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For US businesses, first glimpse inside Communist Cuba is daunting

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Alexandre Meneghini/Reuters

(Read caption) Tourists ride in vintage cars in Havana last month.

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American businesses eager to invest in Cuba are getting a taste of what it is like to do business on the Communist island.

It’s a bracing reality check.

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A year and a half after President Obama announced the normalization of diplomatic relations with Cuba, business ties are accelerating.

In tandem with Mr. Obama’s visit to Cuba, Marriott Hotels received a green light to invest on the island, Western Union flagged its intentions to expand there Monday, and Starwood Hotels & Resorts Worldwide announced a multimillion dollar deal to manage two properties in Havana. The president himself announced that Google has a deal to begin providing the Cuban people with Wi-Fi and broadband Internet.

That’s remarkable progress, say experts. And there is promise for much greater ties in infrastructure and agriculture. But companies who already have a foot in the front door are coming face-to-face with the Byzantine world of Cuban regulations.

When it comes to moving US-Cuba economic relations forward, the focus is usually on the US trade embargo. “The Cuban side is not mentioned so much,” says Stephan Meier, an associate professor at Columbia School of Business who just returned from a one-week visit to Cuba.

But it is a uniquely challenging environment. For example, the Cuban government doesn’t allow foreign hotel investors to hire their own staff based on merit. Instead, they need to choose from one or two preselected candidates whom they are not allowed to fire if they underperform, he says. They are also not allowed to incentivize performance with pay.

“If you want to operate a hotel, one of the biggest problems if you manage a hotel is around the hiring of staff,” Professor Meier says.

The regulations are a clear impediment to robust investment in Cuba from US businesses. 

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"To some extent, it would be presumptuous of us, for a single company, to come down and say, 'We must make demands that you change your approach,' " Marriott CEO Arne Sorenson told USA Today. "But I do think we can have conversations with them and say, 'Let's explore how we can evolve this process to make sure these great jobs get created.' "

Still, the interest is there.

“American businessmen have been flocking to Cuba over the last 18 months,” says Frank Mora, director of the Kimberly Green Latin American and Caribbean Center of Public and International Affairs at Florida International University.

From the US government’s point of view, increasing the flow of Americans to Cuba will help increase commercial and trade ties, says Professor Mora, Professor Mora, who was deputy assistant secretary of Defense for the Western Hemisphere from 2009 to 2013. “When I worked in the administration, we were focused on the people-to-people relationships.”

The investment floodgates won’t truly open, however, until Congress agrees to lift its embargo.

Mora believes it will inevitably happen, but how soon will depend on the outcome of the presidential election in November.

There is already some bipartisan support for Obama’s thawing of Cuban relations and a lifting of the embargo. This is especially true among Republicans whose constituents have businesses that would benefit from an expansion into Cuba. A poll released Monday showed that a majority of Americans support lifting the embargo.

“My estimation is if it is Hillary Clinton wins the presidency in November, it will happen sooner rather than later,” Mora says.