UMass MBA student travels to Cuba for summer study
Trai Dang didn't have a thesis and he didn't speak the language — but he had work to do. He booked a flight to Havana and set off for a summer research project to learn what investing was like in the socialist island nation of Cuba.
"I ended up meeting with foreign businessmen, so my report is based on a foreign perspective," said Dang, who's pursuing a master's in business at UMass Dartmouth.
Because his initial contact person fell through, Dang had to quickly change his strategy. He spent time in the bar of the Hotel Nacional de Cuba, frequented by many international travelers, and interviewed four businessmen — a Finn, a Canadian, an Indian and a fellow Vietnamese.
Though he didn't report their names, they would form the content of his independent study, embodying for Dang the changes overtaking Cuba since President Raul Castro began opening Cuban markets to a degree unseen since the fall of dictator Fulgencio Batista in 1959.
Cuba has been shuttered to U.S. investment since President John F. Kennedy imposed an embargo in 1961. The Cuban economy was bolstered by a favorable trade relationship with the Soviet Union, but when the USSR collapsed in 1991, Cuba was forced to open certain sectors of its economy to foreign investment — like tourism and mineral extraction.
In spite of the potential risk of investing in Cuba, Dang learned that there are also incredible rewards for those willing to invest.
The Finnish man Dang interviewed owned a travel agency in his country. He told Dang that although joint ventures with the Cuban state only allow foreign companies to own a 49 percent stake, it's worth it for the high return.
"When you want to do business with Cuba you have to follow (the rules) in forming a joint venture," Dang said. "The Cuban counterpart wants to own 51 percent, so they're making all the decisions, they have control of the joint venture."
The Finn told Dang that the Cuban hotels only offer three and four-star service, but charge a five-star rate.
"So that's how they make money, and they're making a lot of money in the short term, so they don't care about the long term. They're not afraid of the government taking away their property — they just make too much money."
In 2011, Canadian investor Sarkis Yacoubian was arrested for allegedly bribing Cuban officials — this year he was sentenced to nine years in prison. But even stories like that do not deter many, Dang found.
The Indian businessman Dang encountered has investments in Canada, India, Puerto Rico, Vietnam, in addition to Cuba, where he reported his highest rate of return.
"I asked him, can you do business in Cuba without bribery? He said yes, absolutely, as far as he knows it's the least corrupted country in Latin America."
Dang's fourth interview was with a compatriot who discussed the Cuban real estate market.
"He said (prices are) declining," Dang said. "Which surprised me again because it's such a young market. The government just allowed people to buy houses about two years ago."
Prior to that, homeowners had to trade homes and the difference in prices would be exchanged under the table. Now, he said, the government charges 4 percent on the transaction.
"I asked him why it's declining, and he said despite the government efforts to loosen up the market, people still want to leave the country," Dang said. "So you don't have any major source of cash, because Cubans make like $20 a month"» Now they can sell their house for real cash, so everybody's leaving (and the market is saturated)."
That's just one among a host of changes implemented by the younger Castro since he took the reins of the one-party state. Prof. John Kirk teaches in the Spanish and Latin American Studies department at Dalhousie University in Nova Scotia. He's visited Cuba several times a year since the mid-1970s, and he says Cuba's economy has changed more in the three years than it has over two decades.
"The bottom line is that the economy has been reforming," Kirk said. "It's opening up and is continuing to open up."
Kirk said Raul Castro has opened up nearly every sector of the economy, which were previously restricted to sectors like tourism and extraction.
Cuba's status on the international stage has shifted dramatically in recent years. Kirk noted that when the U.S. placed the embargo on Cuba, every country in the Western Hemisphere (save Canada and Mexico) followed suit. Now the entire world is against the embargo, as evidenced by a 2012 U.N. resolution condemning the embargo signed by every country except the U.S., Israel, and Palau — a U.S. proxy state with a population of 21,000.
Dang, a second-year MBA student and head of the UMass Dartmouth MBA students association, said he chose to study Cuba because of the parallels with his native Vietnam. Both countries have had strained relations with the United States, and both began reopening their markets in the 1990s.
But Vietnam went further in liberalizing trade than its Caribbean counterpart, Dang noted. And there was another key difference — the U.S. lifted its embargo on Vietnam two decades after the war ended in 1975, while the Cuban blockade remains in place after more than 50 years.
Dang said the Vietnamese economy turned around after relations with the U.S. were normalized, and he imagines the same thing happening in Cuba.
Dang asked his Canadian source whether the embargo ought to be lifted. The answer caught him by surprise — the Canadian didn't want that to happen.
"That surprised me because when I came there I had this assumption that people who do business in Cuba, they buy the asset, they wait and wait and wait until the embargo is lifted, then they sell it to Americans," he said.
"They're making so much money, they don't want the competition from Americans."
Asked if the Cubans want the embargo to end — a common refrain of the Cuban government — Dang said that he didn't talk to many Cubans, and the ones he did speak with didn't want to discuss the embargo.
Jaime Suchlicki, director of the Institute for Cuban and Cuban-American Studies at University of Miami, left Cuba after the 1959 revolution. In order for the U.S. to lift the embargo against Cuba (and he doesn't think it will happen under the Obama administration), Suchlicki said Cuba should be required to exchange domestic reforms.
"No country gives away their foreign policy without something in return," he said. "In Iran we want them to end the nuclear program. In Cuba we're looking for change — we want respect for human rights."
Unlike Prof. Kirk, Suchlicki is doubtful that the free market reforms of Raul Castro will result in serious change.
"Raul is not moving Cuba to capitalism," he said. "He's not creating a Chinese model or a Vietnamese model. He is adjusting to prevent a massive uprising."
Dang's overall sense was different. He saw a Cuba that was moving in the direction of opening its markets, and he thinks it can't be reversed.
"If you want a recommendation, I think the potential is there (to invest), but you need to go there first, establish some connections now."
Those who wait could miss the chance.
"I have a feeling that in the next three or four years there will be a major change in the U.S.-Cuba relationship, so if you wait that long you might miss out on the opportunity to buy everything at a cheap price," Dang said.
"If you're thinking ahead, you'll go there and establish your business there right now."
Prof. Bharatendra Rai, dean of Decision and Information Sciences at the UMass Dartmouth Charlton College of Business, oversaw Dang's work. He underlined the educational importance of travelling.
"If you look at Steve Jobs, before he founded Apple, how much traveling he had done," Rai said. "He went to the East," to India.
"Traveling is a good way of learning many things ... You become a more balanced person."