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Despite the risks, Canadian companies find Cuba fertile ground for trade deals
CubaNews / September 2005

By Larry Luxner

From a Vancouver hotel developer to a Nova Scotia-based exporter of ambulances, hundreds of Canadian firms large and small are doing business with Cuba — and some are making big money in the process.

Canada’s impact can be felt throughout Cuba. In suburban Havana, beer giant Labatt is building a $100 million brewery with a capacity of 1.5 million hectoliters; it already commands a 29% share of the domestic beer market through its 50% stake in Cervercería Bucanero S.A.

In Cayo Coco, off Cuba’s northern coast, the 690-room El Senador Hotel — run by a consortium of Québec investors — has become a popular destination for Canadian tourists. Not far away, Montreal-based Pebercan is extracting oil in commercial quantities from its highly lucrative Block 7 concession.

Havana’s biggest real-estate work in progress is the 18-building Miramar Trade Center “intelligent office” complex, designed by Canada’s own ZP International Inc., which designed Toronto’s famed Eaton Centre. A few blocks away, Leisure Canada Inc. of Vancouver is planning to build a five-star business hotel.

And the largest investor of all, Toronto-based Sherritt International, has sunk at least $300 million into various nickel-mining, oil, gas, agriculture, power generation, tourism and telecom ventures across the island since 1995.

All this is happening, of course, in spite of the long-standing U.S. embargo against Cuba, easily the most glaring foreign-policy difference between Washington and Ottawa.

“Canada has seen fit to take a different view of Cuba than the United States, going back many years,” said Charles Barrett, an observer previously with the Conference Board of Canada.

“That’s been a source of tension with Canadian investors, in particular with Sherritt. My sense is that there’s been some disenchantment at the official level with Cuba. There’s a feeling that political reforms aren’t moving ahead, and there is concern about human rights.”

Yet businessmen interviewed by CubaNews during a visit last month to Toronto and Ottawa aren’t complaining too loudly — at least not on the record.

“From my limited experience, relations are progressing very well,” said Keith Condon, president of Tri-Star Industries Ltd., which has shipped 100 emergency vehicles to Cuba since 1996. “From where I sit, I’ve seen nothing but cooperation and understanding.”

Overall, Canadian-Cuban trade came to $600 million last year, and some half a million Canadian tourists are expected to vacation on Cuban beaches this year — arriving on direct flights from Toronto, Montreal, Calgary and half a dozen other Canadian cities.

Canada is also a major supplier of food to Cuba, and for years has benefitted from the embargo, which kept U.S. competitors at bay in this market of 11.2 million people.

And now that American food conglomerates can export to Cuba under TSRA, Canada is fighting harder than ever to hold onto its declining share of the market.

On Sep. 14, the Cuban and Canadian ministers of agriculture signed an agreement to “develop actions of mutual cooperation,” following a three-day visit to Ottawa by a Cuban trade delegation headed by Pedro Alvarez, CEO of food purchasing agency Alimport. The agreement was signed by Cuba’s envoy in Ottawa, Ernesto Sentí, and by Canada’s top diplomat in Havana, Alexandra Bugailiskis.

Alvarez also met with the deputy ministers of agriculture and international trade — Andrew Marsland and Robert Dery — as well as the presidents of Canada’s biggest wheat, grains, dairy, poultry and food marketing associations.

According to a communiqué issued by Havana, “the will to increase trade relations between Cuba and Canada on the basis of the quality and competitiveness of the products to be exchanged has been ratified in a climate of friendship and mutual interest.”

Nice words, but that doesn’t mean the Can-adians sometimes don’t get frustrated with the Cuban way of doing business.

“It’s no news to anyone that Cuba is a socialist, communist country and therefore has a centrally planned economy,” said one Toronto business executive who follows Cuba. “Therefore, when it comes to foreign investment, it’s all government-controlled, so if you were to go to the Ministry of Foreign Investment, any proposal you made to them — whether you’re an importer, exporter, manufacturer or even a bank — would have to fit into their criteria,” said the executive, who asked that neither he nor his company be identified. “They have a list of what’s important to them. If your activity doesn’t fall into that list, it won’t work out.”

He added: “People have risked their capital assets to make investments and have put blood, sweat and tears into making something viable. Then they get booted out. I presume at least some of these investments came from Canada.”

To ease the way for Canadian companies to enter the Cuban market and remain competitive there, in 1990 the Canadian Commercial Corp. (CCC) began exploring the possibility of helping facilitate trade deals on behalf of small to medium-sized exporters.

Renato Tavares is director of infrastructure and special projects at the Ottawa-based CCC, an arm of the Canadian government.

“We have a clear mandate, which is to assist in the development of trade between Canada and other nations,” Tavares told CubaNews.

“We help Canadian companies win contracts overseas by acting as an international prime contractor. That means any deal that any foreign government buys through CCC automatically receives a 100% guarantee of contract completion backed by the Canadian government.”

He added: “The Cubans are more attuned to buying a product through another government. That simplifies the procurement process. It just leverages Canadian exporters to sell those goods without much competition. Very few governments have the means of doing what CCC does, [because] we get preferential access.”

The CCC says its approach is to support Canadian exports by providing contract-specific payment terms for qualified deals, and financial support where no one else will. As prime contractor, the CCC sells its receivables to a Canadian bank to obtain funding to pay the exporter. These transactions are secured by Cuban hard-currency export receivables, offshore accounts or guarantees.

“We went into Cuba the same way we do in any other market, because it was a centrally planned economy, and we thought it would be better to do government-to-government business,” said Luc Allary, a CCC account executive who deals with the Cubans on a day-to-day basis. “This type of contracting appeals more to the public-sector markets.” Since 1991, the CCC has facilitated over $300 million in Canadian exports to Cuba.

“Most of the companies dealing in Cuba are resellers,” said Allary. “We generally estimate there are 200 to 300 Canadian companies benefitting from our programs in Cuba.”

Yet Cuba — which represents maybe a $200 million-a-year market for Canadian exporters — is just a drop in the bucket for the CCC, a $1.5 billion corporation.

“Cuba is maybe $10-20 million a year, probably only 3% of our total business volume,”said Allary, noting that by comparison, one contract alone in the Dominican Republic may be worth $150 million. “But it attracts a lot of attention because payment mechanisms are so difficult and there are all sorts of constraints on trade with Cuba. Companies go there, they see a lot of opportunity, then they wonder how they’ll get paid.”

He explained that “the vast majority of Canadian companies transacting in Cuba are taking a large portion of the credit risks on their own books. The support mechanisms are very limited. There are maybe two banks providing LC coverage in Cuba.”

The CCC says 80-90% of the contracts it facilitates are with entities such as the Min-istry of Sugar (Minaz) or the Ministry of Basic Industry (Minbas). The exports themselves consist of railway equipment, food, machinery, parts, hotel supplies and the like.

“We prefer to let the Cubans decide what they want to buy from whom, rather than im-pose specific suppliers on them,” said Allary. “We tend to sell goods that are critical to generating hard currency in Cuba. Most of the companies we transact with were doing business in Cuba before we went there. We tend to prefer those types of companies.”

One such entity is Tri-Star Industries, based in the Nova Scotia port of Yarmouth.

“In 1996, we signed a $2 million contract with the Ministry of Health for a fleet of new ambulances,” said the company’s CEO, Keith Condon. These are Advanced Life Support, critical-care Ford ambulances, he says, “not to be confused with Volkswagen.”

In addition, Tri-Star has sold medical equipment and provided paramedic training to the Cubans, all of which comes to millions of dollars over the past decade.

Condon says not much has changed in Cuba since he started doing business there. “It’s a very complicated system, and not a place for a novice with no experience in exporting. A lot of people tend to hide behind governments when they go in.”

The CCC’s Allary agrees.

“These people are proud, and extremely educated. Everybody you talk to is either a lawyer or a doctor. You cannot come down there and direct negotiations,” he says. “You have to get a feel for it. Cuba is very complex and difficult, but if you have the right tools and are selling to the right people, it could be an interesting market.”

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