US$800+ Million Potential Savings/Revenues For Cuba From Obama Administration Initiatives
The consequences of decreasing risk.
17 December 2014 through 17 December 2016
When Presidents Obama and Castro announced in 2014 that the countries would re-establish diplomatic relations, a result was a decrease for the Republic of Cuba to the cost of conducting international commerce.
In 2015, when the United States removed the Republic of Cuba from the Sanctions List and the respective embassies were re-opened, a result was a decrease for the Republic of Cuba to the cost of conducting international commerce.
In 2016, when the United States authorized the Republic of Cuba to use the United States Dollar for international transactions, a result was a decrease for the Republic of Cuba in the cost of conducting commerce.
Prior to the March 2016 change relating to use of the United States Dollar, a transaction valued, for example, at US$50 million could be subject to financial institution fees ranging 25 basis points to 300 basis points, translating into US$175,000.00 to US$1.5 million. With the Republic of Cuba having approximately US$13 billion in imports for 2015, the potential fees could have ranged from US$32.5 million to US$390 million.
NOTE: A basis point is a unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument. One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form. In most cases, it refers to changes in interest rates and bond yields.
The Republic of Cuba has become less operationally unprofitable due to initiatives by the Obama Administration.
This unprofitability continues to lessen as a result of the increase in authorized and unauthorized travelers, excluding family visits, from the United States visiting the Republic of Cuba and spending on airfares, accommodations (hotels and private homes), ground transportation, meals, gratuities, communications, sundries, souvenirs and other purchases.
Visitors from the United States have the highest gross revenues and highest net profit margin of any visitor to the Republic of Cuba.
For 2015, gross revenues from United States visitors (non-family) were estimated at US$350 million to US$400 million. The government of the Republic of Cuba reported 161,000 visitors (non-family) from the United States in 2015, representing a 76.6% increase in visitors (non-family) compared to 2014.
In 2016, with an expected percentage increase in visitors at minimum matching 2015. gross revenues from visitors (non-family) from the United States may exceed US$660 million.
With the arrival of regularly-scheduled air services, expected operational by July 2016, the government of the Republic of Cuba will have a meaningful reduction of ticket revenues with the substantial reduction of charter operations, from which it received a significant percentage from each ticket. This loss of revenue from airline tickets will be more than compensated for by an increase in the number of visitors to the Republic of Cuba.
The 10% fee to convert United States currency into CUC (Cuba Convertible Currency), initiated in 2004, is terminating; resulting in a loss to the government of the Republic of Cuba of approximately US$100 million to US$200 million.
What has the Republic of Cuba done with the monies earned as a direct result of initiatives created by the Obama Administration?
What will the Republic of Cuba do with the monies expected to be earned as a direct result of initiatives created by the Obama Administration?
It has not increased imports from the United States. Food product/agricultural commodity purchases authorized by the Trade Sanctions Reform and Export Enhancement Act (TSREEA) of 2000 decreased 41% in 2015 compared to 2014; and decreased 8% in January 2016 compared to January 2015. Healthcare product purchases authorized by the Cuban Democracy Act of 1992 increased approximately five-fold in 2015 compared to 2014.
In 2002, the primary wire services, Associated Press and Reuters, would generally publish an article within hours of the release of data for United States exports to the Republic of Cuba. During the last fifteen years, wire services transitioned to publishing quarterly results…. then transitioned to bi-annual results… and finally to only publishing annual results. In some respects, the lack of interest was a positive- another recognition of the Republic of Cuba taking its proper place within the marketplace.
The 41% decline in United States exports to the Republic of Cuba in 2015 should have, simply due to the size of the decrease, gained national media attention. However, the decline generated scant reference. Why? Because the dynamic of interest has been altered- there is an expectation of decline and a decline in expectation. The media story would be if there were an increase. There has been an anesthetization to the anticipation of decline.
The government of the Republic of Cuba is authorizing Obama Administration initiatives that are expected to result in revenues- from visitors: agreements with United States-based hospitality companies to manage properties in the Republic of Cuba are designed to increase the interest by United States residents to visit the country, citizens of other countries to visit, to increase the desire by non-United States-based hospitality companies and, for those companies who are already there, pressure to increase their level of service, expand their operational footprint, and provide more revenue to the government of the Republic of Cuba.
There is also an effort by the government of the Republic of Cuba to encourage, either officially (through law or regulation) or unofficially (lack of enforcement of law or regulation), remittances to Republic of Cuba nationals from family and friends residing in the United States.
There will not be enthusiasm for using funds to make payments for imports from the United States… unless there is a belief that such investments of scarce resources (meaning that someone may not receive payment on time or at all in order to direct funds towards the United States) will have political value.