On July 20, Cuba formally reopened its embassy in Washington for the first time in 54 years, a step that was reciprocated by the U.S. in mid-August. However, it will be some time yet before relations are fully normalized. The Republican-dominated U.S. Congress has made clear that it will not approve the lifting of the embargo on trade and investment with Cuba in the absence of substantive political reform.

It is unlikely that political reform on the island will occur before President Raúl Castro’s scheduled retirement in 2018. In the meantime, President Barack Obama will continue to relax restrictions in piecemeal fashion where he can, making use of his executive powers.

The first changes came into effect early this year, when the executive branch loosened restrictions on flows of people and remittances to the island, and authorized certain commercial transactions with Cuba’s small private sector.

The changes have already resulted in a large increase in tourist arrivals, which grew by 36 percent (year-on-year) in the first quarter of 2015. The Obama administration is reportedly working on a deal that would allow regular commercial flights between the two countries before the end of this year, in which case the tourism numbers could grow exponentially.

In The Spotlight

As for the Cuban regime, the Mariel special development zone (ZEDM) is a test case of just how fast and far Cuban officials are willing to proceed with liberalization. Cuban officials have touted the ZEDM as a showcase for investment opportunities on the island, and foresee the zone becoming a central hub for trade with the southeastern states of the U.S.

However, as of August 2015, only seven projects had been approved, with a total estimated value of $50 million. This is a far cry from the $2 billion annual total that government officials claim is needed to spur rapid economic development.

Officials claim that they have received upwards of 300 applications for investment, but Ana Teresa Igarza, the director of the ZEDM, has stated that she is comfortable with the current rate of about one approval per month since the start of the year, in keeping with the government’s reform mantra of “without haste, but without pause.”

If the reported number of applications is accurate, it would appear that many potential investors will be waiting a long time for their projects to get under way. In the meantime, they will be watching closely to see how the trailblazers fare.


The PRS Group
About The Author The PRS Group
The PRS Group is a leading global provider of political and country risk analysis and forecasts, covering 140 countries. Based on proprietary, quantitative risk models, the firm's clientele includes financial institutions, multilateral agencies, and trans-national firms.


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