Everything about Cuba is political – which is something I learned the hard way before even moving here last summer.
After a decade of writing headlines at The Globe and Mail, I was suddenly making them when a Sun News commentator took a swing at me. My move was proof of left-wing bias in the media, Ezra Levant fumed, calling me a hypocrite and accusing me of propping up the Castro regime.
Then Tony Clement weighed in. Fresh off unveiling a revamp of the museum dedicated to Maoist physician Norman Bethune, the Treasury Board president chastised me for choosing "to live in a communist country."
Cuba is often discussed in McCarthyist black and white, even if ministers of the Crown prefer grey when portraying China. And though the United States tightly controls and usually prohibits doing business with Cuba (which it still considers a state sponsor of terrorism), Canada has maintained a presence here since John Diefenbaker refused to join the American embargo after the revolution swept to power in 1959.
This charged atmosphere affects everything in Canada's and Cuba's extensive economic relationship – and even explains how I got to Havana. In July of 2012, I left my editing job and relocated with my wife, who took a posting as head of CARE International's office. CARE U.S. manages most of the aid agency's operations in Latin America, but it's CARE Canada that oversees its work here.
The move has given me a front-row seat as the Revolution evolves and Cuba re-engineers its creaking command economy. So when Report on Business magazine asked last fall what the changes now under way mean for the country, I applied for press accreditation, started reading (via 56-kilobyte-per-second dial-up) and made a few calls. Then, most important, I hit the streets to find out.
We hadn't even gotten out of bed when I first heard the radio announcement one October morning. Moments later, the phone rang: A Cuban friend was calling, excitedly, to make sure we hadn't missed the news. When I passed by vendors before 9 o'clock, the daily state newspapers – Granma and Juventud Rebelde – were sold out. At the University of Havana, where I was taking Spanish, students were poring over a 30-page edition of the Gaceta Oficial.
Cubans, they learned, would at last be allowed to travel freely. Which is no small thing for a country that has seen tens of thousands flee illicitly over the years. Now, the state would no longer require citizens to obtain a dreaded tarjeta blanca – a process that was always costly and bureaucratic, and sometimes fruitless and humiliating. And the state was also making it easier for Cubans to come back. The reform extended the time citizens can spend off the island to a renewable period of two years, effectively eliminating the salida definitiva (definitive departure) stamp that required anyone leaving for the long term to surrender their property.
As the January implementation date approached, word came down that even doctors – Cuba's most-prized professionals – would be able to come and go as they please.
The country has seen a continual loosening of rules since Raúl Castro took over from his ailing older brother, Fidel, in 2006. And in 2011, the Communist Party approved a five-year plan to redefine Cuban socialism by increasing food production; creating a robust (yet controlled) private sector, complete with a tax system; and shrinking government – through layoffs exceeding one million workers, or one-fifth of the workforce. All so the state can sustainably continue to deliver free health care, education, housing and other basic services.
But for all this, the scope of the travel change was surprising. "No one expected the wide-open policy the government has taken," says Gregory Biniowsky, a Canadian lawyer (with Heenan Blaikie) who has called Cuba home for 20 years. "It's a huge leap of faith." Results were immediate. Urban professionals rushed in large numbers to obtain passports (often to have one just in case), which the government usually issued within days.
Philip Peters, head of the Cuba Research Center, suggests Havana's biggest concern is the potential for brain drain. "One could imagine they would have done migration reform last so they would be able to show they have done a lot to create new sources of employment," he tells me by phone from Washington. "That they took this step at the start clearly indicates they're making a bet that a great many Cubans have a desire to leave Cuba and come back."
If things go as planned, the state's jackpot will come in the form of remittances. A study released in June concluded that cash sent home already tallied $2.6 billion in 2012 – in other words, one of Cuba's biggest revenue streams (all currency in U.S. dollars unless otherwise noted). Havana also hopes that allowing citizens to obtain education and business experience abroad will put them in a better position to contribute to the island's well-being upon their return. And, in one stroke, it removed an irritant in its international relations by placing the onus on other countries to issue visas and, therefore, allow Cubans to travel.
On top of migration reform, Cuba has taken steps to empower its citizens as consumers. It legalized the sale of homes and automobiles; lifted restrictions on ownership of computers and cellphones, and on domestic use of tourist hotels; and modestly expanded Internet service, opening more than 100 monitored access points this spring.
And in addition to overarching reforms that alter the economic landscape, Raúl Castro has made some business-specific changes. He legalized supplements paid by foreign companies to Cuban workers; extended the term for leases of land to foreign firms to 99 years from 50 (a significant sweetener for developers); and invigorated the small-business sector by issuing licences – quickly and prolifically – to entrepreneurs in scores of newly legalized trades.
Idle land was distributed to individual farmers and co-operatives, which can now sell directly to hotels and restaurants that previously could only buy from the state. Grassroots ownership was also encouraged by extending the co-op model beyond the fields – to produce markets and urban services. And, this summer, the government announced it would begin to deregulate its biggest enterprises.
That still leaves unresolved the crippling problem of two currencies. It's much easier to navigate the changing economy if you're fortunate enough to have CUCs, or Cuban convertibles, in your wallet. Pegged roughly to the American dollar, they're worth about 25 times the value of the peso, the currency in which most people are paid. That discrepancy distorts prices, limits purchasing power and is a prime reason for disenchantment among Cuba's professional class.
Doing away with the dual currency is high on the government's wish list. But, like doing away with la libreta (the ration book that provides all Cubans with subsidized food staples each month), it's not something that can be done overnight. Making such radical change is highly contentious in a country that's often described as frozen in time. Even what to call such change is contentious.
"We are modernizing our economic model," says Joaquín Infante of the National Association of Economists and Accountants, in an interview arranged by the foreign-press office to give me the government line. "Modernizing the model is not the same as reform, because we are not questioning the political system."
But University of Havana economist Rafael Betancourt notes that the revolution has carried out multiple reforms – in agrarian policy and education, for instance. And he questions why the state refuses to use the word in this case. "What is reform? It's modifying your model without losing its basic principles and characteristics," he tells me over lunch. "But you are admitting that you have things that have to change in order to improve. You are admitting you made mistakes."
Cuba has also second-guessed some reforms – a decade ago, for instance, when Fidel Castro clawed back the limited space he initially created for private enterprise. In an e-mail conversation, however, a seasoned observer tells me why that's unlikely to happen this time. "There have been phases of experimentation and adaptation throughout the revolutionary period, but these current ones are broader and more permanent," says Mark Entwistle, who served as Canada's ambassador in Havana from 1993 to 1997 and now runs a Cuba consultancy at Acasta Capital in Toronto. "This is because the government has concluded that adjustments to their economic model are simply necessary. The performance of the Cuban economy is a No. 1 priority."
Cuba prides itself on its medical system. But the entire country was nervous about a December surgery performed at a hospital in Havana. The operation was Hugo Chávez's fourth since June, 2011, and was preceded by a grim announcement days earlier in Caracas that he was formally naming a successor.
In addition to Chávez's health, at stake was how Cuba would fare without the helping hand of Fidel Castro's political heir. For a decade, Caracas supplied Havana with about 100,000 barrels of oil daily at cut-rate prices, covering half the island's energy needs. Were that lifeline to die with the Venezuelan president, Cuba would take a substantial hit – just as it did when it lost its previous protector, the Soviet Union, in 1991.
It was then, during the stress of the periodo especial, that Ian Delaney brought a dose of Canadian capitalism to Cuba. The deals struck by the Bay Street executive – known as the "Smiling Barracuda" – resulted in a joint venture between his firm, Sherritt International, and the state to mine nickel and cobalt in the eastern province of Holguín for export worldwide. Sherritt was later granted concessions in other sectors including oil and gas, which it sells domestically. The Toronto-based company is one of Cuba's largest private investors and represents a substantial chunk of Canada's business dealings with the island (trade between the two countries runs at about $1 billion Canadian annually).
It was also during the '90s that Cuba opened its beaches to herds of foreign tourists, striking deals with international hotel chains like Spain's Sol Meliá. Cuba now welcomes nearly three million tourists each year – more than a third of them Canadian – and there are dozens of new resorts planned, with the government expecting to add 20,000 hotel rooms by 2020, for a total of 85,000.
Having learned how perilous it is to rely on a single trading partner, Cuba also sought investment from other friendly governments. In return for sugar and nickel purchases, Beijing sells Havana goods such as the buses now cruising the island's roadways. And Chinese Geely sedans are slowly replacing Russian Ladas as police cars and in other state fleets.
Brazilian construction giant Odebrecht, meanwhile, is the main player in a $900-million revamp of the seaport at Mariel, west of the capital, that will include a petroleum terminal and a free-trade zone for biotech and light industry. The firm has been given access to Cuba's sugar industry, and Brazil's development bank is also backing a $175-million overhaul of the island's airports.
For Canadian business, Cuba "intrinsically has a lot of potential," Biniowsky says. "It's the biggest island in the Caribbean [with 11.2 million people]. It's got significant agricultural tracts. It's got a highly educated population that could plug into the high-value-added global economy."
To that list of assets, the 44-year-old Canadian lawyer adds the natural-resource wealth that Sherritt and others are extracting; Cuba's reasonable success in combatting corruption (by Latin American standards, it fares very well in Transparency International rankings); and the fact that, unlike other countries in the region, it's largely free of violent crime.
Canada is not above leveraging the fact that it is, well, not the United States. During a November trade-show speech in Havana, the CEO of the Canadian Commercial Corp. (a Crown agency that promotes trade) highlighted some commonality in adversarial relations by harkening back to the War of 1812. "They invaded us," Marc Whittingham joked, "and we got so mad we actually went and burned the White House down."
Today, the American embargo is effectively a twofold opportunity for Canadian firms – it significantly clears the field so long as it's in force, and it makes Cuba far more profitable should it be lifted. Guessing at when that might happen is a mug's game. Diplomats in Havana and Washington report a dramatically improved tone in their dealings of late. But incidents like the July seizure of a North Korean ship bearing Cuban arms concealed in sugary cargo can easily reverse steps toward rapprochement.
One of the firms banking on Cuba's future is Montreal-based 360 Vox Corp. The resort-development specialist has plans for three major projects on the island. "They work in this environment, but if we do get the travel embargo lifted, then it's a huge bonus," says Guy Chartier, CEO of the firm's Cuba division.
While firms from Europe, Latin America and Asia are also active here, the present moment, Chartier adds, "is really a window of opportunity for companies such as ours to bring unique expertise to a market where we're not yet competing directly against our friendly U.S. neighbour."
Or, as Biniowsky puts it, "We're simply filling a space that if it weren't for the U.S. embargo probably would be completely filled by U.S. companies." Some firms, he adds, are not in for the long haul. "They're saying, 'Okay, here's an opportunity. Let's set roots so that when, inevitably, the embargo is lifted, we sell out to American interests.' Definitely there are a lot of companies here just for positioning."
360 Vox hopes to break ground early next year on what will become the five-star seafront Monte Barreto Hotel, beside the national aquarium on Havana's western shore. Chartier expects its location, on the way to Mariel, will attract foreign businessmen, technicians and professionals descending on the capital once the expanded port and free-trade zone open.
"We're really building the product of the future," he tells me over coffee. "It will be the first property of its kind in the country. It will meet Florida construction code; it will meet the toughest U.S. and international industry health and safety codes."
After Monte Barreto construction begins, the firm will turn its attention to a plan to develop Jibacoa, a sleepy strip of beach halfway between Havana and Varadero. The project includes a golf course, marina, hotels and private villas. In the longer term, 360 Vox also has plans for a resort on Cayo Largo, off Cuba's southern shore – near the key where Fidel Castro and Pierre Trudeau speared fish together in 1976.
The company bears the imprint of a Bay Street legend – Ned Goodman of Dundee Capital, who spearheaded a $20-million investment and serves as chairman. The financier has made several trips to the island, including one in 2011 during which he met with cabinet minister Ricardo Cabrisas. Goodman deems Cuba "a unique country with extraordinary unexploited resources, the most important of which are the Cuban people themselves."
When my wife and I first visited Cuba as backpackers a decade ago, we naively hoped to self-cater. To our frustration, we found empty grocery shelves and sparse produce stands.
But now, thanks to the modest success Cuba has achieved in the first goal of its economic reform – increasing food production – we're able to keep our pantry well-stocked. Sure, certain imported items disappear for weeks on end – any pasta other than spaghetti, for example, or dog kibble, which made feeding our 100-pound Bernese a challenge at one point in December. But, in general, decent ingredients are readily available, particularly produce.
Going out to eat, too, is not the grim experience one is told to expect – in fact, Havana's bustling restaurant scene is the most visible sign of Cuba's emerging small-business sector.
According to Betancourt, the culinary revival stems from two things. One, there's "more demand and more income to satisfy it, whether it's from the foreign or Cuban consumer." And two, there's "a greater availability and variety of products that comes from the development of an agriculture that is diverse and that isn't only focused on import substitution for basic goods."
But there is little to no space for professionals to practise their craft – and earn more than a paltry state salary of 450 pesos a month, or about $19 – within the existing approved categories of private employment.
"Although I really enjoyed the work I was doing before – at an information centre in specialized health sciences – it wasn't possible to earn enough to support my family," Gustavo Kourí tells me one afternoon during the lunchtime rush at Rio Mar, his year-and-a-half-old restaurant that offers a stunning view of the mouth of the Almendares River. "And then the state opened more opportunities to develop private businesses, for cuenta propia."
The term translates as "one's own account," and Cuba's new breed of entrepreneurs are known as cuentapropistas. By the end of June, there were 429,000 of them – up from 143,000 in 2010. They are the front-line soldiers in the country's economic battle.
Like Kourí, 44, José Colomé opted to leave a professional career in favour of entrepreneurship. The 39-year-old lawyer is co-owner of Starbien restaurant, which opened last December on a quiet street near Plaza de la Revolución. Having gotten to know Starbucks during trips abroad, Colomé crafted a similar brand – even registering it as a trademark in Cuba, just in case the coffee chain expands here in future.
While neither he nor Kourí had experience in the industry, dining at Starbien or Rio Mar is as delectable as sitting down to eat in Toronto or Montreal. And both men expressed similar concerns when asked about the challenges they face in Cuba's new private sector. "It's hard," Colomé says. "Taxes are high, but that's the rule right now. We have to dance to this music. And I'm happy to have the opportunity."
The wholesale food supply business is still a work in progress, and "it's very difficult to get supplies and equipment," Kourí says, pointing to Rio Mar's crystal glassware and modern furniture. "We have to import them. But since there's no possibility of importing them in large quantities, it's piece by piece."
Other newcomers to the restaurant business include artists and athletes. Mireya Luis, for example, runs Las Tres Medallas, a pizza-and-pasta spot named for the three Olympic gold medals her volleyball team won between 1992 and 2000.
Luis, 46, describes her 2012 decision to become an entrepreneur as a chance to "realize a dream." "Being able to open a place – a restaurant, a bar, a cafeteria, whatever – is a good opportunity for self-development, for people to demonstrate a capacity for business, and for them to grow personally," she tells me one summer night. "It's something incredible."
You hear similar sentiments from cuentapropistas in other lines of business.
Gilberto Valladares, who everyone calls Papito, started a hair salon in his family's home in Old Havana in 1999. "Initially, it was a dream of dignifying and recovering a certain degree of respect for the trade of hairdresser and barber," he tells me, after tending to his last customer one spring evening. "As my business grew, so did the dream."
Papito, 43, has made Arte Corte Studio into a "living museum." Its cabinets are filled with haircutting tools of old and its high-ceilinged walls are covered with paintings depicting different visions of the trade.
He employs a half-dozen people, nearly all from the surrounding neighbourhood. And he closes early one day a week to teach tonsorial skills, as well as marketing, business and personal development. His entire stretch of cobblestone street is becoming a destination for hair care.
"In a spiritual way," Papito declares, "I already feel like a millionaire."
Three of 360 Vox's staff in Havana are lawyers whose first task with any project is to pore over land-title records to find out who owned the site before the Revolution. "If they were American, then it's off-limits because we don't want to be in a position where we could be considered to be trafficking in claimed property," Chartier says.
If the previous owners were Cuban, the firm finds out whether they stayed or went – and if they went, where. It then investigates whether the owners or their kin have since made claims to the land. Finally, 360 Vox takes its findings to a U.S. law firm for an opinion before any project can proceed. Otherwise, the company could run afoul of the Helms-Burton Act, which punishes those who invest in Cuban assets seized from Americans decades ago.
Though he can't argue with Sherritt's success and profitability, Chartier notes that the firm "took a very different approach." A more daring one.
The challenge, as Betancourt puts it, is this: "How can you talk about Cuba accessing international capital in the context of the blockade?" Because of the U.S. embargo, joint ventures will only be established here "little by little, piece by piece and always with companies that are willing to challenge the wrath of the monster."
Sherritt is one of those. An American firm owned the mine it operates in Moa before the Revolution, so in 1996 Delaney received a letter informing him that he and other Sherritt officials were blacklisted from the United States for violating Helms-Burton. Undaunted, Fidel Castro's "favourite capitalist" – as he became known – framed the missive and kept it in his office until his retirement last year.
El bloqueo is also why Cuba restricts foreign-investment opportunities to strategic industries. "It's like a war economy," Betancourt says. "Don't expect an opening up of the foreign sector until you have a different international environment that will facilitate greater investment and greater flows of capital."
Another – and somewhat counterintuitive – concern for investors is corruption.
Raúl Castro made cracking down on graft a priority when he took over from his brother. In the process, he put executives at three foreign firms (one British and two Canadian) behind bars. Toronto-area traders Sarkis Yacoubian, head of Tri-Star Caribbean, and Cy Tokmakjian, president of Tokmakjian Group, were detained in 2011 and held without charge for nearly two years.
"The government might have thought initially that foreigners would like an investment climate where there's less corruption, but that's not how it plays," says Richard Feinberg, a Brookings Institution expert on Cuba. He points to the perceived arbitrary nature of the arrests and the lack of due process. "The net effect is that these one-off cases become a deterrent."
He is also critical of the single-minded nature of Cuba's crackdown. When officials making humble state salaries oversee transactions involving huge sums of money in a less-than-transparent environment, he explains, it's hardly surprising that corruption occurs. "But repression alone doesn't work. It may get you some results in the short run, but the incentive structures are misaligned."
Once associates, Yacoubian and Tokmakjian became rivals in the lucrative business of selling vehicles and heavy equipment to state-run Cuban firms in the transport, construction and nickel industries. Tri-Star Caribbean brought in about $30 million a year, while Tokmakjian Group's earnings topped $80 million.
Behind bars, Yacoubian blew the whistle on what he saw as systemic corruption. "If I didn't pay [bureaucrats and officials], at the end of the day they would just create problems for me," the 53-year-old told the Toronto Star from prison, adding he confessed everything he knew. "I gave them names, people, how they do it, why, when, where, what."
Charges of bribery, tax evasion and damaging the economy were finally brought against Yacoubian in May. His two-day trial was closed to reporters but was attended by Canada's ambassador, Matthew Levin. In addition to political concern over the extended detention of Canadian citizens, taxpayer dollars were potentially at stake: The Canadian Commercial Corp. has underwritten $650 million (Canadian) in transactions between exporters and the Cuban state since 1991. While its client list is private, it is probable that Tri-Star and Tokmakjian received CCC support.
In the end, despite his jailhouse co-operation, Yacoubian was sentenced to nine years. At press time, Tokmakjian, 73, remained behind bars without charge.
Sherritt – which saw its state-run partner at the Moa mine hit with corruption convictions in a separate case last year – would not say whether it purchased equipment from Tri-Star or Tokmakjian. But it did say its outlook in Cuba remains bright.
The Canadian Commercial Corp. is equally undeterred. None of its risk-assessment procedures or due-diligence checks have changed. And "in over 22 years of business in Cuba, the Cuban authorities have never approached the corporation to suggest any CCC-related contracts have been inappropriately obtained or undertaken," government-relations manager Joanne Lostracco says.
Given that the British firm ensnared in the crackdown, Coral Capital Group, was best known for revamping Old Havana's swanky Saratoga Hotel, I asked Chartier whether the resulting detentions were a deterrent to investors such as himself.
"The easy answer is no. It sends a clear message to everybody that Cuba is a place to do business on the up and up," he says. "I spent my teens in Mexico, and there is no comparison. The only way to do business here is above board."
When John Baird embarked on a Latin American tour in February, he made a one-day stop in Cuba – the first visit by a Canadian foreign minister in more than 15 years.
Stephen Harper's top diplomat met two relatively young members of the Cuban government: Baird's counterpart, Foreign Minister Bruno Rodriguez, 54, and Vice-President Marino Murillo, the 52-year-old architect and implementer-in-chief of economic reform.
Both of them – along with Miguel Diaz-Canel, also 52, whom Raúl Castro named first vice-president and his heir apparent a week after Baird's visit – represent a new generation of leadership. Unlike their predecessors, they were not among the bearded rebels who toppled Fulgencio Batista's regime in 1959. Assuming all goes as planned, they will inherit a markedly different country when Castro retires – at age 86—in 2018.
"We can already see that it will be an economy with a much larger private sector than before," says Peters of the Cuba Research Center, "and a smaller government workforce than before, with many more actors operating independently."
Perhaps most importantly, Diaz-Canel's last name is not Castro – which increases the odds of reconciling with the United States. "Remove the Castro brothers, or at least move them to the background, and that defangs a lot of the hostility," says Feinberg, the Brookings Institution expert.
Moreover, if Cuba can retain people like Betancourt, the university professor, its gamble will likely pay off. His family fled communism after the Revolution. But by the late 1980s – degrees, jobs and marriage behind him – he started to wonder what kind of future the U.S. could offer beyond his being "one more professional economist working and making money and consuming more and more." So he returned to the island and began putting his skills to more fulfilling use. In addition to teaching economics, he has partnered with Biniowsky, the lawyer, on Havanada Consulting, which channels funds from social investors and philanthropists to nonprofit development projects in Cuba.
And while Betancourt, 60, agrees that new travel rules will allow his compatriots to follow a similar path, he offers a more succinct reason for the change: "The intent is to return basic rights to the population and to satisfy a very strong demand among our people."
The extent of those rights, however, will be tested. Dissidents like Yoani Sánchez and Eliecer Avila took advantage of the reform and set out on foreign tours last winter. They returned with plans to launch a news organization and a political party, respectively – risky ventures, given the state's history of reacting harshly to open political challenge.
Cuba also faces threats beyond its control. The government expects its economy to grow by no more than 3 per cent this year, short of its 3.6-per-cent target, thanks in part to the havoc wrought by Hurricane Sandy.
Then there are those systemic problems. The dual currency, meagre state salaries, and limits on approved categories of private enterprise – you can be a tarot card reader, but not a clinical psychologist – are "driving a lot of young people out of the country or into a kind of underground professional economy," Betancourt says. "It's totally illogical."
Credit is also only offered in pesos, meaning those looking for seed capital need to know someone abroad who can supply hard currency. And though the state is loath to admit it, Betancourt notes that this creates significant inequality "because it is the white, urban professional and middle-class person who has a family member that emigrated, who has a foreigner that wants to start a business with him."
Not only that, simple purchases can be painfully bureaucratic. Buying a new blender last winter, for example, took me more than an hour and required three sets of forms.
It remains to be seen, too, whether the corruption crackdown has run its course. In a blistering speech to the National Assembly in July, Raúl Castro railed against his country's moral decline. "I have the bitter sensation that we are a society ever more educated but not necessarily more enlightened," he said, singling out both graft and theft by state workers – but also a laundry list of poor public behaviour by everyday citizens.
Those negatives aside, even the modest space opened to free enterprise has created an array of options for the emerging consumer class. Cubans with a few CUCs can watch 3-D movies or play paintball in their spare time. Those with a few more CUCs can splurge for their child's quinceañera, the traditional prom-like 15th birthday party.
Like most people I talked to, Biniowsky believes Cuba is on the right track. "The irony is those that will save the Revolution are the emerging small- and medium-sized private businesses," he says. "And those that could destroy it are those elements in the bureaucracy that resist these changes."
Canada's former ambassador, meanwhile, cautions those expecting to see capitalism embraced as Cuba's new guiding light. "One has to actually listen carefully to what the Cubans say," explains Entwistle, who logged more than 100 hours of face time with Fidel Castro. "These changes are intended to make the particular Cuban socialist model work better, not to replace it."
One only has to look at Papito and his thriving salon to get the sense that's already happening. "The most important thing is for the new private sector to have a social conscience and a social commitment," he tells me, beaming. "It's not all about profit; it's also about values."
CLARIFICATION: Our September article on Cuba, "Revising the Revolution," said it was probable that Tri-Star Caribbean had received support from Canadian Commercial Corp. A representative of Tri-Star says it has never had support from the CCC.