Cuba’s new port offers a small opening to the global economy

October 3, 2013 6:00 pm

Cuba's new port offers a small opening to the global economy
By Marc Frank in Havana

Mariel container terminal is part of a larger scheme that will take over
all the facilities at Havana's ageing port
When Havana hosts its annual international trade jamboree next month,
officials will be sure to tout Cuba's new container terminal and
free-trade zone – the communist island's first strategic push to join
the international economy in decades.
Furthermore, although Havana usually treats the trade fair as a chance
to thumb its nose at the US, this year the new port may change the usual
playbook. That is because the ambitious $900m scheme, built at Mariel
port on Cuba's northern coast and just 120 miles from Florida, seems
predicated on an end to the 53-year-old US embargo.
As there is no sign of that happening soon, despite some signs that Cuba
wants a more pragmatic relationship with the US, analysts say Havana
will instead have to count on friendly governments in the region and
Asia to compensate for this apparent hole in the project's business
model – at least during its first phases.
"The United States is the obvious market for Mariel's FTZ exports and
trans-shipments," said Richard Feinberg, senior fellow at the Brookings
Institution and author of several Cuban studies. "In the meantime,
friendly governments, such as Brazil, Mexico, China, and Singapore, may
incentivise modest investments by their firms."
The Mariel container terminal, built by Brazilian construction company
Odebrecht, part-financed by Brazilian development loans and operated by
Singapore's PSA, is part of a larger scheme that will take over all of
the facilities at Havana's ageing port, and see the Havana Bay
transformed into what could be a spectacular tourism and recreational
playground.
But it also reflects broader changes sweeping the Caribbean and American
seaboards.
The widening of the Panama Canal is prompting many regional port
authorities to upgrade facilities in order to accommodate larger
container ships. Mariel's bay has been dredged to accommodate ships with
twice the draft of the Havana port, while Mariel's port itself, 28 miles
from the capital, will have 700m of berth and capacity of up to 1m
containers, three times Havana's.
"Bigger ships will need to make more use of transshipment to fill them,
and so we see a growth in transshipment activity in Panama and in the
Caribbean basin," said Neil Davidson, senior analyst of ports and
terminals at London-based Drewry. "Cuba is well located to take part in
this, but to do so needs a deeper port."
Despite the embargo, most experts agree the first phase of the plan is a
good one, with two provisos. First, transshipment is a price-sensitive
business, and Cuba's Mariel will have to compete with efficient existing
hubs, such as those in Panama and Kingston, Jamaica. A further
complication is that the embargo forbids ships entering US waters if
they have berthed in Cuba over the past six months. (One exception is US
food imports to Cuba, exempt from the embargo under a 2000 amendment.)
Second, enticing investors to set up in the free trade zone will be a
harder challenge than just attracting ships to use its container facilities.
"The big attraction of a FTZ . . . is that cargo is landed ashore, work
is carried out, such as assembly and packing, and this creates wider
economic benefits," Mr Davidson said. But "establishing an FTZ is a
tougher job as it requires companies to put down roots, and once again
the US embargo is a key challenge."
Cuba says the zone is the first of several across the country that will
increase exports, spur high-technology projects, and create jobs. It
also forms part of a broader push to encourage foreign investment, even
if that initiative has been honoured more in the breach than in observance.
That may change under the new rules governing FTZ investment, although
western diplomats and businessmen say that, while a step forward in a
hostile investment climate, the regulations still fall short.
Cuba "isn't like other places where all, not just some of, the rules are
clear and standard across the board," said one foreign investor, who
asked that his name not be used. "Every deal will have to be negotiated."
A common complaint also remains unaddressed: employers must still hire
and fire through a state-run labour company, which drives up costs and
potentially hurts Mariel's attractiveness.
"Labour costs will be twice what they are in the Dominican Republic," a
western economic attaché said.
Furthermore, investors will still face Cuba's complicated approvals
process, tough supervision, high communication costs and conflict
resolution through state entities, unless stipulated otherwise in
contracts, all of which could hold back the country's biggest single
investment since the fall of the former Soviet Union.
"Everything that has been going on here since Fidel Castro took ill has
been a work in progress, including relations with the United States,"
one foreign banker operating in Cuba said. "Mariel is no exception. Only
time and plenty of tweaking will tell if it is truly a success."

Source: "Cuba's new port offers a small opening to the global economy -
FT.com" -
http://www.ft.com/cms/s/0/bc2f5a54-2ab5-11e3-ade3-00144feab7de.html