Asi Es Cuba

In case you missed them, take a look at our prior posts.

School pride on the walking tour of Havana

It’s been a little over a week since the last of us returned from Cuba and it’s safe to say that – at least for us first-time Habaneros – no amount of classroom time could have prepared us for what we found. Textbook accounts of political and social challenges can never replace conversations with local business owners as they recount their struggles to purchase basic supplies. Similarly, pictures of the Malecón highway could not diminish the surreality of seeing roadways filled with classic American cars.

Through speakers and company visits, we were exposed to a side of Cuba that few are able to see. Moreover, it’s a side of Cuba that may very well cease to exist should the economic transition continue. However, for all its flaws and all its beauty – we fall back to Asi es Cuba. Nothing quite compares.

As for the questions we prepared prior to leaving…

How do the Cuban people view their neighbors? The U.S.? Venezuela?

Old Cuba may have spent most of its energy antagonizing the U.S. and forging alliances with fellow communist states, but New Cuba maintains a relatively positive focus on domestic development in spite of the Bloqueo. In fact, I would say one of our strongest takeaways from the week relates to just how much damage the embargo does to the Cuban people.

Title III of the Helms Burton Act allows U.S. companies to sue firms (Cuban or other) for “trafficking” in expropriated Cuban property. While Title III has historically been suspended by every U.S. President (until our current one, possibly), it is sufficient to make foreign investors wary of involving themselves too heavily in business on the island.

Further, the embargo does a massive disservice to cuentapropistas. Since Obama, Cuban entrepreneurs have been able to sell their goods in the U.S. Their products, however, are still subject to extremely high tariff rates – in some cases, up to 90%. The only other country with “Column 2” status under the U.S. International Trade Commission’s Harmonized Tariff Schedule is North Korea. As expressed by some cuentapropistas, the U.S. claims to support Cuban entrepreneurs while its policies seem to only make the life of a cuentapropista more difficult.

That being said, all seem to recognize that there is still plenty more the Cuban government must do to safeguard the growth of industry on the island. U.S. policy does not help matters, but it would be unfair to assert that the U.S. should shoulder all of the blame.

Pre-revolution ride

How has life changed since the introduction of 3G cellular service on the island? What has stayed the same?

3G cellular service has had an undeniable impact on the availability of information in Cuba. For a population that once relied on a network of hard drives (dubbed, El Paquete) in order to disseminate information, WiFi was a game-changer. It stands to reason, therefore, that 3G service would have a similar impact on the mobility and accessibility of data – especially given the struggle to access WiFi networks on the island.

Of course, it wouldn’t be Cuba if there weren’t a handful of associated challenges. For one, not everyone can afford a phone or SIM card – and service isn’t available everywhere. Beyond that, a large portion of apps and internet services are blocked from use due to the embargo. The Apple app store is unavailable, as is our beloved Canvas (which made uploading an assignment very difficult for our author).

Sorry, Professor. My cash flow model got embargoed.

How do private citizens view themselves in the context of broader economic reforms? Is it a “reform or out” mentality? Or is there a “third way” between capitalism and Cuba’s communist past?

Cubans want private property, and they’re very glad that their new constitution recognizes this as a right. Now they want to make sure the government will defend this right to property as well as create a system by which individuals can grow their wealth. This trip certainly helped cement the innate human desire to create and the drive to achieve some level of ownership in life – the natural expression of which is entrepreneurship.

While Cubans are setting up their own businesses and appreciate the material benefits of capitalism, they are – by and large – proud of certain achievements in their history. The quality of their public health system, all things considered, is something that merits close examination. Moreover, Fidel’s vision for Cuba truly did create a racially diverse and relatively non-divisive society. Cubans don’t want to lose these tangible and intangible qualities that make their nation unique. Even worse would be a return to the rampant economic inequality of the pre-revolution days. While New Cuba seems to be defined by a desire to build and reform industry on the island, we certainly did not get the impression that Cubans as a whole are striving for full-blown, American-style capitalism.

And I’m sure they’d like to keep their cars, too.

With our questions answered and our “Bucket List” items checked off, we say goodbye to Cuba and hope to return very soon!

Until the next time…

Casey Buckley is a 2020 MBA Candidate at Columbia Business School

Resolver

In case you missed them, take a look at our prior posts.

As I write, I’m overlooking the waves crashing on the Malecón – a 5-mile sea-wall esplanade separating Havana from the waters of the Florida Straits. For so many Cubans who fled the island in decades past, the Malecón was a final point of contact with familiar land before risking so much at sea. Those who chose to stay continued to face a harsh reality under the Castro regime and, although individual freedoms have increased in recent years, daily life in Cuba still requires the ability to resolver.

Waves crashing on the Malecón

We’ve had the privilege of meeting with a wide variety of cuentapropistas (private business owners) across Cuba – from owners of paladares (private restaurants) to casas particulares (small hotels operated out of individuals’ homes). Building a profitable enterprise is a challenge in and of itself, but the complexities and erratic nature of Cuban law make it all the more difficult for cuentapropistas.

Coming from the United States, it’s easy to take for granted a robust wholesale market and access to supplies. Raw materials for nearly any business can be found domestically or imported fairly easily. Supply chains in Cuba, however, require a bit more resolver.

El bloqueo (the blockade, as the embargo is referred to on the island), effectively restricts cuentapropistas from purchasing anything directly from the US. Business owners with US visas, however, are able to travel to the United States, purchase goods, and carry them back as luggage. As such, the international arrivals terminal at Havana airport is littered with bundles of foreign goods destined for private homes or businesses in Cuba. This workaround is effective, but a single traveler can only carry so much and is forced to purchase goods at full retail prices in the US.

Those without US visas can purchase goods from popular intermediary markets in the region such as Panama or Mexico. Regardless of country of purchase, there are tax limitations to this import policy. Each Cuban citizen is limited to 120kg of tax-free imports per year. Imports on a larger scale introduce further bureaucratic complexity and financial burdens. For those unable to leave the country, a black market exists – but the prices become even more punitive.

Rather than craft a workaround for imports, many choose to resolver by using supplies found on the island. Clandestina, a local fashion producer and retailer, sources all its fabrics in Cuba. Their latest line – for example – includes clothing crafted from window curtains. They purchase the curtains in Cuban state-owned stores and repurpose the material into button down shirts, bandanas, and more.

https://clandestina.co/

Mediterráneo, a restaurant in Havana, is proud to be Cuba’s premier farm-to-table paladar. Given the massive food shortages on the island (the Cuban government imports ~65% of the food provided to citizens) and limited agricultural resources (lack of agricultural diversity and technology), it’s quite impressive that our meal at Mediterráneo was one of the best on the island.

Without significant reform on both sides of the Florida Straits, it is unlikely that life as a cuentapropista will become any easier. A lifting of the US embargo and reform of Cuban import regulations would massively improve the chances of success for private businesses in Cuba, but – until then – the Cuban people will have to fall back on their ability to resolver.

Casey Buckley is a 2020 MBA Candidate at Columbia Business School

Es Complicado

Spend enough time in Cuba and you’ll notice a few phrases that often pop up in conversation: Es complicado (it’s complicated), Resolver (to resolve; to get by), and Asi es Cuba (that’s Cuba; just accept the idiosyncrasy for what it is). As much as their frequency may border on overuse, these phrases’ ubiquity serves as a constant reminder of the many daily frictions in Cuban life.

Take communications, for example. Nothing quite sums up es complicado as trying to access the internet. Much like any other good or service in this country, the government controls access. Students receive free internet at universities, but the average Cuban citizen needs to follow a few steps before being able to log on. First is the half-hour queue at the local telecommunications office where one can purchase a maximum of 3 internet access cards – good for one hour each. Whether using the state-provided WiFi in public parks or a personal router at home, everyone needs a card. No card, no internet. Fortunately for tourists, select hotels provide their guests with enough internet hours to last the duration of their stay. Sadly, this connection is fairly unreliable and has proven quite the challenge to posting as a traveling blogger.

With such restrictive measures placed around traditional internet access, it might come as a surprise that 3G cellular data is available in Cuba. Introduced in late 2018, 3G has served as an inflection point in Cubans’ access to the outside world and their overall level of connectivity. Many Cubans, however, cannot pay for a SIM card and can still be found at all hours of the day and night using the internet in public parks.

1 hour of internet = 1 CUC (I interpret the image as a critique of modern overconnectedness)

Another facet of life in Cuba is its currency system. Cuban citizens purchasing goods and services within domestic sectors use the Cuban Peso (currency code: CUP). Tourists, foreign investors, and those operating in the international sector use the Cuban Convertible Peso (CUC). That’s pronounced “kook” – a source of constant amusement when divvying up our dinner/bar bills. While officially 1 USD = 1 CUC = ~25 CUP, things are – of course – a bit more complicado.

The FX conversion process for foreigners isn’t exactly straightforward. A 10% “embargo tax” is added to all USD transactions so, also taking into account the bid-ask spread, 100 USD will get you roughly 86 CUC. Our group applied a little resolver to this situation and tried to bring as much non-USD currency as possible. All those spare Euro, Swiss Francs, and Canadian dollars we had lying around helped save 10% on conversion. Cuba’s a cash economy and, if you’re American, ATMs are of no use here due to OFAC restrictions. So plan ahead and convert with care if you expect to spend time on the island.

Pesos vs. Convertible Pesos
Note the reverse faces of the bills: locals see armed uprisings while foreigners see energy innovation

As mentioned, 1 CUC = ~25 CUP. Other than an enterprising taxi driver who chooses to give you change in CUP rather than CUC (as happened to someone in our party; in his defense, the bills look quite similar in the dark), the two currency systems did not interact very often. Until very recently, private companies operating under the CUC did not interact with state-run enterprises no the CUP. While this disconnect might not seem meaningful at first, it ultimately serves as an impediment to comprehensive analysis of the Cuban economy. Results are further obscured by official books and records that consolidate the Cuban economy at a 1:1 ratio for CUC:CUP. Cuba’s two currencies have a very clear disconnect between official records and reality, but the situation gets even murkier when one considers exchange from CUC to foreign currency.

Foreign investors in Cuban enterprises are not always free to convert their CUC profits back to the currency of their choosing – the Cuban government may limit the amount or timing of the conversions. While this is technically a restriction on access to and repatriation of profits, it can also be understood as an implied devaluation of the CUC. By running a dual currency system split along domestic / international economic lines and by limiting the convertibility of a “convertible” currency, it becomes very challenging to evaluate Cuba’s economy relative to the rest of the world. Due to this lack of meaningful data, Cuba ultimately has trouble planning for the future.

Whether it’s getting on Instagram or paying cash for a cortado, Cuban life can get complicado. Moreover, what may seem to be a minor issue from a tourist’s perspective often signals a broader issue with potentially major implications. We’re seeing good progress on the internet front with the introduction of 3G and – hopefully – 4G in the coming years. The currency system is a known issue that we can only hope will be rectified in the near future. As for now, we will continue to enjoy our brief respite from the demands of cell phone notifications (those of us who didn’t buy a SIM card, at least) and we will happily spend our CUCs on coffee and mojitos. Things might be complicado now, but we’re hopeful for what tomorrow holds.

Casey Buckley is a 2020 MBA Candidate at Columbia Business School

A Cuba!

Every week since late January, our group of 30 has gathered on the fourth floor of Warren Hall to discuss Cuba – its culture, its history, and its future. Led by the inimitable Professor Bruce Kogut (and his fearless sidekick, Lodovico), we have been fortunate to have been exposed to a wide range of literature and numerous distinguished guest speakers – including Provost John Coatsworth and Dr. Margaret Crahan of SIPA.

The core focus of our course – and the lens through which we have viewed Cuba – is that of an economy in transition. Our holistic approach to the subject has allowed us to explore a wide range of topics: the legacy of Spanish colonialism, the decline of the Castro regime, and a Russian case study in privatization of state-owned real estate – to name a few. We hope that a thorough understanding of Cuba’s past and the transitions of its formerly communist peers will allow us to better contextualize and assess the promise of economic reforms today.

And with that, we’re off to Havana!

Some of the questions we hope to answer over the course of the next week are:

  • How do the Cuban people view their neighbors? The U.S.? Venezuela?
  • How has life changed since the introduction of 3G cellular service on the island? What has stayed the same?
  • How do private citizens view themselves in the context of broader economic reforms? Is it a “reform or out” mentality? Or is there a “third way” between capitalism and Cuba’s communist past?

On a slightly more whimsical note, we’re also looking forward to jazz clubs, salsa dancing, and riding in classic cars. And of course, we wouldn’t be MBA candidates if we weren’t interested in any potential business opportunities down the line…

Stay tuned for answers to the above questions and more!

Casey Buckley is a 2020 MBA Candidate at Columbia Business School

Learnings From Cuba

IMG_0038Our class’ 2018 global immersion trip to Cuba was a rare opportunity for a group of 28 US business school students to experience “the real Cuba”.

Though we studied Cuba for 6 weeks in the A term, there was no way we could have gained the perspective and understanding we did without visiting the country.

I’d like to share three key themes of our trip in the hopes you are inspired to learn more about Cuba too.

1. Cubans are proud of their history, and generally approve of socialist education and healthcare. We spoke with many Cubans – a real estate lawyer, a former ambassador, a journalist, an Airbnb host and more – and all of them have extensive knowledge and opinions on the last century of history in Cuba. Given the country has free education, it was no surprise how eloquently each speaker could describe the events leading up to the Cuban Revolution, through the Special Period (when the Soviet collapsed and Cubans lost their support) and up until the Trump administration. Not one person spoke out against the socialist system of free education and healthcare. In fact, most Cubans appreciate what Fidel Castro did for their country. However, a Northern European version of socialism mixed with free market sounded amenable to most speakers over Castro’s fully socialist agenda. Even the urban planner believed in a more European model of planning that will preserve the city’s history (versus Shanghai-type development, riddled with pollution and disregard for historical sites). Ultimately, Cubans were extremely happy when the Soviet Union funded more social programs, but with their collapse came a drop in GDP of 35% and 16 hour power blackouts. Today they are happy with some social programs, but recognize a need to grow GDP to progress as a country.

2. 80% of Cubans have either remittances, a private enterprise or a second job to supplement their $25 monthly average salary – and the US is a big part of how they do this. The US Cuban embargo prevents any business with Cuba (other than tourism). However, some say Miami – which has the largest population of Cubans in the world after Havana – keep Cuba afloat with the estimated $3B+ in remittances sent each year from friends and family in the states. This creates disparity, because the 20% of Cubans who truly live on $25 a month may not, for example, have family who can send $100 each month, effectively increasing income by 500%. A Cuban real estate lawyer shared an example of how this plays out: Cubans used to only be able to swap their houses given the socialist model. They can now sell their houses, but the actual prices paid for apartments can exceed $100-200k+, without loans, mortgages or credit of any kind available to do so. You can take a guess where they are getting the disposable income to do so! Some people are effectively “investing” in Cubans if they float housing costs, because Cubans can either re-sell their houses after making improvements, or turn the house into an Airbnb or “casa particulares”, where they can earn money renting out their homes to tourists.

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3. Icy relations with Cuba simply make it easier for Cuban insularity and for the hardliners in the country to push their agenda. We spoke with the head of our tour group company, Collin Laverty, who also had extensive experience working in Cuban American policy. He believes in relations that are best for the US – not relations that are what the US has had in mind. He spoke about how many Cubans were happy when Obama’s visit to Cuba softened relations. The Cubans in government, on the other hand, did not know what to do. For 50 years, Cuba had cold relations with the US, and Fidel knew how to use that to his advantage. Saying that the US didn’t want to work with Cuba made it easier to convince Cubans to believe in Fidel and keep away from US relations. The Capitalist US influence could have negatively impacted the socialist movement. The Trump administration is a return to cold relations and is a “gift” to Cubans in government who are afraid of opening the floodgates to US business and capital.

Our class had an incredible time and made great friends through this trip. Thankful to have had the opportunity… but also thankful to be back on the grid online and in the states.

Adios y hasta luego amigos!

-Jill Wang ‘18

An American in Cuba

What are US-Cuban relations like overall? Pretty icy as of the Trump presidency. What have my relations with Cuban been like? ¿Acere, que bola? Bienvenido a la Habana!

Here’s a day in the life of an American in Cuba, and some of our learnings.

7:00AM: Log into Wi-Fi in the hotel. Wi-Fi is extremely difficult to get in Cuba because the state restricts it to public hotspots where you must bring a pre-paid card with a code on it to log in. You know where a hotspot is because you will see many people sitting on their cell phones. We are lucky enough to have hotel Wi-Fi, and the only time many of the group accessed it was in the morning and evening when at the hotel.

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This is in Trinidad, not Havana, but you can quickly tell it’s a Wi-Fi hotspot

8:00AM: Eat breakfast at the Melia Cohiba hotel in Havana. The hotel is operated by Spanish company Melia and owned by the Cuban government.

9:00AM: Meet with Cuba Emprende, a Catholic Church sponsored organization that educates and supports private small business entrepreneurs. We spoke with several students of the program. These entrepreneurs usually have outside remittances or family support to start businesses. A paladar, or a Cuban restaurant, can be as costly as $200K CUC (roughly $200K USD) to start.

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Meeting with Cuba Emprende

11:00AM: Visit small private business, Clandestina. The founders are two very impressive and scrappy women, one Spanish and one Cuban, who own the only major retail/clothing brand in Cuba. They bring materials from the US themselves, and hand paint or stamp designs on their cheeky t-shirts. Their most famous shirt design says, “Actually, I’m in Havana” – an ode to the fact that internet is extremely difficult to connect to, and you would tell a friend when you finally do connect that “Actually, I’m in Havana [and have limited internet]”.

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Noon: Eat lunch on the rooftop patio of La Makina Gastro Bar. We had the option of fish, chicken or lamb at most restaurants, and most automatically served a mojito with every meal. The meals we had on our trip were the best of the best Cuban cuisine, and it is important to note, we saw no Cuban sandwiches on any menus! Our tour guide, Rossi, warned us that Cuba is not known for its food given the difficulties of importing supplies and the lack of production in the country (as the highly educated population is not incentivized to work in agriculture).

1:00PM: After the meal a brand ambassador of Havana Club, a JV with French company Pernod Ricard, spoke with us about how to taste Cuban rum, and how the Cuban and French companies work together quite well to sell over $40M in Havana Club in Cuba alone each year. It is not available in the US due to the Embargo.

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Enjoying Havana Club after lunch

3PM: Meet with the EU embassy. The diplomats we spoke to from the embassy were relatively new to the office and spoke about their thoughts on Cuban-EU and Cuban-US relations. They were notably, very diplomatic in their responses!

6PM: Dinner at La Guarida, an old dilapidated mansion whose top floor was renovated and turned into a restaurant and rooftop bar. The cuisine was excellent by Cuban standards and the atmosphere was absolutely charming.

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Bar at La Guarida

9PM: Enjoy a daiquiri at Floridita, a bar Ernest Hemingway frequented during his extradition in Cuba. Afterwards, head home to connect to Wi-Fi and recharge prior to a trip to the historic colonial city of Trinidad, a 5 hour bus ride from Havana.

-Jill Wang ’18

Cuba: a Socialist Country in Transition

Since the revolution in 1960, Cuba has been a democratic socialist country. To most Americans, the concept is extremely foreign. Many of the questions we have had during our meetings in the country thus far question if privatization is possible, and what it is like living day to day in a socialist country. A few highlights on this topic from the trip so far…

2013 marked a new era for the country, with the passing of legislation allowing private (mainly touristic) businesses to operate. Small business owners now have to pay taxes on their businesses, a concept that had been foreign to Cubans until this time.

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A chat with a paladar (restaurant) owner at Atelier restaurant

Cubans receive free healthcare, education, some rationed food, and social services but are otherwise paid state sanctioned wages of the equivalent of $20-30 USD a month. There is opportunity to make more than the state wage in the private sector through tips and contact with foreign tourists.

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The artful ceiling of a paladar in Old Havana

The US Cuban Embargo means that businesses who need supplies need contacts in the US to buy supplies for them, and bring them back in their luggage. Anything that cannot fit in luggage is sent through other countries – for example, Julio who restores cars has large parts shipped through three different countries before it can come to Cuba. 

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Owner of vintage car restoration company, Nostalgic Cars, and his staff

Foreign investment has begun to bloom in Cuba – much to the benefit of the government. Swiss hotel company Manzana Kempinski operates a hotel in Havana. They earn 17% of revenues and 1% of profits, and the Cuban government takes the rest.

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The journalists, lawyers, educators and urban planners all agree that public healthcare and education has worked well for Cuba, but changes have and will continue to occur in the market, as Cuba’s GDP has been contracting and private businesses have afforded Cuba new avenues of growth.

-Jill Wang ’18