Trump's Cuba Moves 'An Epic Disaster' for Entrepreneurs
Renewed ties were supposed to lead to economic progress. And now it's all at a standstill.
By David Whitford
Before an adoring crowd in Miami's Little Havana, the U.S. President attacked his predecessor's "terrible and misguided deal with the Castro regime," promising that, "We will enforce the ban on tourism. We will enforce the embargo," and otherwise set about dismantling his predecessor's legacy. A particular target of Trump's new policy: U.S. dealings with companies tied to Cuba's military, which covers broad swathes of the tourist industry from nightclubs to hotels and resorts.
This wasn't supposed to happen. At the end of 2014, Obama signed an executive order moving to officially open ties with the island nation; consequently all signs were pointing to a long-awaited thaw. Among other things, the U.S. would establish a diplomatic outpost in the country, Cuban businesses could export to the U.S. and U.S. companies could enter the Cuban market. Companies like Google and Airbnb would soon establish business ties with Cuba.
In its February 2017 issue, Inc. published an article, Crashing Into Cuba, which offered a look at the entrepreneurs breaking into this long-forbidden market. In it, I wrote: "Everybody wants to believe that we're at the beginning of the end of an era; that no one--not unforgetting Cuban émigrés in Miami, not Fidel's ghost, not a brash and unpredictable President Trump--can halt the momentum now. That the embargo must be, will be, swept aside, and the rivers of commerce will flow."
Ah, but as you know, that's not exactly how things turned out. John Kavulich, longtime head of the U.S.-Cuba Trade and Economic Council in New York, believes both countries could have planned for this day better by at least entertaining the possibility that Donald Trump--not Hillary Clinton--might win the election. "But the brilliant negotiators in the Obama administration and in Cuba never had that conversation," Kavulich says. "So November 8 comes along and it all blows up. Companies that had licenses [to operate in Cuba] are now scared to use them. Regulations that could have been changed weren't. It's an epic disaster for large, medium, small, and micro entrepreneurs in both countries."
Here are three things to keep in mind about Trump's Cuba moves:
1. President Trump has no plans to close the recently reopened U.S. embassy in Havana,nor curtail in any way diplomatic relations. Meaning the door to a direct dialog between the countries, closed from 1961 to 2014, remains open. Trump was clear: he wants to keep negotiating, and has promised "a much better deal." Though how much the Cubans will be willing to engage with the U.S. remains to be seen.
2. Travel is still possible. U.S. airlines can still land at Cuban airports. U.S. cruise ships can still call at Cuban ports. And U.S. citizens, as long as they fall within one of 12 authorized categories, can still enter Cuba with a U.S. passport. One notable exception: so-called individual people-to-people travel, a loosely enforced allowance under which adventurous American tourists were lately free to visit Cuba on their own. Among the biggest beneficiaries were the ordinary Cubans who opened small restaurants (paladares) catering to tourists and converted their homes to B&Bs (casas particulares). Fewer tourists means less business for Cuba's massive Armed Forces Business Enterprises Group (GAESA), which is said to control 60 percent of the nation's economy. But for some in Cuba's budding entrepreneurial class, otherwise subsisting on meager state salaries, the impact could be catastrophic. It could mean the difference between people getting three square meals a day and going hungry, says Cuban émigré turned American entrepreneur, Saul Berenthal, who stays in touch with friends on the island.
3. Nothing President Trump announced last week is effective immediately. All is contingent on the issuance of new regulations due in 90 days from the Office of Foreign Assets Control (OFAC). Until then, presumably, it's business as usual, albeit within the strict limits that were there all along. U.S. companies in those few industries exempt from the longstanding embargo--such as agricultural commodities and medical supplies--can still pursue deals with Cuban companies. And if they can get in under the deadline, well, "The forthcoming regulations will be prospective," according to Treasury, "and thus will not affect existing contracts and licenses." Best hurry, though: The current OFAC backlog on issuing such licenses is 180 days.
Bottom line: Even before Trump announced his new policy, most American entrepreneurs with dreams of winning the race in Cuba had gotten way ahead of themselves. As Kavulich says, "The starting gun hadn't even been fired yet, and they were already at the hundred yard line."
And now? "Anyone that gives you any perspective with a lot of adjectives that are positive in nature, hang up on them," he advises. "They have the courage of their ignorance. That's not a reality that those of us involved in this for 25 years want, but one we have to appreciate in its context."