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09TH May 2017

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Three Big Indicators Cuba will Ignite soon… (and that’s a good thing)


I had no clue when I landed, but as I left, I was convinced something is going on down there... Alan Homewood

I had no clue when I landed, but as I left, I was convinced something is going on down there… A.H.

I’ve just returned from hosting another delegation of entrepreneurs and investors in Havana, and this trip was particularly enlightening. On previous trips, I’ve lamented the fact that things seemed to move slowly, while one of my co-founders John often reminds me “this is fassssst”. In any event, we’ve held a view that Cuba is 2-5 years from kicking in to growth mode, and one of those years has passed. We also hold the view that once it begins, it will be too late to catch some of the big opportunities as it will move very fast. (The Innovadores/ Family Office Association White Paper has more on the actual opportunities themselves.)

So, what indicators does one look for?

At an embassy briefing, I heard the first time about Control and Change. Cuba has been controlled by the same people, same family, same generals, same party for the past 50+ years. I’m not against that, I’m just saying it’s a fact. Access to everything from food to clothes to housing is controlled by (or one might say provided by) the state, and the state is aging. By 2020, more people will be over 60 than under 60 years old. Soon, there will be no workforce to create the goods and services that the general population needs to survive. And the foreign allies that once supported this model- the former Soviet Union and the state formerly known as Venezuela, can no longer offer alms. This is not sustainable.

Which means the younger generations will require change in order to proceed. Otherwise, they will leave, like a million have done (10% of the population) in the past. On top of that, those that would or could leave are the best educated, better informed, well educated population in Havana proper. This is a huge risk tot he future of Cuba, and so in essence, what they are saying is: give me a reason to stay, and I gladly will. We see this sentiment all the time in our Innovadores Interns program.

So what signs could one watch for as indicators that change could happen? In no particular order, here are the signs:

  1. The President will change: For the past 50+ years, the president has had the last name Castro, has been a general in the army, has been a revolutionary, and has been a party leader. Currently, this is Raol, Fidel’s “younger” brother (younger means 84 in this case). From what we know, it looks like in February, 2018 he will cede his position to someone that has none of the credentials above to influence others. Perhaps he will have to lead with more of a collaborative style…
  2. The Internet will be accessed by the general population: Cuba’s people are actually very well educated, which is amazing when you consider they have had no real digital connectivity to the world for the past 20 years. When asked who his favorite entrepreneur hero was at an interview, one Innovadores Intern  said “Jimmy Wells, Founder of Wikipedia”. That he would even know who that was astounded us. But indeed, Cuban’s have found their way around and into decent connections with the outside world, through cell phones, ESTECSA internet cards (which cost 10% of a months salary… for an hour online!) and the paquetta thumb drive packed with all of the week’s world news (it circulated to 1,100 APN’s which distribute from there). Google recently announced a server farm to help speed service, mostly by caching locally. In any event, the horse is out of the barn on connectivity, it’s just a matter of speed and cost now.
  3. The Currencies will Consolidate: this may get tricky. Cuba has a tourist currency, roughly tied to the dollar, which allows trade for hotels, drivers, paladars, and some other tourism-like things. But the locals are paid in, and transact with the government in local pesos. The exchange between the two is a multiple like [25x?], making it easy for the government to effectively tax its people when working between the two (Example: Hospitals abroad want to employ Cuban doctors, and those hospitals pay the Cuban Government in CUC’s. But the Cuban Government then pays those same doctors in Local Pesos, pocketing the exchange difference. Cuban doctors are working for a fraction of the world market rates: Cuba keeps the difference. This is not sustainable.

These are the three big indicators I look at when trying to assess the pace of change in Havana. And two of the three are on their way to being done… come soon!

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