Entrepreneurship in Cuba: What you need to know

Cuba-U.S. relations are still thawing, but that doesn’t mean entrepreneurs have to sit and wait idly by.

“For any entrepreneur right now, it’s about making connections. Once things open up, which I think will happen sooner rather than later, then business can start,” said Thomas Hayes, chair and professor of marketing at Xavier University, who has traveled to Cuba multiple times over the past three years.

Since President Barack Obama’s visit in March, both big and emerging businesses are waiting for a green light to enter the Cuban market. The Cuban government currently allows self-employment in approximately 200 categories and has recently relaxed its trade policies. U.S. companies, however, are still not allowed to set up shop.

While D.C. irons out the details with Cuban President Raúl Castro, start-ups can start visiting Cuba to develop an understanding of the culture, consumer needs and talk with their Caribbean counterparts.

Educators such as Professor Hayes can go to Cuba under guidelines for the education field. “You can literally say, ‘I’m going down for cultural or educational reasons, and as long as you go to a museum or gallery,’ you can do it. You can make connections with Cubans,” Hayes said.

The rules are different for businesspeople.

Bob Guild, vice president of Marazul Charters, which has organized trips to Cuba for a long time, said that entrepreneurs have to fit into one of 12 categories of general licenses created by the Treasury Department’s Office of Foreign Assets Control (OFAC) for travel to Cuba. The two categories most business travelers employing his company’s charter services use are “professional research and professional meetings” or the newly created “people-to-people” exchanges category authorized by President Obama.

There is another category for businesspersons actively selling goods in Cuba, such as foodstuffs or medical goods, but that would not apply to entrepreneurs traveling for general business research purposes.

“If you are just checking things out and want to see the possibilities, simply travel under ‘professional research,'” Guild said. He added that this general license could also apply to individuals who studied for a professional field while in school, did not pursue it, but are now looking to get back into that field.

The “people-to-people” exchanges authorized by the government are the most liberal of any Cuban travel authorization, Guild said. Authorized by President Obama in March, it does not require group travel or a professional background. It only requires the person who travels to Cuba to develop a full schedule of meaningful interchanges and keep records of those meetings for five years. While Treasury classifies these “people-to-people” exchanges as “educational,” Guild said they are not limited to educators. Still, as it applies to businesspeople, this category is not as clear-cut as the “professional” license.

But Guild did provide two points of caution: First, businesspeople traveling under this license should have a serious intent. He said, “We’ve all had meaningful exchanges with bartenders,” but that should not be the extent of a businessperson’s intent.

The Treasury Department fact sheet on the people-to-people policy states, “Individuals will be authorized to travel to Cuba for individual people-to-people educational travel, provided that they engage in a full-time schedule of educational exchange activities intended to enhance contact with the Cuban people, support civil society in Cuba, or promote the Cuban people’s independence from Cuban authorities and that will result in a meaningful interaction between the traveler and individuals in Cuba.”

And second, under a license to travel, Guild said that any businessperson must decide whether a commercial visa from the commercial attaché of the Cuban embassy is required. “There are two governments involved here,” he said.

If a businessperson is going to Cuba to set up a commercial operation, there is a definitive need for a commercial visa. But if the person is traveling for general research purposes, the visa may not be required — but the second trip they make, to follow up on a more specific business opportunity, would require it, Guild said, adding, “Use realism. It’s a judgment call.”

 

Experts say that Cuban entrepreneurs are eager to generate more business.

“A lot of Cuban entrepreneurs are being successful, and they are excited. Some of them are making money hand over fist,” said Richard Feinberg, author of forthcoming “Business: Building the New Cuban Economy” and senior fellow in the Latin America Initiative at the Brookings Institute.

The number of self-employed Cubans, or cuentapropistas, rose from 150,000 to 500,000 between 2010 and 2015, revealed the World Policy Journal. The adult population of Cuba is 11 million, according to the CIA World Factbook.

“Havana and other cities are blossoming with new restaurants and bed-and-breakfasts; transportation services, including taxis and trucking; as well as private construction firms and appliance-fixing shops,” Feinberg said.

The majority of start-ups recently launched by Cubans have centered around tourism and the service industry, but there is a growing cadre of internet-based content and publishing companies in Cuba, according to multiple experts.

“I think there are a lot of other Cubans who want to get in the game,” Feinberg said.

But questions remain on how new start-ups will function.

“To get the kind of high-growth entrepreneurship that can really create high-quality jobs, have added value and drive socioeconomic prosperity, you’re going to need the institutions to get on board,” said Northwestern University’s Kellogg School of Management professor Benjamin Jones. “Will start-ups be able to scale?”

“I THINK THERE ARE A LOT OF OTHER CUBANS WHO WANT TO GET IN THE GAME.”-Richard Feinberg, senior fellow in the Latin America Initiative at the Brookings Institute

Infrastructure, construction, telecommunications and business services, like payroll and accounting, are areas experts say are ripe for development.

“There’s an opportunity to make money [in Cuba]. When will it happen? I wish I could say. I would hope within the next two years. But it’s never too early to make connections,” Hayes said.

Kaveh Miremadi, a sanctions attorney with Price Benowitz, said the contours of OFAC guidelines are not always easy to understand. Any businessperson interested in traveling to Cuba but who has any doubts about eligibility can submit a letter to OFAC asking for interpretive guidance. He said it would be best to have a lawyer draft the letter and that the filer should expect a lengthy wait before OFAC replies, as long as two to six months.

Guild said in his experience it takes OFAC even longer to reply to requests for interpretive guidance. With the new rules, in particular the person-to-person exchange, an individual, or lawyer, should be able to make a determination about travel to Cuba without taking this step.

CNBC 21.04.2016

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