Cuba Poised to Capitalize on Economic, Energy Opportunities
After Fidel, Cuba Poised to Capitalize on Economic, Energy Opportunities Carmen Gentile | Bio | 22 Feb 2008 World Politics Review Exclusive MIAMI -- A post-Fidel Castro Cuba, led by Fidel's younger brother Raúl, appears poised to open itself up to limited foreign investment under the close supervision of the communist island's military, which controls much of the economy, according to experts. The island nation's energy resources hold particular economic potential. During the last 19 months, in which Raúl Castro has acted as Cuba's "interim leader," little has changed for average Cubans, who continue to face shortages of food and basic necessities. However, the 76-year-old brother of Cuba's long-time "Commandante" has sought new deals with resort developers from Canada and Europe in hopes of improving the country's tourism sector -- Cuba's most profitable asset -- and spoken of improving relations with its Cold War rival the United States. Chris Simmons, a former Defense Intelligence Agency Cuba analyst, predicts that in the coming months Raúl will extend an olive branch to Washington by suggesting the countries exchange military attachés. Simmons said such an exchange proposed by Raúl would "opens a door to other things" like possible talks on how to end nearly 50 years of Cold War hostilities. Advocates of ending the U.S. trade embargo against Cuba would surely see the merit in an attaché exchange Kirby Jones, director of the U.S.-Cuba Trade Association, laments that the United States is already "late to the dance" when it comes to investing in the Cuban economy, noting the inroads countries like China, Brazil and Italy have made in the oil, ethanol and telecommunications sectors, respectively. "Cuba has not and is not standing still ," said Jones. "As soon as people realize that, then they can begin dealing with the reality." As Cuba's defense minister during Fidel's 49-year reign, Raúl has played an increasingly integral role in running the country's economy. Cuba's military is believed to control many of the country's most important sectors, including tourism, portions of the agriculture sector --like the sugar industry -- areas of mining, as well as parts of Cuba's retail sector. The military is also said to control about 90 percent of the country's exports, making Cuba's generals the country's most prominent business leaders, according to some Cuban military analysts. However, according to Frank Mora, a professor of national security strategy at the National War College, the actual extent of the Cuban military's control over the economy is impossible to know considering the lack of transparency in most sectors. "There is no way of calculating with any confidence the degree to which the Cuban military controls the economy," said Mora. What is certain is that, after the collapse of the Soviet Union, Cuba was forced to fend for itself following decades of subsidies totaling $19 billion a year. It was then that the military started taking over certain sectors of the economy. And with Raúl taking on the dual role of military and economic leader, some analysts say he very may well reexamine decades of failed economic policies and consider free-market reforms not unlike fellow communist regimes China and Vietnam have pursued. John Kavulich, senior policy advisor at U.S.-Cuba Trade and Economic Council, disagrees. He does not believe that Cuba is likely to open its market, particularly when it pertains to U.S. business interests. "The government doesn't need the United States, commercially, economically or politically to keep the status quo," said Kavulich, noting the strong ties Cuba already enjoys with China and Venezuela. Real reform for Cuba's antiquated, albeit growing economy, could prove to be Raúl's greatest challenge if he remains in power, as Cubans will expect him to fix what ails the country domestically: namely housing, food and energy shortages. The military's economic wing, known as the Business Administration Group, has done more than $1 billion a year in business since 2000 through its state-owned enterprises, accounting for a reasonable portion of the country's GDP, estimated at more than $45 billion in 2007, according to the U.S. government studies. A New Energy Frontier? Meanwhile, new foreign investment and revitalized old partnerships in recent years have contributed to the country's economic growth. Increased investment from fellow Latin American countries, which once showed little interest in Cuba's state-controlled economy, has transformed the country into a new frontier for oil and ethanol production. Cuba could very well become the center of a regional, even global, bidding war for its energy assets. According to the U.S. Geological Survey, some 4.6 billion barrels of crude oil and 9.8 trillion cubic feet of natural gas may be lurking below the ocean floor of the Northern Cuban basin. That kind of crude would more than meet Cuba's daily oil demand -- about 205,000 barrels -- and provide enough excess to transform the country from being deeply dependent on discounted Venezuelan oil to a global player on the oil market. Last month, Brazilian President Luiz Inácio Lula da Silva met with Raúl Castro to sign a deal that would give Brazil's state-run oil firm Petrobras access to Cuban waters, where it hopes to begin drilling in the next two years. China and Venezuela have also expressed interest in exploring the basin. Competition for Cuban oil -- coupled with Brazil's desire to help return full-scale sugar production to Cuba for ethanol -- could sour relations between Raúl and Venezuelan President Hugo Chávez. The leftist Venezuelan leader, who forged a closed bond with Fidel in recent years, has been an ardent critic of ethanol, saying its production would increase food prices and amount to a hardship tax on the poor. Were Raúl to move forward with plans to bolster ethanol production in Cuba, it could prompt Chavez to threaten to reduce, or even cut off, oil supplies, said Jorge Pinon, a researcher at the Institute for Cuban and Cuban-American studies at the University of Miami. "Cuba's reliance on Venezuelan oil is the country's Achilles heel," said Pinon. Just how Raúl will manage his newfound responsibilities and competing economic suitors will be worth watching in the months, and possibly years, ahead. Carmen Gentile is a freelance journalist based in Miami, and a frequent World Politics Review contributor.