Cuba’s Tech Start-up Sector: ‘People Are Hungry to Work’

Cuba's Tech Start-up Sector: 'People Are Hungry to Work'
Feb 24, 2015 Latin America

Growing up in Cuba, Jose Pimienta didn't see the Internet until 2006. He
and his friends taught themselves computer programming with a Russian
textbook on the Pascal programming language that had been translated
into Spanish. Even in university, when he finally had access to the
Internet, Pimienta, now 27, was limited to 20 megabytes per month of
data — a small fraction of what fits on a thumb drive today. Yet, in
2013 when PayPal hosted its first-ever global hackathon competition in
San Jose, Calif., with a $100,000 purse, Pimienta and two partners
placed third for developing a peer-to-peer lending app called LoanPal.

"In Cuba, you have a lot of people who have done things with limited
resources and no real access to knowledge," Pimienta, who emigrated to
Miami in 2009, says. "You have a lot of talent there." Pimienta is proof
of the level of talent Cuban universities are producing. He and his
Cuban partner won the regional PayPal hackathon in Miami two years
running, and he's now working with clients in the United States, Europe
and Cuba, building websites and brands from the ground up, while
employing former Cuban classmates.

Presidents Barack Obama and Raul Castro on December 17 made an historic
announcement that the adversaries, separated only by 90 miles, would
work to reopen diplomatic channels, ease travel and trade restrictions,
and allow for U.S. banks to start processing transactions on the island.
But even before the announced thawing of relations, Cuba was developing
sought-after computer programmers and a tech start-up community that has
drawn interest from entrepreneurs and industry giants like Google.

"You have a highly educated workforce, excellent programming talent and
a huge amount of opportunity for companies that want to invest in the
knowledge economy Twitter ," notes Faquiry Diaz Cala, CEO of Tres Mares
Group, a private equity investment firm in Miami that has partnered with
Pimienta. "There's already demand for these programmers. There are
full-blown projects that are being done in Cuba by guys who are working
underground because they haven't really opened up the sector yet."

There is no official number for the size of the information technology
sector in Cuba or the number of trained professionals. But Diaz says
Cuban universities are churning out large numbers of graduates who have
learned to program with limited resources

"These guys are sought after because their programming is so tight,"
Diaz notes. "And their programming is so tight because they have learned
with limited access to time on computers and limited access to the
Internet."

That could change. New regulations announced by the U.S. Treasury
Department allow for the export of technologies to Cuba that were
previously banned under economic restrictions against the island. That,
coupled with economic reforms slowly rolled out by the Castro
government, has positioned the Cuban technology and start-up sector as
one of few areas of the Cuban economy truly poised for growth. Before
the island can transition into a tech hub, however, it has to overcome
serious hurdles including a lack of critical infrastructure, laws that
limit foreign investment and government control of access to the Internet.

"We know from previous transitions that a gradual transition — such as
the ones staged in China or Vietnam — were better than those that
followed the so-called shock-therapy recipes." –Mauro Guillen

Not an Overnight Process

While the joint announcements made by Obama and Castro were met with
much enthusiasm, analysts warn that the outcome of the thaw between the
two countries will largely rely on a long, arduous process of
negotiations, which began in January when assistant secretary of state
for western hemisphere affairs Roberta Jacobson traveled to Havana for
two days of discussions with the Cuban government. "The fact that they
were meeting at all is hugely significant," says Cynthia Arnson,
director of the Latin America program at the Washington-based Wilson
Center, a think tank. "But this is going to be a process, and it's not
going to happen overnight."

Even if the negotiations are successful, fully opening the Cuban economy
will take time, notes Wharton management professor Mauro Guillen, who is
also director of The Lauder Institute. "That process of transition from
all points of view — the legal, the economic, the financial, the
monetary, the regulatory — is going to be very complicated. It cannot
happen all at once. It cannot happen overnight," he says. "We know from
previous transitions that a gradual transition — such as the ones staged
in China or Vietnam — were better than those that followed the so-called
shock-therapy recipes."

Standing in the way of fully normalized economic relations between the
U.S. and Cuba is the economic embargo first instituted by John F.
Kennedy in 1962 and then later strengthened by Congress. There is a
near-zero chance of it being lifted. The U.S.Treasury has exercised its
limited ability to make exceptions to the embargo, but removing the
embargo completely needs Congressional approval. Republican lawmakers
are mostly opposed to loosening restrictions against Cuba. The
Republican-controlled Senate may even block Obama's nominee for the
ambassadorship.

To be sure, full normalization of the economy has the potential to bring
an enormous windfall. The Peterson Institute for International Economics
estimated in a 2014 paper that Cuba, which currently attracts about $500
million in FDI, could lure as much as its Caribbean neighbor the
Dominican Republic, which has $17 billion in FDI, including $2 billion
from the U.S.

And the Cuban government has identified information technology as one of
the sectors it is seeking to develop under the reforms to its economy
that President Raul Castro began to roll out in 2008. "Today's situation
does not allow computer activity to address many of the needs required
by the population," deputy minister of communications Wilfredo Gonzalez
Vidal said in an interview with Granma, the official newspaper of the
Cuban Communist Party. The government sees technology as "an industry of
strategic development for the nation, strengthening the economy and
providing broad access to contents of digital services," he said.

The government has a multi-part plan to develop the industry that
includes promoting training, focusing on government and electronic
commerce, allowing for new business models, and cooperating with
international actors to improve content and infrastructure and the
availability of equipment.

"There are full-blown projects that are being done in Cuba by guys who
are working underground because they haven't really opened up the sector
yet." – Faquiry Diaz Cala

Perhaps the most significant sign of both the Cuban government's
approach and the international interest in the island came on February
9, when Netflix said it would immediately begin offering streaming
service to the island.

Severe Limitations

Netflix's announcement drew headlines, but also exposed the severe
limitations that pose a threat to the development of the information
technology sector. Penetration rates for cellular telephone usage and
Internet connectivity remain uncommonly low: Only 5,360 home and
business broadband Internet connections exist in Cuba, according to the
International Telecommunications Union. Roughly one in 10 Cubans
regularly use mobile phones, according to Freedom House, citing 2011
figures.

Among the country's largest investments in telecommunications
infrastructure came in 2013 when it activated a $70 million undersea
cable laid by the Venezuelan government, giving the country a dependable
link to the Internet.

Still, most Cubans won't be able to afford to access the Internet or buy
a cell phone in the short term. An hour of access to the web eats up
roughly almost one fourth of the average Cuban's monthly salary. And
most Cubans can only check e-mail or visit government-approved sites
through a domestic intranet.

Pimienta knows the government-imposed obstacles well. He is currently
partnering with Cuba-based designers on jobs from international clients.
Due to restrictions on file sizes, his partner has to send large files
broken up into as many as 30 e-mails, which are then pieced back
together. Beyond that, he is not legally permitted to pay his Cuba-based
employees. "I supply them with equipment and technology instead," he says.

Pimienta hopes new regulations will make it easier to work with
Cuba-based designers. To that end, he and several partners have launched
a website that highlights the work of Cuban designers and programmers.
He hopes to bring together dozens of professionals from across the
island, showcasing their work. "We want people to know about the talent
that exists in Cuba," he says. "With these regulations changing, we want
to be able to provide companies with access to Cuba. You're an American
firm and you want to go to Cuba? We know the market both in the U.S. and
in Cuba. And we can help you build a brand."

Changing the Image

The popular image of Cuba, at least in the United States, is that of a
closed-off, tightly controlled island where the Castro regime has a hand
in nearly every facet of life. Miami-based entrepreneur Hugo Cancio sees
the potential of the Caribbean island, where he was born, beyond its
appeal as a tourist destination full of the robust cigars, vintage cars
and aged rum for which it has become associated. "Cuba is more than
that. You're talking about a country of 11.2 million highly educated
people. It's about more than just the Castros," he says.

"There was a Cuba here before 1959, and it's a Cuba that is still here
today." – Hugo Cancio

An understanding of Cuba is the message Cancio tries to relay to readers
of his magazines and websites, including the flagship OnCuba
publication. The magazine informs readers about Cuba's cultural
uniqueness, its history and current events. "There was a Cuba here
before 1959, and it's a Cuba that is still here today," he says. Yet,
perhaps more revealing than Cancio's message is how he built the
magazine and website with homegrown Cuban talent.

Cancio plucked some of the island's best and brightest, trained them to
produce a bilingual publication, and hired a handful of programmers to
maintain the website. "The talent here is extremely highly trained," he
notes.

Cancio says he has worked with U.S. companies that have expressed
willingness to get into the Cuban market when it opens. "It's amazing to
see how interested American businesses are in Cuba," he notes. "We
believe there is going to be hundreds of millions of dollars flowing
from the U.S. to Cuba and Cuba back to the United States, eventually."

The potential is so large that it could attract major U.S. companies,
such as AT&T, Verizon and Google, the latter of which has already said
it is interested in expanding its reach on the island.

How quickly investments proceed likely depends less on U.S. regulators
and more on the rules that Cuba sets for investment. The
state-controlled ETECSA (Empresa de Telecomunicaciones de Cuba S.A.) and
its subsidiary Cubacel (Telefonos Celulares de Cuba S.A.) currently have
a monopoly on the telephony sector.

Welcome News

However, the early signs in the negotiations between the U.S. and Cuba
are welcomed news for entrepreneurs. "I think that you'll see a lot more
direct assistance to the private sector … in the form of technical
assistance so that they can grow and prosper and perform at a high
level. That's what's happening on the black market already anyway,"
notes Ted Piccone, a senior fellow at the Brookings Institution who
follows Cuba. "Creating institutions that respect property rights — this
kind of thing is a whole new concept in Cuba. A major transformation is
underway."

Regardless of how quickly reforms take place, Pimienta says there is
already buzz around the potential for change in Cuba. Greater access to
knowledge from U.S. companies and the ability to import needed
technology and equipment can only benefit the start-up industry in Cuba,
he adds.

"The reality is that there are people hungry to work. They're creative
and they are just waiting to show what they can do," he says. "If this
happens, it would be wonderful for the people of Cuba."

Source: Cuba's Tech Start-up Sector: 'People Are Hungry to Work' -
http://knowledge.wharton.upenn.edu/article/cubas-tech-start-sector-people-hungry-work/