NJ business look to Cuba for a market, find difficulties

NJ business look to Cuba for a market, find difficulties
SUNDAY, MARCH 1, 2015, 1:21 AM
BY HUGH R. MORLEY
STAFF WRITER | THE RECORD

* Telecom company, travel agency and tech-life science executives test
waters, but experts tamp down expectations

President Obama's actions late last year, beginning the process of
normalizing the United States' long-frozen relationship with Cuba, lit a
fire under some New Jersey business leaders eager to tap into a new market.

A Newark-based telecom company has already made a deal with Cuba's
telecom agency on long-distance phone service. A group of New Jersey
tech and life science executives, intrigued by the potential of Cuba's
educated population, will visit the island in April. And a North Jersey
travel agency with extensive experience planning trips to Cuba has seen
a dramatic increase in calls.

Yet experts say low income levels in Cuba, where the average worker
makes about $20 a month, the communist government's tight control of the
economy, and America's continuing, stringent trade embargo put the
island 90 miles from the U.S. coast a long way from becoming more than a
negligible part of the nation's or New Jersey's economy.

"This is just the first step," said Lawrence Diamond, a Newark attorney
who specializes in helping companies do business with Cuba. "This is not
something that's going to change in any great extent doing business with
Cuba. It's going to take time before American companies will be, on a
broad scale, able to do business in and with Cuba."

The possibility of closer business ties with Cuba is a sensitive issue
in New Jersey, home to the second-largest population of Cuban exiles —
after Florida — who have historically opposed better relations with Cuba
out of a belief that isolating the country would help spur the downfall
of former President Fidel Castro, and now his brother, President Raul
Castro.

That sentiment reaches the top political echelons — Sen. Bob Menendez is
a fierce critic of Obama's initiative. And it continues to divide the
Cuban community, said Carlos Medina, chairman of the Statewide Hispanic
Chamber of Commerce of New Jersey, which met on Thursday night in
Lyndhurst to explore Cuban business possibilities.

"It's somewhat generational," said Medina, whose father and
mother-in-law are Cuban. "My mother-in-law is 82, and she still doesn't
want anybody to have any interaction with Cuba. And then you see more
folks in their 40s and 50s a little more open" and asking questions
about Obama's initiative, Medina said, adding, "Just the fact that they
are asking means they have some sort of desire. 'What can I do there? Is
it safe to invest?' "

Medina said he organized Thursday night's event after the chamber
received many member calls seeking information on what businesses could
and couldn't do in Cuba as a result of Obama's announcement.

Most of the changes are the result of executive orders announced by
Obama in December as the first step toward normalizing relations with
Cuba. Included were new regulations governing business and travel
between the U.S. and Cuba. Obama also said he would open an embassy in
Havana.

The overall effect was to limit, albeit in a modest way, the impact of
the 50-year-old embargo, which only Congress can remove.

Even with its limitations, Obama's action clearly allows more business
opportunities than in the past. Until the changes, U.S. laws allowed
American companies to do business in Cuba only in three areas that gave
humanitarian help to the country's population — pharmaceuticals,
agricultural products and health care devices, Diamond said.

According to the U.S. Treasury, the executive orders allow American
companies to create telecommunications links with Cuba, to travel and to
forge banking links with Cuban institutions, which will include allowing
the use of U.S.-issued credit cards in Cuba.

The orders also allow Americans to be involved in "certain
micro-financing projects and entrepreneurial and business training," and
the importing into the U.S. of "certain independent Cuban
entrepreneur-produced goods and services," the Treasury said.

IDT, the Newark-based telecom company, said it has reached an agreement
with Cuba's national telecom provider, Empresa de Telecomunicaciones de
Cuba S.A., to exchange international long-distance voice traffic between
the United States and Cuba directly.

A statement by Bill Pereira, CEO of IDT Telecom, said the company had
been in contact with the Cuban agency for years, and then last year it
expressed a "desire to move forward on an agreement with us."

The agreement would allow IDT to route international long-distance calls
to Cuba directly into the Cuban provider's network, instead of a
third-party network, he said. The toughest part, he added, was
developing the relationship with the agency "to the point where they
were comfortable moving forward with us."

The deal fits IDT's business of providing prepaid and other call
services to first- and second-generation immigrants in the U.S., Pereira
said.

Perhaps the most lucrative area in the short term will be travel. Delta
Air Lines, United Airlines, American Airlines and JetBlue Airways have
expressed interest in starting regular flights to Cuba, which now
receives only charter flights from the U.S. Since Obama's announcement,
Marazul Charters & Travel Agency in North Bergen, which has arranged
trips to Cuba since 1979, has been deluged with calls, said Robert
Guild, a company vice president.

The executive orders have dramatically reduced the amount of red tape
involved in traveling to Cuba, which previously required trip organizers
to give a detailed report on their itinerary before and after the trip.
The rules lifted the requirement that travelers obtain a license from
Treasury to visit the country, and only requires travelers to read, and
ensure that they meet, the requirements of one of 12 categories of
travelers' licenses allowed to go to Cuba, Guild said.

In the past, he said, it could take four to six months to get a license.
Now, "any organization can sponsor a trip," and no licenses are needed,
he said. Although Americans are still not allowed to visit Cuba solely
for tourism, travel to professional meetings and conferences, and to
complete "certain authorized export transactions" are allowed, according
to the Treasury rules.

"We already have requests from organizations through 2017, for hotel
space in Cuba," he said. The increased demand for travel to Cuba means
that Marazul, which has a headquarters in Miami and a workforce of 100,
of whom 20 are in New Jersey, expects to add at least 15 new employees
companywide, Guild said.

The trip by the tech and life science executives will be led by the New
Jersey Technology Council and is aimed at assessing opportunities for
hiring Cuban workers, said James Barrood, president of the NJTC, a
support and advocacy group for the tech industry.

"Cuba is one of the most-educated countries in the Western Hemisphere,"
said Barrood. "And there are a lot of smart people, especially in the
tech areas."

While workers there may not have state-of-the-art IT skills, Barrood
said, Cuba has a strong health industry, the country is well-known for
producing a large number of doctors, and the country's free education
system produces workers strong in math and science basics, who could be
trained, he said.

"There is a tech talent shortage" in the U.S., said Barrood, who visited
Cuba last year with a student group from Fairleigh Dickinson University,
where he was head of the Rothman Institute of Entrepreneurship. "And
it's only going to get worse. We want to make sure that our companies
can partner, collaborate or employ this talent in the near or long term."

The trip is being organized with The Latino Institute, a Newark-based
non-profit group that advocates for education among Hispanics.

The scope of business opportunities in Cuba will depend in part on what
happens next in Cuba, where independent businesses are a relatively new
phenomenon.

A description of doing business in Cuba drawn up by the Embassy of
Canada, which does not have an embargo on doing business in the
Caribbean country, makes the difficulties clear.

"The Cuban market is challenging and complex, and not suitable for the
novice exporter," the embassy statement said. "However, for those with
experience exporting, in particular to developing and emerging markets,
the medium- to long-term prospects look promising."

Although "the Cuban government has been gently reforming and
liberalizing the economy over the past few years," the embassy said,
"all imports to the country remain controlled by Government of Cuba
import agencies."

Cuban importers can deal only with "established companies" with at least
five years' experience, and "individual entrepreneurs or newly created
companies will not generally be considered." Companies seeking to sell
goods in Cuba cannot open an office there until they have three years of
selling in the country, and $500,000 in sales there, the Canadian
Embassy said.

Herb Ouida, director of the Global Enterprise Network at Fairleigh
Dickinson University, which has put together an April conference for
local businesses on "Opening the Door to Cuba," said he expects Obama's
move to be followed by other initiatives that will expand the areas of
business open to U.S. companies.

"It's incremental, I agree, it's very incremental," Ouida said. "But
it's in the right direction in terms of opening the door. … You go now
to do your research, to determine what changes will be prospective as
well as what changes are in place today."

Email: morley@northjersey.com

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