10/03/13 - Financial Times - Cuba's new port offers a small opening to the global economy
When Havana hosts its annual international trade jamboree next month,
officials will be sure to tout Cubaâs new container terminal and
free-trade zone â the communist islandâs first strategic push to join the
international economy in decades.
Furthermore, although Havana usually treats the trade fair as a chance to
thumb its nose at the US, this year the new port may change the usual
playbook. That is because the ambitious $900m scheme, built at Mariel port
on Cubaâs northern coast and just 120 miles from Florida, seems predicated
on an end to the 53-year-old US embargo.
As there is no sign of that happening soon, despite some signs that
Cuba wants a more pragmatic relationship with the US, analysts say
Havana will instead have to count on friendly governments in the region
and Asia to compensate for this apparent hole in the projectâs business
model â at least during its first phases.
âThe United States is the obvious market for Marielâs FTZ exports and
trans-shipments,â said Richard Feinberg, senior fellow at the Brookings
Institution and author of several Cuban studies. âIn the meantime,
friendly governments, such as Brazil, Mexico, China, and Singapore, may
incentivise modest investments by their firms.â
The Mariel container terminal, built by Brazilian construction company
Odebrecht, part-financed by Brazilian development loans and operated by
Singaporeâs PSA, is part of a larger scheme that will take over all of the
facilities at Havanaâs ageing port, and see the Havana Bay transformed
into what could be a spectacular tourism and recreational playground.
But it also reflects broader changes sweeping the Caribbean and American
The widening of the Panama Canal is prompting many regional port
authorities to upgrade facilities in order to accommodate larger container
ships. Marielâs bay has been dredged to accommodate ships with twice the
draft of the Havana port, while Marielâs port itself, 28 miles from the
capital, will have 700m of berth and capacity of up to 1m containers,
three times Havanaâs.
âBigger ships will need to make more use of transshipment to fill them,
and so we see a growth in transshipment activity in Panama and in the
Caribbean basin,â said Neil Davidson, senior analyst of ports and
terminals at London-based Drewry. âCuba is well located to take part in
this, but to do so needs a deeper port.â
Despite the embargo, most experts agree the first phase of the plan is a
good one, with two provisos. First, transshipment is a price-sensitive
business, and Cubaâs Mariel will have to compete with efficient existing
hubs, such as those in Panama and Kingston, Jamaica. A further
complication is that the embargo forbids ships entering US waters if they
have berthed in Cuba over the past six months. (One exception is US food
imports to Cuba, exempt from the embargo under a 2000 amendment.)
Second, enticing investors to set up in the free trade zone will be a
harder challenge than just attracting ships to use its container
âThe big attraction of a FTZâ.â.â.âis that cargo is landed ashore, work is
carried out, such as assembly and packing, and this creates wider economic
benefits,â Mr Davidson said. But âestablishing an FTZ is a tougher job as
it requires companies to put down roots, and once again the US embargo is
a key challenge.â
Cuba says the zone is the first of several across the country that will
increase exports, spur high-technology projects, and create jobs. It also
forms part of a broader push to encourage foreign investment, even if that
initiative has been honoured more in the breach than in observance.
That may change under the new rules governing FTZ investment, although
western diplomats and businessmen say that, while a step forward in a
hostile investment climate, the regulations still fall short.
Cuba âisnât like other places where all, not just some of, the rules are
clear and standard across the board,â said one foreign investor, who asked
that his name not be used. âEvery deal will have to be negotiated.â
A common complaint also remains unaddressed: employers must still hire and
fire through a state-run labour company, which drives up costs and
potentially hurts Marielâs attractiveness.
âLabour costs will be twice what they are in the Dominican Republic,â a
western economic attachÃ© said.
Furthermore, investors will still face Cubaâs complicated approvals
process, tough supervision, high communication costs and conflict
resolution through state entities, unless stipulated otherwise in
contracts, all of which could hold back the countryâs biggest single
investment since the fall of the former Soviet Union.
âEverything that has been going on here since Fidel Castro took ill has
been a work in progress, including relations with the United States,â one
foreign banker operating in Cuba said. âMariel is no exception. Only time
and plenty of tweaking will tell if it is truly a success.â
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