Foreign Investment in Cuba: A Guide for Entrepreneurial Thinking

By Alexander Alonso, Ph.D., SHRM-SCP April 6, 2017
Foreign Investment in Cuba: A Guide for Entrepreneurial Thinking

​As the son of Cuban exiles, I have heard for over 40 years the pain in the voices of my mother and grandparents as they described leaving everything behind in their "patria" (homeland) to seek their inalienable human rights, after the fall of the island's president in 1959. My mother was part of Operation Peter Pan, a mass exodus of unaccompanied Cuban minors from 1960 to 1962. As a "Pedro Pan" immigrant, one day she went to school, the next day she boarded an aircraft with neither her possessions nor her parents. She spent her first six months on American soil with her aunt and uncle in Miami, where eventually I was born. Growing up there, I always encountered different tales of Cuban heritage—what it would mean to return to Cuba or to dream of a Cuba returned to the exiled.

So I jumped at the opportunity this past September to lead a delegation to Cuba with SHRM's vice president for global affairs, Robert Garcia. SHRM regularly leads global delegations to foreign ministries of human capital to share information and insights. With the aim of understanding how foreign investment will play a role in Cuba's future, my colleague and I led a group of 10 HR professionals and academicians to the island, to engage in dialogues with economic leaders of the nation's Communist Party.

It was one of the greatest experiences of my life. Personally, it was a chance to see the land of my ancestors and visit my mother's childhood home. Sociologically, it was a chance to see the Cuban "resolver" mentality at work—variously defined as getting by or making something happen (usually to obtain basic necessities or improvise a solution by repurposing scarce resources). Politically, it was a chance to witness a society that rests on principles diametrically opposed to those we follow in the U.S.

Most of all, professionally, leading the SHRM delegation to Cuba with Garcia was a chance to learn from business leaders—on both sides—about the potential for changing the Cuban state through economic development and foreign investment. What we learned from several of Cuba's political leaders and economists provided us with a roadmap for foreign investment.

Would-be tycoons should be aware that foreign investment in Cuba is limited by several factors, starting with the origins of the investment funds. Options for American enterprises are severely limited in comparison to the options for Canadian, Chinese and European enterprises. That said, here are some cautionary lessons.

  1. Partnerships are the starting point. The Cuban government has already identified a few U.S. enterprises for foreign investment (including Starwood and Carnival). It is not advertised, however, that foreign-funded ventures in Cuba are currently limited to these brands. Cuban officials will have conversations with anyone, but most conversations go nowhere. The preferred approach is partnerships with institutions that have mastered the relationship with Cuba.

  2. Tourism is everything. One would think that Cuba wants foreign investment in many areas. But, according to Ministry officials, the only sectors in which Cuba is seeking U.S.-based investment are tourism and hospitality. Cuba is not seeking investment in any other industries at this time. (Perhaps this will change over the next few years or after Raul Castro is no longer Cuba's leader.)

  3. "Paladares" are a different game. The "paladar," or privately owned small business establishment, is increasingly common in Cuba. (I can't tell you how many restaurants are serving pizza all over the island!) Havana alone now boasts more than 1,100 paladares—impressive when you consider that Cuba was once completely shut off to everyone but the Communist world. In these small business ventures, European and Chinese investors lead the way today; U.S. investors may lead the way in the future.

  4. Domestic brain drain is a real phenomenon. The most unusual factor affecting the Cuban economy in this new era of privately owned ventures is the issue of wages for skilled professionals—specifically, Cuba's (inadvertent?) incentivizing of professionals to not pursue the careers they were trained for. Let me explain. I met several servers and bartenders who had been educated as physicians or engineers (careers that the U.S. economy is struggling to incentivize individuals to enter). In the Cuban economy, once individuals earn advanced degrees as physicians or engineers, they have the opportunity to live abroad for two years, earning around 64 Cuban convertible pesos (CUCs) (approximately 55 USD) per month. When they return to Cuba, they are eligible for several career options, including work at a privately owned business. Given that these businesses are typically restaurants, where tips and monthly salary can add up to nearly 800 CUCs, the result is that highly educated Cubans return to the island and eschew their professional careers. They simply make more money not working as physicians or engineers.

  5. Wi-Fi is the most valuable commodity. Cuba is as industrialized as most western nations, but the one part of its infrastructure in greatest need is its information technology sector. Wi-Fi exists on the Cuban scene, but it is scarce—nothing like the reliable resource experienced throughout the rest of the world. Professors ration their Wi-Fi licenses and sell their remaining resources on the Wi-Fi black market. (Yes, that's a very real thing. At first, I thought the Wi-Fi scarcity was the government's attempt to limit the flow of information to the people; after all, they limit everything else.) Cuba will likely rely on Chinese foreign investment to build up its information technology infrastructure. But I hope this limitation will change over time, for everyone's sake.

  6. The future is bright (and it doesn't involve Manifest Destiny). Cuban citizens have a great sense of pride in their nation. For that reason, I do not foresee Cuba as Puerto Rico 2.0—it is unlikely ever to be a commonwealth, or to turn to full-blown democracy as practiced in the U.S. Cuba is far more likely to be "a socialist experiment in democratic practices," according to Professor Luis Palmeiro of the Universidad de La Habana. He shared his vision of socialist values supported by democratically elected leaders, once the Castro regime is over. I am somewhat skeptical but want nothing more than democracy to reign supreme, in Cuba's best interests.

Cuba is a land of opportunity, but one where the government poses the largest challenge. Navigating foreign investment will involve additional challenges, from human capital to social engineering. I foresee a nation likely to meld its social values with those of other societies creeping in from far and wide. Only time will tell; let's see where the future takes us. Until then, I marvel at the continued evolution of my "patria" with an even greater appreciation for the "resolver" mentality of my compatriots.

Alexander Alonso, Ph.D., SHRM-SCP, is SHRM's senior vice president, knowledge development & certification. 



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