Fewer than two weeks ago, the U.S. re-opened the U.S. Embassy in Cuba, marking the beginning of a new opening of Cuba to more Americans. While non-Americans and Americans with specific purposes were able to visit Cuba before, the re-establishment of a U.S. Embassy signifies a change in U.S. attitude toward the island.
If you’re wondering what renewed diplomacy means for personal finance, you might be surprised at the economic potential of Cuba. While you may not be in the position to finance multi-million dollar projects, thawing relations with Cuba presents a unique investment opportunity. Here is what change in Cuba could mean for you in terms of personal finance.
The End of a 50-Year-Old Embargo
First, a brief history of the United States’ Cuban embargo: Cuba has been under U.S. embargo since the 1960s, blocked from many exports and all imports. While the U.S. has been able to export certain goods and services, the country has largely been ignored by the general American population due to the embargo.
Cuba came under embargo after Fidel Castro overthrew Fulgencio Batista and nationalized American assets in 1959. Since the 1960s, the United States and Cuba have had limited relations, particularly after Cuba signed trade agreements with the Soviet Union and as it has continued to trade with Venezuela.
With the reopening of the U.S. Embassy and potential end to the embargo, opportunities are opening for more American tourism and investment. Politics aside, investment in and travel to Cuba is an exciting possibility, as long as you remain practical and realistic.
The Best Way to Invest in Cuba
Let’s get the bad news out of the way first: investing in Cuba, in terms of almost any entrepreneurial endeavor, is very difficult. Government control of nearly everything is absolute, the black market is a way of life, and owning anything is unpredictable as it can be seized by the government without warning. This is why trying to own something, like a business, in Cuba is not the greatest idea.
However, there are ways to get involved in investment in Cuba from the outside. One of the best ways to do this is investing in stocks that have some part of their business in Cuba, either in construction, banking, or tourism. Note: investment returns are not guaranteed in the stock market, I’m not a financial advisor, and you should consult your own advisor before taking any investment advice from me.
One way the change in Cuban-American relations can mean for you and investment opportunities is increased tourism. On one hand, American tourism to Cuba is still prohibited. However, you can travel to Cuba for any of these 12 reasons without special licenses. In the past, you had to go through the government to get this travel approved, but now the U.S. government allows you to “self-license”.
This doesn’t mean you can get an education in partying, if you self-license under educational tourism. Under new regulations, you are required to keep receipts of your travel for 5 years and you may have to show an itinerary for your travel and educational activities on the island.
While it’s unlikely you own property in Cuba and can rent out on AirBnb, you may want to consider investing in the hotel and airline industries. JetBlue and American Airlines have announced future flights to Cuba, and other airlines are considering taking advantage of this historic opportunity as well. While no one knows yet what types of restrictions will be in place for Cubans looking to travel to the U.S., there is certain to be a number of Americans looking to visit Cuba in the coming years, especially if travel restrictions continue to be loosened.
Cruise companies such as Royal Caribbean, Carnival, and others are also looking to expand service to Cuba, offering more potential investment opportunities in these companies. In addition, Cuba suffers from a shortage of high-end hotels and, with a potential increase in visitors, could be a new area for hotels to expand into.
In addition to the reopening of the U.S. Embassy in Cuba, American banks are now allowed to do business in Cuba. With prohibitions on American travelers using debit and credit cards on the island lifted, banks are preparing to enter the Cuban market and take advantage of American and international tourists.
American Express will be one of the new banking companies offering service in Cuba, joining MasterCard, which already has a presence on the island for non-U.S. banks. It remains to be seen how much Cuba will allow its citizens to use the banks, if at all, but banks will play a critical role for tourists. While maybe not as lucrative an investment opportunity as tourism in Cuba, banking will still play a big role in the coming years.
If the 1950s cars are any indication, Cuba’s infrastructure likely needs a lot of upgrading in the coming decades. While Cuba has accepted tourists from other countries, an influx of Americans and limited American investment requires a certain level of construction.
Companies such as Lennar, the homebuilding company, Mexican cement producer Cemex, and underground utility contractor MasTec are already investing in Cuba or looking to increase investment opportunities. While Cuba is notoriously difficult to work with, Cuba cannot continue with the current infrastructure it has if it wants to draw more tourism and business investment.
Before you consider investing in any of the above mentioned companies, it’s wise to do your own research first. While the reopening of the American Embassy in Cuba is a momentous event, the economic future of Cuba remains to be seen. Will it continue to be an economically closed society, where the business climate can be unstable and risky? Or will it allow more investment from around the world and develop into a tourism hub? Renewed relations with Cuba could be an opportunity for investors and potentially for your financial portfolio, as long as you remain realistic about the future.
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Would you invest in companies because of their investment in Cuba, or are you going to wait and see what happens in Cuba over the next few years?