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 A French doctor, venture capitalist and founder of biotech company
Abivax, Pouletty is working with Cuba's Center for Genetic
Engineering and Biotechnology to develop a therapeutic vaccine to
treat chronic Hepatitis B that could be on the Asian market in two
years and in Europe after that.
But when he pitched the idea of floating a company on the
pan-European stock market Euronext with the Cuban state as a
shareholder, that was clearly too much, too soon.
"I told him in a half serious, half joking mode, that I had a
capitalist proposal," Pouletty said of his conversation with Cuban
revolutionary leader Fidel Castro's eldest son, Fidel Castro
Diaz-Balart, a science advisor to the government.
"His response after more than 30 seconds was 'That's indeed very
intriguing, but if you want us to reach an agreement quickly, that's
not the fastest route. It's a few years too soon.'"
Instead, Abivax agreed to buy vaccines at a predetermined price and
pay royalties to Cuba when the product is on the market.
Pouletty's story offers a peek into the mindset of Cuba Inc.
Convinced their country needs capital, Cuba's leaders are welcoming
businesses under a foreign investment law passed a year ago, but
they want tight control over the pace of change.
U.S. business interest in Cuba has exploded since December, when
President Barack Obama and Cuban President Raul Castro announced
they would restore diplomatic relations after decades of hostility.
"In the morning on Dec. 17, Cuba was still a word spoken in U.S.
business circles with hushed tones. By the afternoon, half of
corporate America was rambling around forming a Cuba team," said
Mark Entwistle, a former Canadian ambassador to Cuba and now a
partner at Toronto-based merchant bank Acasta Capital who advises
companies interested in Cuba.
Among those joining a recent New York state delegation to Cuba were
executives from JetBlue Airways Corp <JBLU.O>, Pfizer Inc <PFE.N>
and MasterCard Inc <MA.N>.
Most U.S. companies are still blocked by the 53-year-old trade
embargo, although Obama has relaxed it for some imports, travel and
telecommunications. That has allowed for minor deals such as Netflix
<NFLX.O> streaming movies in Cuba and Airbnb listing Cuban rental
properties online.
If Obama can convince Congress to end the embargo, U.S. firms would
be free to do business here, though they would still face major
obstacles, including a multi-layered bureaucracy, an unpredictable
legal system and highly regimented labor market.
Many foreign companies have thrived over the years. They run hotels,
build ships, refine oil and pack meat. Some have a share in bottled
water, beer, soda, rum and cigar businesses.
Canada's Sherritt International <S.TO> is perhaps the most vested.
It has been here since 1992 and generated 73 percent of its C$1.136
billion revenues in 2014 from Cuba-related businesses.
Sherritt mines nickel in Cuba and refines it in Canada in a 50-50
joint venture with Cuba's government. It also produces 20,000
barrels per day of oil that it sells to Cuba and has a one-third
interest in an electricity joint venture.
Even in a business subject to price swings, Sherritt says it has
always made a profit or at least broken even with Cuban nickel.
"We would tell others that Cuba's a great place to do business,"
said Sean McCaughan, vice-president for investor relations, even
though the embargo means top Sherritt executives are banned from
setting foot in the United States and the company is cut off from
U.S. capital markets or shipping through U.S. territory.
Other companies have failed miserably in Cuba and were forced to
leave or had their executives imprisoned and their assets
confiscated. Petty bribery can land people in jail.
And at least one billionaire real estate mogul came away from a
recent trip to Cuba unimpressed.
"I didn't find there were lot of great opportunities. It was like
going back in time," Stephen Ross, chairman and founder of The
Related Companies, told CNBC television. "You need a government that
really wants change, that really wants business, and really wants to
see growth, and you don't really have any of that feeling at all."
LISTEN AND ADAPT
Those who have been successful have simple advice: be flexible and
listen to Cuban officials, because they will tell you exactly what
they want.
"There are foreigners who come here with an attitude of superiority.
In other words, 'We're going to show the Cubans.' In general, those
are the ones who fail spectacularly," said Alexandre Carpenter,
co-president of cigarette-maker Brascuba, a joint venture between
Cuba and the Brazilian subsidiary of British American Tobacco.
There is no escaping the state's central planning. Foreign firms in
joint ventures must order raw materials a year ahead of time.
Property is leased from the state, it is not up for sale.
Cuba regularly draws up a portfolio of projects it wants foreigners
to help with. The latest one, issued in November, outlines 246, most
of them joint ventures, that need investments totaling $8.7 billion.
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In one of the most attractive sectors, tourism, the portfolio lists
five hotel construction projects; two golf resort developments; and
contracts to manage 33 existing hotels.
But the government rarely tries to force its Marxist ideology on
foreign partners as long as Cubans do not get rich.
"To the contrary. They demand that the business grow and generate
more profits every year," Carpenter said.
One of the largest foreign firms in Cuba is Brazil's Odebrecht [ODBES.UL],
which built a $900 million port at Mariel, the centerpiece of an
economic development zone designed to attract capitalist ventures
with a more liberal import-export regime.
Odebrecht wants to build a plastics factory there and it also has
deals to expand Havana's international airport, operate a sugar
refinery, and build two hotels.
Mauro Hueb, head of Odebrecht's operations here, says the advantages
of operating in Cuba include an educated, low-cost workforce and low
logistical costs, and that to take advantage a company needs to
learn and respect local customs.
"You have to have the capacity to adapt," said Hueb. "Here in Cuba,
we consider ourselves a Cuban company."
Other successful ventures, some with U.S. stockholders, include
Sherritt and French builder Bouygues . Swiss conglomerate Nestle has
a bottled water and soft drinks business. Spanish hoteliers Melia
Hotels International, Iberostar and NH have established
footholds in tourism and global beer giant Anheuser-Busch InBev <ABI.BR>
brews Cuban suds.
SOVIET COLLAPSE
Cuba's communist government first opened to international firms in
the 1990s amid economic crisis caused by the collapse of the Soviet
Union, its main ally and benefactor.
Results have been mixed. Cuba says around 60 percent of foreign
investment projects begun since the 1990s have had to close.
Sometimes it kicks foreign partners out, saying they failed to live
up to their side of the deal. Sometimes the companies leave on their
own.
The corporate landscape is still sparse, with only around 100 direct
investment projects and a similar number of deals in which
foreigners manage a Cuban company without an equity stake.
While U.S. firms hope the normalization of relations and economic
reforms under way in Cuba will improve the investment climate,
experts say change will be gradual.
For years, foreigners' biggest complaints have been the lack of
control over labor, the uncertain legal environment, and the
multiple layers of bureaucracy to get a project approved.
"Forget owning a piece of the rock. The most you can hope for is a
50-50 venture with a state-run partner," a European economic attaché
said. "And that will be the exception. The rule remains a minority
interest."
British-Dutch consumer goods giant Unilever became the first
major corporation to enter Cuba after the fall of Soviet communism.
Desperate for hard currency and consumer products, Cuba agreed to a
50-50 venture on a factory complex but when the 15-year deal came up
for renewal it insisted on majority ownership. Unilever left the
country although it is now in discussions on returning, several
sources familiar with the talks said.
When business goes wrong, it can be dire.
An extreme example is that of Canadian businessman Cy Tokmakjian,
who served three years in jail for bribery and other charges before
being freed in February.
Tokmakjian had done business in Cuba for 20 years, then suddenly was
arrested in 2011 and his company shuttered as prosecutors accused
him of wooing officials and their families with gifts. His company
called it a "travesty of justice".
Stephen Purvis, the former development director of British
investment fund Coral Capital who built hotels and planned a golf
course in Cuba, was arrested in 2011 in a crackdown on corruption.
Purvis said he was falsely accused by a rival, interrogated for five
days, and denied a lawyer for a month. He was eventually deported
after being convicted on a minor charge.
"There is a virtual 100 percent conviction rate," Purvis said. "Once
detained you will be charged and found guilty. It's just a question
of what for."
(Reporting by Daniel Trotta and Marc Frank; Editing by Kieran
Murray)
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