How Will Improved Relations between the U.S. and Cuba Affect Our Respective Economies?
Despite the close proximity between the two, the relationship between the US and Cuba has been troubled and broken since the 1960s. However, the Obama administration’s overtures to the Cubans have warmed relations and improved economic co-operation. To learn how this renewed relationship will affect both the Cuban and US economies, check out the infographic below created by Norwich University’s Online Masters in Diplomacy program.
An Overview of the Trade Embargo on Cuba
Cuba is a member of a select club of socialist countries that include North Korea, China, Vietnam, and Laos. As such, it was a close and key socio-political ally of the USSR during the Cold War, which made its relations with the United States turn frosty. Relations with Cuba soured even more when the United States slapped Cuba with the first trade embargo in 1960, soon after the Cuban Revolution. In the following years, America would tighten the Cuban trade embargo by enacting statutes designed specifically to curtail economic ties.
An Overview of the Cuban Economy
In spite of crippling trade sanctions, the United Nations (UN) ranks Cuba highly in the education, health, and development categories. In addition, the World Health Organization (WHO) recognized Cuba as the first country to eradicate mother-to-child transmission of HIV and syphilis. By the end of 2015, Cuba had a GDP (gross domestic product) of $128 billion making it the 76th highest in the world. More importantly, the GDP is growing at a healthy rate of 1.3% annually while its GDP per capita currently stands at $10,200. The services niche is the most dominant accounting for 81.9% of the total GDP. Industrial and agriculture sectors account for 14.3% and 3.8% of Cuba’s GDP respectively.
An In-depth Look at Trade, Agriculture and Industry
Cuba imports large quantities of food, manufactured goods, and oil. It is worth noting that Cuba imports 80% of its food and the United States is its biggest trading partner on this front. Still, the agricultural sector in Cuba produces beans, livestock, citrus fruits, sugar, coffee, tobacco, potatoes and rice. On the other hand, the industrial sector is growing at a rate of 4.6% largely driven by products such as refined sugar, pharmaceuticals, agricultural machinery, as well as minerals such as cobalt and nickel. What’s more, Cuba exports medical items, coffee, tobacco, sugar, nickel, and fish products worth $5.62 billion. Cuba also imports chemicals, machinery and equipment, and food worth $14.7 billion.
Cuba has a total labor force of 5.092 million. Out of these, 72% work in the services sector, 18% in agriculture, and 10% in industry. The country also receives remittances worth$2 billion from Cubans in the US.
President Obama’s administration has sought to improve socio-economic relations with its southern neighbor in recent years. In fact, President Obama and Cuba’s Raul Castro upped their détente by agreeing on December 17, 2014 to explore ways of re-establishing diplomatic relations as well as loosening policies enacted to curtail travel and trade. In January 2015, the United States showed its commitment to better relations by lightening restrictions that apply to U.S. citizens travelling to Cuba. On April 14, 2015, President Obama delivered more good news to the Cubans when he announced that the country was no longer included in the list of countries that sponsor terrorism. Nevertheless, this occurred after the intelligence community subjected the country to a thorough review. By May 2015, a few American companies had acquired licenses to start offering ferry services between the United States and Cuba. In a sign of better diplomatic relations, the United States re-opened its embassy in Havana on July 20, 2015 after remaining closed for 54 years. By September 18, 2015, several U.S. businesses had received permission to enter into joint working relationships with certain Cuban government agencies as well as open bank accounts and offices in Cuba.
Travelling to Cuba
In spite of a 50-year probation preventing U.S. citizens from travelling to Cuba, about 20,000 to 30,000 Americans have visited the country annually. Fortunately, this ban is no longer in force, meaning Cuba’s tourism industry will be a major beneficiary of better relations with the US. In 2015 alone, the number of U.S. citizens travelling to Cuba rose by 36%. Moreover, the total number of tourists visiting the country from elsewhere increased by 14% over the same period. Tourists visit the country because it is largely unexplored by outsiders and boasts of numerous attractions including 7 natural biosphere reserves, 253 protected areas, and 257 national monuments.
Emerging Market Member
Cuba is an emerging market that is likely to attract investors interested in sectors with high growth potential such as agriculture, natural resources and tourism. Entrepreneurs will be pleased to know that Cuba has already enacted investment laws that are highly favorable to foreign investors. In addition, Cuba has a large and untapped market. For instance, only 5% of the population has Internet connection. This has attracted the attention of companies such as Netflix and Google that are planning to build web infrastructure from the ground up. Cuba is also building a port at Mariel at a cost of $1 billion to enhance trade with the US. Besides foreign investors, Cuba is working hard to stimulate and grow the local investment community via laxer regulatory restrictions. This strategy has enabled entrepreneurs to open about 450,000 small businesses over the last few years. As such, American investors should take advantage of the investment opportunities available before investors from other countries grab them. At the same time, continuing efforts to normalize relations between Cuba and the United States will open up a huge market for import and export goods. One market niche that will benefit greatly is the export of Cuban cigars, which are renowned globally for their quality and exclusivity. Sales of poultry, corn, and rice will also benefit from better trade relations.
The Obama administration has been on a charm offensive aimed at improving its economic and political ties with Cuba. This has resulted in the lifting of some travel restrictions on Americans travelling to this socialist state. Besides tourism, Cuba has numerous investment opportunities in agriculture, mining and manufacturing sectors.
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