5 Challenges to Doing Business in Cuba

5 Challenges to Doing Business in Cuba
By Michael Muckian
April 27, 2015

The emergence of cooperatives in Cuba and President Obama's
reestablishment of relations with the country has attracted the
attention of U.S. cooperatives and credit unions. About the size of
California and home to 11.3 million people, the Caribbean island nation
could become the next great success for the global cooperative movement.

But establishing a credit union beachhead in Cuba won't be as easy as it
may seem, according to Dr. Sandra Torres, an international management
consultant, assistant professor at the Miami Dade College School of
Business and former auto programs manager at the $550 million Tropical
Financial Credit Union in Pembroke Pines, Fla.

Lack of a private sector, the virtual absence of Internet connectivity
and knowledge that a totalitarian regime, however relaxed, is still
looking over everyone's shoulder should give would-be business
developers pause. What's more, since control of financial services still
rests squarely in the hands of government authorities, the development
of credit unions – either homegrown or as part of U.S. outreach efforts
– will be a long, slow process.

Torres, the New York City-born daughter of a Cuban national who
emigrated to the U.S. in 1942, outlined five distinct hurdles credit
unions and other financial institutions could face trying to do business
in Cuba.

1. There are one too many Cuban currencies. First and foremost, Cuba
needs to stabilize its currency situation, Torres said. U.S. visitors to
Cuba exchange their American dollars upon arrival for Cuban convertible
pesos, known locally as "chavito" or CUCs, Torres said. The exchange
rate is generally one-to-one, so visitors know exactly what they are
getting.

Cuban residents are paid in regular Cuban pesos, which currently have an
exchange rate of 26.5 to one. Whereas, one Cuban CUC is worth one
American dollar, one Cuban peso currently is worth 3.77 American cents.

The average Cuban's monthly salary is 471 pesos, or about $20. By
comparison, the average minimum wage throughout U.S. federal and state
prison systems is $0.93 per day, according to the nonprofit advocacy
group Prison Policy Initiative. Based on a 40-hour workweek, Cubans make
7 cents per day more than U.S. prisoners.

But while pesos do have an international exchange rate, CUCs do not and
the Cuban government will not exchange what visitors don't spend for
American dollars. Leave Cuba with a pocketful of unspent CUCs, Torres
said, and you could wind up with some expensive souvenir paper.

"Cuba needs currency reform and then salary reform," Torres said. "You
can't set up a financial institution in a country with a dual currency
going on."

2. Cooperatives are not a new concept in Cuba, but credit cards are. The
Cuban government has learned to balance its own books over the past
decade by offloading business enterprises onto the workers who operate
them, turning them into worker-owned cooperatives that then pay taxes
back to the government. The agricultural sector has paved the way, but
service industries also have led to the formation of cooperatives.

The cooperatives operate as private enterprises and even have their own
bank accounts. The workers make deposits that earn interest and even
take out small loans. But that's where the financial sophistication
ends, Torres said.

"Cubans do not have credit cards," said Torres, who has traveled to Cuba
a dozen or more times in her life to visit family members and bring them
goods from the U.S. "They also have to learn about the concept of credit
and that loans have to be paid back. That's not part of their cultural
understanding."

3. Debit cards do exist, but there's need for greater financial
sophistication. Many Cubans, especially those who are retired, are paid
using a targeta magnetica – literally a "magnetic card" – that operates
like a debit card and allows Cubans to pay for goods and services with a
familiar card swipe.

But that's where the 21st century ends for Cuban financial services,
Torres said. Existing financial institutions do not issue monthly
statements to depositors, who must go to the teller window with their
savings passbook to get their account information manually updated.
Some employers do issue paper checks, but much of the funds transaction
is done through magnetic cards.

"For most Cubans, everything is done with the state and the amounts in
question are really very small," Torres said. "There is going to be a
lot of consumer education that needs to go on."

4. Most Cubans don't understand the demands of a business culture. After
a half-century of communist rule, most Cubans operate at much the same
income levels and personal ethos. Physicians, like laborers, often take
the bus to work and very few can afford to own any of the fabled classic
American cars for which the island nation has become known, Torres said.

"You buy a 1955 Buick with a rebuilt Russian diesel engine, but very few
Cubans can afford to pay the 200,000 pesos that they cost," Torres said.

With little disposable income and a lack of earning opportunities, many
Cubans pay little attention to absenteeism and being late for work. With
the exception of foreign hotels that cater to tourists, there is little
concern for customer service and literally no opportunity to return
shoddy merchandise for a refund.

"The very people whom credit unions might want to attract don't
understand business concepts as we know them," Torres said. "Employees
working for foreign entities may be up to it, but that's a small minority."

People will have be trained not only in how credit unions do business,
but in how business is done in general if credit unions want to succeed,
she added.

5. Then there are the regulations and bureaucracy. Any country with a
centralized economy often has a top-heavy bureaucracy that makes getting
things done difficult at best, and Cuba is no different, Torres said. In
operational terms, that means that no one is willing to make a decision
and everyone is going to have to ask his or her superior what can be
done to address an issue.

In a centralized economy, regulations abound and in Cuba's case credit
unions may also face a crisis of misunderstanding and mistrust, if only
because of the population's unfamiliarity with financial cooperatives,
Torres said.

"They're likely to say, 'Who are these people?' when talking about the
credit unions," Torres said. "They will say, "My government is my
government, but what do you mean I own this bank?'"

Coupled with the sheer challenges of teaching the population the ways
and means of business culture, no enterprise is simply going to land in
Havana and open its doors to a waiting public. There will be a lot of
education necessary, Torres said.

"That's not to say that credit unions don't have an in because we are
doing this for the people," Torres said. "But no matter who you are, you
will have to in some way deal with the Cuban government, because they're
still there."

What Not to Do When You Visit Cuba

Cuba is a beautiful Caribbean country with culture, tradition and
history, not to mention hand-rolled cigars, fiery rum and beautiful
beaches. But there are things you must not do when you visit Cuba,
according to Dr. Sandra Torres.

• Stay away from anyone who offers you anything on the street that you
can't buy in state-owned stores. This includes any form of contraband,
as well as young women or young men for obvious reasons, Torres said.
In fact, just to be safe, don't even buy any cigars or rum, she added.

• Do not exchange money with people on the street. The better rate they
promise you usually isn't better, Torres said, and you never want to
show your money in public.

• Stay away from talking politics in all its forms. You might not like
the reaction you get no matter what you say, and you never want to give
anyone from the government any reason to pay special attention to you.

• Always travel with a guide. Cuba has beautiful mountains, beaches and
jungles that are there to be enjoyed, but traveling with a guide,
especially in a country with such low income levels, is simply safer,
Torres said.

"In the end, a gringo does not need to go down there just to see the
sights unless there is a purpose for your visit," Torres added. "Don't
expect what you see in Puerto Rico."

Source: 5 Challenges to Doing Business in Cuba -
http://www.cutimes.com/2015/04/27/5-challenges-to-doing-business-in-cuba