Experts say there's untapped potential but urge caution

By TRACEY EATON / The Dallas Morning News

HAVANA – You have deep pockets, staying power and patience.

You're bold yet sensitive, especially when it comes to Cold War politics. And you don't mind intrusion from big – make that huge – government.

Well, you just might be ready to do business with Cuba, a nation of untapped potential and unexploited markets.

More and more Americans want a piece of the action. And they're traveling to see this island of 11 million potential customers to shake hands and hammer out
business plans.

The United States, once Cuba's main trading partner, slapped a trade embargo on the island nation shortly after communist rebel Fidel Castro took power in 1959
and began seizing foreign-owned land, including 70,000 acres owned by American sugar companies.

President Bush opposes lifting the embargo because he says Mr. Castro denies basic freedoms to his people. But U.S. farm and business interests have increasingly
urged an end to trade sanctions.

Last year, U.S. lawmakers loosened parts of the longtime ban on trade. New rules allow U.S. companies to export products ranging from pretzels and beer to
bottled water, beef and even utility poles to the island.

In September and November, hundreds of American businesspeople are expected to arrive for two major trade shows.

"More than 800 international firms have offices or representatives in Havana," said Kirby Jones, a business consultant on Cuba for 28 years. "They must know
something."

Alimport's influence

Alimport, Cuba's exclusive importer of food and agricultural products from the United States, has snapped up more than $106 million in U.S. goods since
December.

That number is expected to rise to $165 million by year's end and to about $270 million by 2003, according to the private, nonprofit U.S.-Cuba Trade and
Economic Council in New York.

If Alimport meets the buying projections this year, Cuba would rank about 45th in its purchase of agricultural goods – ahead of Greece, South Africa, Chile and
Vietnam, council president John Kavulich said. Cuba was in last place in 2000.

The projected ranking gives an idea of the market potential U.S. companies hope to tap. So far, rice, wheat and eggs are being shipped from Texas, corn from Iowa
and Kansas, lard from Oklahoma and chicken from West Virginia.

But agriculture is not the only arena where U.S. firms hope to gain entree.

If the trade sanctions were completely lifted, they would also seek to sell machinery for manufacturing, update technological equipment and infrastructure, and
develop hotels and tourism businesses.

The island has attracted attention from interests as diverse as General Electric Co., Honeywell International Inc. and the Houston Port Authority.

Minnesota Gov. Jesse Ventura and others opposed to the trade embargo plan to join nearly 20,000 people expected for the first U.S. Food & Agribusiness
Exhibition Sept. 26-30 in Havana.

An even bigger exhibition is set for Nov. 3-10, when executives attend the 20th Havana International Trade Show. More than 1,700 companies displayed exhibits
last year.

"It is the largest trade fair in the Caribbean," said Jim Hitchie, who has been promoting investment in Cuba since 1993. "In one location, you have the opportunity to
see almost everyone who is doing business in Cuba, meet the management of foreign and Cuban companies, and discover what opportunities are available."

Uncertain odds

Depending on whom you ask, Cuba is a potential gold mine, a bad risk or something in between.

"Cuba is not for the timid or the unprepared," noted a Canadian government report on doing business in the country. "The risks are substantial, and the companies
that succeed are those that arrive with a solid medium-term business strategy, plus the resources and staying power needed to establish a high profile."

At a minimum, the report said, companies hoping to operate in Cuba ought to have annual sales of more than $1 million, an annual promotion budget of at least
$50,000 and resources for a part-time Cuba-based executive. And don't expect to make money for two or three years, the guide said.

Sales on credit pose particular risks because some Cuban companies have trouble paying their bills. In June 2002, for instance, authorities in Guinea, West Africa,
seized a Cuban-owned transport ship because of a debt dispute with a Canadian shipping company.

Executives at the shipper Adecon Group said the National Post that Cuba failed to pay after it financed more than $3 million worth in shipping transactions for
Cuba but it failed to pay.

Before the seizure, Adecon executive Alexander Printzios had visited Cuba to negotiate a settlement. Cuban officials pressured him to drop his case, he said, and
when he refused, authorities detained him and seized his documents and computer.

Canadian diplomats intervened and he was released, but his company still hasn't been paid.

Moody's Investors Service gives Cuba its lowest credit rating, ranking it 97th among 100 countries assessed.

While Cuban officials say such rankings are prejudiced and favor rich nations, its payment problems are widely viewed as chronic. "One company in Japan has been
waiting a year to collect less than $20,000," Mr. Kavulich noted.

Americans have an advantage: U.S. law requires Cubans to pay them up front and in cash. That, Mr. Kavulich said, makes Cuba "the safest environment in the
world for American companies."

'Emergency capitalism'

That assessment doesn't ring wholly true with Jorge Sanguinetty, an economist who headed Cuba's National Investment Planning Department from 1963 to 1966.
The business climate in Cuba is "uneasy, unreliable and uncertain," he said.

Cuba adopted "an emergency form of capitalism" after Soviet subsidies ended a decade ago, he said, adding that survival – not a commitment to private enterprise –
was the motivation. Cuba's leaders now describe the country's form of government as socialist.

"The government has a strong dislike for business, profits and the independence of its citizens," said Mr. Sanguinetty, a Florida resident and developer of
www.cubafuturo .com, an online forum on Cuba's economic and social prospects. Only deep reforms and a reversal of the country's anti-business mentality would
make it a good place to invest, he said.

Mr. Jones, president of Alamar Associates in Washington, D.C., scoffs at such views. Many exiles see Cuba "through a very narrow anti-Castro prism" and fail to
realize that capitalism is taking root, he said.

"The level of capitalism in Cuba is underestimated, and the mindset of Cuban officials is not well understood," said Mr. Jones, who has high-level contacts that
include Mr. Castro. "Officials ... are as bottom-line oriented as any other businessperson. They know their markets, their prices, their businesses."

Yet, he counseled, companies can expect challenges. "No firm can simply enter Cuba, set up an office, hire a secretary, get a car and start selling. It doesn't work
that way," Mr. Jones said. "U.S. firms need to have a long view."

The trick, some say, is doing business as the rules evolve.

Assume nothing, said Peter Nathan, publisher of The Cuban Investment Letter, which analyzes business trends. And know your Cuban counterparts.

"Be prepared to build relationships with Cubans," he said. "You have to meet face-to-face, no matter how many phone calls you make or e-mails and faxes you
send."

Politics at play

Networking, experts agree, helps foreign executives navigate myriad rules and laws. Still, many executives grumble about red tape.

In an unusual move, the European Union issued a written complaint to the Cuban government in June, citing frustrations over delayed payments, excessive
government fees, and inconsistent and sometimes outlandish rules. In July, Cuban officials vowed to improve the situation.

Some problems develop because foreign businesspeople come to Cuba unprepared, said Amado Guntín Guerra, a lawyer for Associated Consultants, a Havana
firm that assists foreign investors. They fail to look for help and then complain about the process, he said.

What's certain, said a Western diplomat based in Havana, is that foreign executives should avoid any public criticism of Cuba's form of government.

"Cubans choose who they do business with, and they pick those who are sensitive to their political system," said the diplomat, who spoke on condition of anonymity.
"It's not like capitalism."

Some contend that politics makes some of Cuba's capitalistic ventures unprofitable or impractical. The market should be the driving force, they say.

Castro loyalists defend their ways, saying they must be cautious because they live in a nation that is under siege. Otherwise, some say privately, socialism could fail.
American companies could get a foothold. And in a matter of years, they could drive out many state-run competitors, changing the face of Cuba and making it
dependent on its powerful northern neighbor.

Publicly, Castro supporters say little about any fears they have and say socialism will last.

Said Mr. Guntín: "We're prepared to endure another 100 years."