Should Tech Companies Invest in Cuba?

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cuba

In the aftermath of Fidel Castro’s rise to the top of Cuban politics, relations between the island-nation and the United States began to sour almost immediately. Just a year into his reign, Castro’s government “had seized private land” and “nationalized hundreds of companies”—including U.S. subsidiaries—according to a comprehensive Time article on U.S.-Cuban relations. Cuba also began taxing U.S. imports substantially, halving the amount of goods shipped there in two short years.

There was the botched Bay of Pigs invasion. As tensions continued to grow, President Kennedy decided to impose a trade embargo on Cuba (which still remains in effect today). Then came the Cuban missile crisis. The list goes on.

Suffice it to say, the relationship between the two countries has been tumultuous for the better part of a century. Making matters worse, the world community often cites the country as violating the human rights of its citizens.

Despite this history, the relationship between the United States and Cuba has begun to thaw during the presidency of Barack Obama. In 2014, the president announced his intention to reestablish a relationship with the Cuban government. In April 2015, Obama met with Cuban President Raúl Castro, marking the first time the two countries’ leaders would meet in more than half a century.

President Obama is poised to make history once again next week as he travels to Cuba for a two-day trip with his family. According to his official itinerary, the president will meet with dissidents and Cuban entrepreneurs (but not Fidel Castro, who stepped down from power in 2008).

Now that the U.S. and Cuba appear to be heading down a path of reconciliation, venture capitalists and other investors are doing their due diligence to see whether it makes sense to funnel money into the country. Some even already have their plans in place.

Should tech companies invest in Cuba? Companies like Stripe and Airbnb already are. Here’s what you need to know.

1. Cuba is a socialist republic.

Cuba is one of the last socialist republics in existence. According to Investopedia, the government owns all of the economy’s resources in a socialist state. It decides the “whats, whens and hows of production”—which is essentially why Cuba nationalized all those businesses back in the day.

In socialist societies, the needs of the masses are met. They have shelter; 90% of Cubans are homeowners (but what kind of homes do they own?). They have food.

But critics of socialist states argue there’s not really much incentive to work hard. The hardest-working professional ends up with the same share as the guy who sits on his ass twiddling his thumbs. This, of course, differs from capitalist societies, where workers are incentivized to work hard as their rewards can theoretically be infinite.

2. Its citizens are very poor.

According to its government, the average annual salary for a Cuban citizen is $5,539. But, using the limited data that is available to them, many analysts believe most workers only take home about $20 a month. The most recent statistics available (2014) peg Cuba’s GDP at a hair north of $80 billion—compared to the United States’ $17.3 trillion (trillion, with a t).

3. Less than 5% of Cubans have access to the Internet.

Though the country has made some strides in granting Internet access to its citizens in recent years, a vast majority of Cubans can’t get on the web. And even when they can, they often connect at rates that are 1,000x slower than the speeds Americans are used to. If the trade embargo ever got lifted, these numbers would likely shoot up. But to what extent is unclear.

4. Its citizens are old, and getting older.

Cuba is certainly not alone in having an aging population—we’re looking at you, Japan—but the country’s population is already old, and it’s projected to get a lot older over the next decade. Fewer people in the workforce puts a serious strain on public finances.

5. There’s a presidential election coming up—in case you haven’t heard.

It’s no secret President Obama had his eye on Cuba. Three months after taking office, he announced Cuban-Americans could send money to their family members on the island. They could also visit.

President Obama will no longer be America’s most powerful politician come Jan. 20, 2017. It remains to be seen who will replace him. It’s safe to say that a Bernie Sanders presidency would probably be accommodating to Cuba. (A Hillary Clinton presidency would probably be, too, because doesn’t she just copy everything Bernie says?) But what about a Donald Trump presidency? Or a Ted Cruz presidency?

It goes without saying the next president will play a huge role in determining the United States’ relationship with Cuba moving forward.

6. A majority of Cuban-Americans want normal relations.

Cubans used to flee the Castro regime in droves. When they became Americans, they looked at their homeland with disdain. But times have changed. Today’s Cuban-Americans, in large part, look favorably upon Cuba and want to establish normal relations with the country. These feelings are amplified amongst the younger generation.

7. There will definitely be investment opportunities.

As travel restrictions lighten, there will definitely be opportunities to invest in Cuba. The tourism and agricultural industries, for example, might be a good place to start. And if sanctions get lifted, U.S. telecommunications companies would have a prime opportunity to build infrastructure (assuming Cubans could pay for it—and the government doesn’t decide to nationalize that investment).

Companies are making moves in Cuba. Last year, Netflix announced its expansion there. But your Netflix feed already buffers. Could you imagine watching Netflix on an exponentially slower connection?

At the end of the day, VCs and companies simply need to weigh the pros and cons of any potential investments in Cuba. Such investments will likely carry a significant amount of risk. If you can stomach it—like Netflix, a company valued north of $43 billion obviously can—be my guest and pull the trigger.

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