New Moves Could End Investment Slump

Article Published in The Miami Herald

The diplomatic thaw between Cuba and the European Union has received lots of attention, but its impact is not likely to be dramatic.

Official contacts will resume and European contacts with Cuban dissidents will continue. European aid to Cuba will remain a dim possibility, blocked as ever by Cuba’s human rights practices.

Of greater importance is a Cuban strategy of international economic alliances that may render ineffective the new sanctions that are at the core of President Bush’s policy to force Fidel Castro from power.

Cuba’s strategy has borne fruit in recent months. It shows that Castro, like him or hate him, remains nimble even at age 78 – and not only because he got back on his feet seven weeks after fracturing his kneecap in eight pieces. His new moves could end an investment slump and decisively boost Cuba’s economic health.

Oil. For more than a decade, Cuba has worked to interest foreign companies in offshore oil exploration opportunities. After failed attempts by French and Brazilian companies, Spain’s Repsol discovered high-quality oil last summer, but it was not enough to be commercially viable. Last December, two Canadian companies, Pebercan and Sherritt, struck offshore oil 35 miles east of Havana. This new field is estimated to hold 100 million barrels – the equivalent of more than three years of Cuba’s current oil imports. Production could begin this year. Separately, a Chinese company has entered a joint venture to produce oil in western Cuba, and other companies from China, Brazil, and Malaysia are exploring oil opportunities.

China. Last November, Chinese President Hu Jintao visited Havana and announced new credits and aid for Cuba’s schools, hospitals, agriculture, and other sectors.

But the heart of his visit involved nickel, the hottest opportunity in the Cuban economy. Cuba has the world’s third largest nickel reserves, demand is high, and the price is up 166 percent in the past seven years. China will modernize a mothballed Soviet-era plant and exploit an untouched nickel deposit in Camaguey. Its investments could nearly double Cuba’s output of nickel, a commodity that brought $1 billion in revenues last year.

Venezuela. After Hu departed, Venezuela’s Hugo Chavez visited Havana in December to strengthen economic ties. In addition to continuing cut-rate oil sales to Cuba, Venezuela plans to modernize an idled oil refinery at Cienfuegos in partnership with Petrobras of Brazil. Venezuela will also invest in a new thermoelectric plant at Mariel and supply coal to fuel China’s planned nickel operations.

Iran. On January 17, Iran granted Cuba a 20 million Euro credit for energy, water, agriculture, and other projects. Cuba is selling pharmaceutical products to Iran and is assisting Iran in pharmaceutical production.

What do these deals mean?

First, unfortunately, Havana is not expanding the economic reforms of the 1990’s, such as self-employment and free-market sales of farm products. Strengthening the state sector takes priority.

Second, Cuba still has economic options, and they seem to have increased with the leftward turn of some Latin American governments.

Third, not all potential investors in Cuba are spooked by U.S. sanctions. By barring American investors and deterring many Europeans, our sanctions seem to invite the world’s less savory regimes to establish a long-term presence in Cuba.

Finally, Cuba’s new economic partnerships will blunt the impact of Washington’s new sanctions, which aim to block up to $500 million from an economy that grows, by Administration estimates, by $835 million per year. New oil or nickel revenues alone would make the sanctions’ impact on the broad Cuban economy barely noticeable.

As a result, the only strong impact will be felt by Cuban families who no longer receive visits, packages, or cash aid from their loved ones in America. It’s hard to imagine that was President Bush’s intention.

Peters is vice president of the Lexington Institute in Arlington, Va.