CubaNews / January 2009
By Larry Luxner
About 10 minutes east of San Juan’s Luís Muñoz Marín International Airport, Hav-ana-born Victor García runs a factory that imports reinforced steel bars from Turkey, Brazil, Mexico and the U.S. mainland.
Fast Steel Corp., based in the industrial suburb of Carolina, employs 100 people and does $15 million in annual sales. Its sole market is Puerto Rico.
“We don’t export at all,” García recently told CubaNews over cups of strong espresso. “But if Cuba opens up to tourism, there’s going to be a lot of construction there, and they’re going to make a lot of money.”
García, 70, is originally from Havana’s La Vibora district. He left Cuba in 1962 and settled in Puerto Rico, returning for the first time 10 years ago. He’d love to go back again, eventually establishing a subsidiary on his native island.
“I wish to do business in Cuba,” says the entrepreneur. “That’s my dream.”
García is hardly the only dreamer here.
Kenneth McClintock, a veteran lawmaker in Puerto Rico’s Senate, became the island’s secretary of state and lieutenant governor Jan. 1. He told us Cuba represents a long-term business bonanza for this U.S. commonwealth whose 4 million inhabitants — despite Puerto Rico’s current fiscal crisis — enjoy the highest standard of living in Latin America.
“Puerto Rico’s immediate problem is that we have a $3 billion deficit, which exceeds the per-capita deficit of any state except California. We have to spend the next few months focusing on that,” said McClintock.
“But the short-term solution must be accompanied by mid- and long-term strategic planning, and preparing for the opening of Cuba has to be an important element of that planning,” he explained. “It cannot be simply defensive planning. It has to be offensive also.”
As a senator representing the pro-statehood New Progressive Party for 16 years, McClintock commissioned three legislative studies analyzing the impact Cuba’s eventual reopening to the U.S. market would have on the Puerto Rican economy.
He’s convinced Puerto Rico has far more to gain than to lose from such an opening.
“It’s a risk, but every risk is an opportunity. For example, I would rather see a Puerto Rican financial institution set up an ATM system in Cuba than for Wells Fargo to do it. Puerto Rican banks know how to set up ATMs in tropical, salty-air and mountainous environments,” he told CubaNews.
“Puerto Rico and Cuba are so much alike geographically that firms here have developed an expertise in these things.”
McClintock said the studies he commissioned as chair of the P.R. Senate Federal Affairs Committee “prodded the private sector into action,” though evidently not enough.
“We still have a long way to go,” said McClintock, whose new boss, Puerto Rico Gov. Luís Fortuño, has traveled to Cuba and has expressed deep interest in the subject.
“For example, some law firms here have already established relationships which will allow them to have correspondent relations with lawyers in Cuba when the time comes,” McClintock told us. “There are also design and engineering firms that have done some strategic planning in that direction, and franchisees who will be ready to jump into Cuba whenever U.S. franchises can be sold there.”
William Riefkohl, executive director of the Puerto Rico Manufacturers Association, said a number of local companies already do business with Cuba under the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA), which allows U.S. entities to sell agricultural commodities to the Cuban government on a cash-only basis.
“Several food companies here are taking advantage of TSRA, although they probably don’t want to publicize that,” said Riefkohl, whose influential PRMA has 1,200 members representing nearly the entire manufacturing sector.
One well-known case is Pan American Grain, a Guaynabo commodities broker that has exported rice to Cuban state entity Alimport under the provisions of TSRA. However, Pan American officials including vice-president Eduardo Fernández were unavailable for comment.
Manufacturing now employs 105,000 people and represents 42% of Puerto Rico’s total GDP of around $70 billion. That’s down from 160,000 jobs in the early ‘90s, when the island was still receiving lucrative tax benefits under Section 936 of the Internal Revenue Code.
Yet thanks to those incentives, Puerto Rico still has one of the world’s largest concentrations of pharmaceutical manufacturers. Pfizer, Upjohn, Bristol Myers Squibb and Merck all have factories here — and that’s unlikely to change anytime soon, no matter how advanced Cuba may be in biotech.
“Pharmaceutical companies doing business here cannot pack up and leave for Cuba, be-cause the infrastructure is simply not there,” Riefkohl said. “They don’t have clean rooms, and they’d have to go through a lot of effort in order to establish a sizeable presence of life-science companies. Cuba is not a powerhouse of industry, and social issues would also have to be resolved.”
As Puerto Rico’s resident commissioner in Washington, Antonio J. Colorado Jr. lobbied harder than anyone else to keep Section 936, which was ultimately repealed by the Clinton administration, leading to massive layoffs. Colorado says Cuba represents a big hope for the troubled Puerto Rican economy — especially with President-elect Obama vowing to relax certain aspects of the embargo.
“We were very big in construction, but there’s not much more we can construct in Puerto Rico. We have to look at Cuba not as a competitor but as an opportunity, like China. Every type of project that could go on in Cuba, Puerto Rico has done it,” says Colorado. “It’s not a matter of investing money, it’s a matter of servicing. We’re very fond of Cubans and always been. They’re our brothers, and we have so much in common.”
So much, in fact, that the Caribbean islands are often referred to as “dos alas del mismo pajaro” — two wings of the same bird — because of their shared history under Spanish colonial rule and eventual “liberation” following the Spanish-American War of 1898.
Yet economically and politically, the two islands could hardly be more different. Poor by U.S. standards, Puerto Rico nonetheless enjoys full democracy and a per-capita income exceeding $18,000; more than 1.5 million vehicles choke its streets and highways.
Following the 1959 revolution, Puerto Rico’s relative prosperity and Spanish-speaking culture attracted many Cuban exiles. At one time, that community numbered 20,000 people. That’s since dwindled, though transplanted cubanos still tend to dominate certain sectors of the local economy — most notably in advertising and media.
Even so, says García, “the exiles in Puerto Rico are more liberal than those in Florida. I don’t know why, but maybe because we don’t have the politicians and the radio stations.” Sandro Murtas is director of the International Trade Center, which is co-sponsored by the U.S. Small Business Administration and Inter-American University of Puerto Rico.
“As far as business opportunities, I think Puerto Rican professionals in the service sector — engineers, software developers, etc. — could bring knowledge to Cuba, once they decide to upgrade their infrastructure,” says Murtas, who formerly chaired the PRMA’s international trade committee.
“We could also benefit because Cuba, without a doubt, has a reservoir of professionals,” he added. “There could be joint-venture opportunities for companies here, which are abundant in capital, and for Cuba, which has human capital.”
Opportunities also await in tour-ism, though many Puerto Ricans worry that this sector will be the first to suffer once the U.S. ban against travel to Cuba is lifted.
“When we look at the numbers, we know that Cuba and the Dominican Republic tend to attract a specific type of cost-conscious tourist,” says Murtas. “But both countries are investing in upgrading and creating hotel infrastructure that appeals to more affluent tourists. That’s Puerto Rico’s target market. So if Cuba enters that area, we might have some difficulties.”
García is more blunt.
“Puerto Rican politicians are afraid of Cuba. Remember that tourism to Puerto Rico [consists mostly] of Americans,” he says. “If Cuba opens up to the Americans, Puerto Rico is going to be hammered.”
Not true at all, McClintock retorts.
“In tourism, the Cubans have some competitive advantages in terms of lower costs, but we have 4- and 5-star tourism,” he said. “That requires a high degree of training and sophistication which has yet to develop in Cuba.”
McClintock insists that, curiosity aside, Puerto Rico has even less to worry about when it comes to the cruise-ship business.
“The infrastructure in Cuba is simply not there, and cruise passengers are only willing to withstand so much roughing it. They no longer enjoy anchoring offshore and going to port in a dinghy. That was quaint and nice in the ‘60s and ‘70s, but not today,” he said.
“We have a much better infrastructure for handling cruise ships. It would take Cuba five to 10 years to come up to speed. You can’t build that kind of infrastrucure overnight.”
McClintock adds that Puerto Rico also enjoys a geographical advantage over Cuba.
“In Cuba, you can only do a three-day cruise where you hit a different port every day. If you want to go from Havana to Jamaica to Mexico, you have to spend a day at sea,” he said. “But with Puerto Rico, you can fly into San Juan and take a seven-day cruise with seven ports, or a 14-day cruise with 14 ports and see a different port every day.”