Will Cuba Be A Gold Mine For Iowa Businesses?
/Des Moines Register
Des Moines, Iowa
12 March 2016
Will Cuba be a gold mine for Iowa businesses?
By Kevin Hardy
Many American businesses believe re-establishing trade with Cuba will prove a financial windfall, allowing them to bring their products and services to a market that's been all but forbidden over the last five decades.
Tom Swegle has his eyes on Cuba for the opposite reason.
"We always talk about trade going into Cuba," he said, "but not what is going out of Cuba, besides cigars and old cars." Swegle, CEO of MedCara, an early stage pharmaceutical company based in in Conrad, Ia., wants to export a Cuban drug that treats diabetic foot ulcers and license it for U.S. patients.
The medicine, Heberprot-P, is already available in 25 other countries. And with nearly 30 million Americans suffering from diabetes, Swegle has little doubt of the need for the product here.
But the trade embargo enacted in 1960 remains in effect, even as the United States works to repair its relationship with the communist Cuban government. Swegle is optimistic that President Barack Obama's efforts to mend fences with Cuba will eventually allow a company like his to bring the drug to the American market. "I absolutely think its going to open up trade," he said. "It may not happen next month, but all signs are pointing to having this embargo lifted. That's what we’re banking on." And he's not alone.
As diplomatic efforts ramp up, American businesses are eyeing opportunity in a market that for many has remained off limits for decades. In Iowa, those tied to the world of agriculture are especially interested, given that Cubans import a majority of the food they consume.
And many signs abound that the U.S. government is serious about thawing its long icy relationship with Cuba: More than 50 years after President Dwight Eisenhower severed diplomatic relations with Cuba, the U.S. flag now flies again over the American Embassy in Havana, which reopened in August. Both countries have agreed to regularly scheduled commercial flights between the U.S. and Cuba.
And later this month, Obama will visit Cuba, marking only the second time a sitting American president has visited the island nation. (Calvin Coolidge visited in 1928.)
"I think there is a lot of interest," said Meg Schneider, senior vice president of regional business development at the Greater Des Moines Partnership. "And when you think about Cuba, it's a market that's been closed off for 50 years. So not only the state of Iowa, but every state in the United States has a lot of interest in what is to come." Schneider said several Iowa companies already have done business in Cuba since the U.S. government relaxed its trade ban in 2000 to allow for some agricultural exports to Cuba.
Over the last decade, Iowa's government, nonprofit and business leaders have visited the island as a part of various trade missions exploring opportunities for future business there. So far, enthusiasm is mixed.
"If you’re looking for an easy sale, that’s not Cuba," said Dave Miller, director of research and commodity services for the Iowa Farm Bureau Federation. Miller recently returned from a February trip to Cuba sponsored by the Iowa Economic Development Authority. He said he sees plenty of opportunity in Cuba, especially for Iowa's pork, corn, soybean and egg producers. And demand for high-quality meats will only increase with an expected influx in tourism, he said.
But the Cuban market is largely controlled by the heavy-handed government, and U.S regulations on financing often make it difficult to move product. Miller said the Cuban government doesn't default on its purchases, but it can take upward of a year to turn around payment on some shipments, a massive burden for any small company looking to sell there.
Still, he said, now is the time to begin building relationships in Cuba. That's the advice locals gave to the most recent group of Iowans who visited. "The answer is yes, there is opportunity. The answer is yes, there are a still a number of challenges," Miller said. "But it is probably a good time to get in if you have patience and have deep enough pockets to withstand some of the time frames that emerge."
Sen. Steve Sodders, D-State Center, who led a group of Iowa business leaders to Cuba in January, sees plenty of opportunity on the island. Aside from the obvious ag connections, he said Meskwaki Inc., the investment arm of the Meskwaki Nation, is interested in bringing Cuban rum and tobacco into the country and distributing it across the Midwest.
"We didn't just go down there saying, 'We want you to buy our tractors, we want you to buy our seed, we want you to buy our hogs,'" Sodders said. "We said we want it to go both ways. We want to buy some of your products, too." He said Cuba has been inundated with state officials and business leaders from across the country courting business.
"They emphasized that we have to start trusting each other and build a relationship so that we can do business down there," Sodders said.
Iowa Economic Development Authority Director Debi Durham said it's important for business and public officials to monitor what's happening in Cuba. But it's too early to tell how fruitful any potential business opportunities will prove. "I don’t think you’re going to see a mad rush," she said. "I think it's going to be a measured approach."
Opportunities with Iowa ag
Iowa Secretary of Agriculture Bill Northey said the opportunity for local companies in Cuba extends beyond straight commodity exports. Much of Cuba is blanketed with fallow fields that once grew sugar cane. If Cuba decides to expand its own agricultural capacity, it will need the aid of seed companies, fertilizer providers and implement producers.
"They are going to need mechanization to do it. They will need some tools," Northey said. "They certainly don’t need a 200 horsepower tractor. They need something smaller, that’s usable and very cost effective."
Cuba has drawn plenty of American focus and intrigue over the last five decades. And Northey said that may sometimes boost enthusiasm from American companies to unreasonable levels.
"We see that they need our products. But we’re not sure that we’re going to be selling into that market for awhile, simply because they’re not ready yet financially and logistically," he said. "There's an interest that maybe exceeds the opportunity in some cases, but over time there are going to be opportunities."
Deere & Co. spokesman Ken Golden said the Moline, Ill.-based maker of farm equipment doesn't foresee placing manufacturing facilities in Cuba. But the company does expect to eventually export products there. "In general, freer trade in food and agricultural products is positive for our customers and for John Deere," Golden said. "In Cuba, there is a need for agricultural and construction machinery. However, the political and economic relations between the U.S. and Cuba will take some time to develop."
Challenges in Cuba
Andrew Doria, international sales director at Johnston-based Midwest Premier Foods, said his company is always looking for new markets to trade pork, beef, poultry and other foods. But right now, Cuba is nowhere near the top of his list. "It's a great opportunity for Iowa. It will be for our ag industry, but maybe not for our company in particular," he said.
Doria is skeptical that Cuba's crumbling infrastructure will be able to support a boom in tourism. On the February trade trip there, he noted problems with water pressure, electricity and cellphone service. And he doubts that Cubans will have enough cash in their pockets anytime soon to drive up demand for exported products. (The average state salary is about $20 per month.)
Doria said the Cuban government puts an extraordinary number of hurdles in front of businesses looking to sell products there. "In Korea, we have two or three steps to do business. In Mexico, we have two or three steps. Cuba, it appears to me there would be about 20 steps to do business," Doria said. "That's just rough."
Amid heightened competition from other countries, American exports to Cuba have fallen dramatically in recent years. Cuban exports peaked above $710 million in 2008, but by 2015 reached only about $170 million, according to the U.S.-Cuba Trade and Economic Council.
John Kavulich, president of the nonprofit council, said American business interests in Cuba are far outstripping the actual opportunity there. He said the enthusiasm is counterintuitive, especially given a drop in U.S. agricultural exports to Cuba.
The Cuban government's lack of a foreign exchange and its habit of delaying payment will remain barriers for the foreseeable future, he said. Still, he recognizes the progress Obama is making in working to restore relations.
"These are initiatives that are important and are real," Kavulich said. "However, they are only as beneficial to the United States as the Cuban government will permit them to be. And thus far the Cuban government is not permitting them to be profitable to the United States."
Given the uncertainty, he questions the value of the many Cuba trade trips sponsored by various U.S. business and government leaders in recent months.
"It makes good conversation at the country club, in the boardroom, to reporters, at church, to the chamber of commerce," he said. "But most of the visits are not necessary."