Cuba Country Report

Infortal Worldwide Geopolitical Risk Summary  

US and Cuba relations played a major role in 20th-century politics, particularly during the Cold War. The 21st century has witnessed major fluctuations tied to leadership changes in both locales.

During the Obama administration’s second term, the United States began to open up to Cuba by reestablishing diplomatic relations and proposing a partial lifting of the economic embargo in place since the 1960s. 

While the subsequent US administration pulled back on many of the Obama-era policy reforms, Cuba has pursued reforms that seek to open its economy to the private sector and foreign investment. 

The 2024 US election will likely have a major impact the development of US policy towards Cuba.  

Political Update 

In 2018, Miguel Diaz-Canel Bermudez was approved as the President of Cuba by the National Assembly. This marked the first time since the Cuban Revolution of 1959 that a member of the Chavez family did not rule the country, marking a significant shift in Cuban society. 

While Bermudez still adheres to the communist ideology that has ruled the country since the revolution, he has initiated several market reforms that have allowed for growth in Cuba’s private sector and the attraction of foreign direct investment (FDI). 

The government in Cuba still retains tight control over civil society and many industries. In addition, questions regarding its record on human rights remain a significant barrier for it to have the US lift its decades-long economic embargo.

Economic Update 

The Cuban economy suffered in the wake of the COVID-19 pandemic. Export earnings also faltered in 2023, amounting to only $9.1 billion, roughly a $3 billion decrease from 2019. 

This has left the Cuban government cash-strapped and unable to provide its people with adequate food, medicine, power, and other basic needs. 

There are several reasons for this:

• Cuba’s economy dramatically relies on the United States, and the continuation of the economic embargo from the US limits Cuba’s market potential. 
• In recent years, Cuba has relied on its partnership with Venezuela. Economic collapse and strict sanctions from the US on Venezuela have hampered its ability to support Cuba. 
• Inflationary pressures stemming from conflict and the global pandemic have affected the price of energy and food imports. With decreased exports, many Cubans cannot afford basic needs. 

Despite its economic challenges, Cuba has seen significant private sector growth following reforms allowing small and mid-sized businesses to operate under private ownership. This has led to higher income and greater autonomy for some but has already begun to spring problems with inequality as state-employed persons tend to have much lower salaries and cannot afford many of the goods being produced by the private sector. 

Economic reforms have also focused on attracting foreign investment by easing regulations on foreign businesses and establishing special economic zones.

Key Investment Sectors 

Major US-based restrictions to trade with Cuba remain, essentially making the country off-limits for American investors. However, the Cuban government has increasingly worked on opening up to new foreign direct investment through recent reforms. 

Investment opportunities outlined in the “Portfolio of Opportunities for Foreign Investment” published by the Cuban Ministry of Foreign Trade and Investment include:

• Food production and Agriculture: Cuba has a long history of agricultural products dominating the economy. Major agricultural products include sugarcane and tobacco. 
• Energy: Cuba has emphasized growth in the renewable energy sector. Declining imports of Venezuelan oil products have strained the domestic energy market, heightening demand for alternative products. 
• Tourism: Tourism has been a growing industry in Cuba in recent decades and is one of the industries with the most appeal for foreign investors. 
• Healthcare Services: healthcare services, including the export of biotechnology and pharmaceuticals, is one of Cuba’s largest export industries. Significant investment from China in these areas has promoted growth. 
• Logistics: Cuba’s strategic location has benefited it throughout history. It was often used as a logistics hub, particularly during the colonial era. The US economic embargo of Cuba has hampered this industry for decades; however, as Cuba looks to reenter the global market, the domestic and international logistics industries will become very important. 

Importantly, FDI is prohibited by the Cuban government in the following industries: 

• Healthcare; 
• Education; 
• Military; and 
• Media. 

While investing in Cuba may seem like a far-off dream for American companies, the fact that there is more private sector activity, shows what the future could look like. 

Recommendations for Companies and Investors  

It is important to note that “[p]ersons subject to U.S. jurisdiction are prohibited from doing business or investing in Cuba unless authorized by OFAC.” This poses challenges for potential investors, particularly those from the US.

In addition to the US-based restrictions, there are additional risks to consider: 

• Soviet-style Economy and Communist Government: The Cuban government still maintains tight control over Cuba's economy and civil society. The lack of a free and fair judiciary puts your company at risk. It is essential to ensure that your company abides by all relevant regulations in Cuba to avoid legal troubles with the state. 
• Lack of Government Transparency: This can make working in Cuba difficult for various reasons, including inaccurate or nonexistent market data, corruption risks, and nondisclosed supply chain vulnerabilities. 

Deep due diligence is essential to ensure compliance with US laws and regulations regarding doing business in and around Cuba. 

If your firm operates in the Caribbean region, it is critical to avoid heightened Foreign Corrupt Practices Act risks.

If entering the region for the first time, you should also conduct a geopolitical risk assessment to ensure that there are no emerging political risk considerations that can impact your firm’s operations.

Want To Know More?

For a deeper review of political, economic, due diligence and security risks for Cuba, please contact us.