One telecom company agitating to pursue business with Cuba is the regional giant Digicel, owned by Irish entrepreneur Denis O’Brien, which has conquered 23 Caribbean cellular markets and a combined six million-plus subscribers. Publicly, at least, Digicel refuses to comment on specific plans; Digicel’s regional competitor, the UK’s Cable & Wireless, is more forthcoming: “The company already offers integrated mobile, fixed line and broadband services to 34 countries, and would certainly be interested in Cuba, seeing it as a good strategic fit,” says C&W spokesperson Paul Wood in London. 

Nevertheless, even with Moscow cosying up to Havana once more — and Venezuela and China installed as Cuba’s current leading trading partners — the US remains the wild card in terms of Cuba’s future capitalist ventures. American business, which has only been allowed to sell food and agricultural products to the country, wants to do far more. Also, with Cuba still reeling from the recent hurricane damage (a contributor to the country’s lowered 2008 GDP growth of just 4.3%), European investment will be required, if begrudgingly, in Havana for some time.