What the New US-Cuba Agreement May Mean for Business

The recent announcement by President Barack Obama regarding the re-establishment of US-Cuba diplomatic relations has already caused quite a stir within the US economy. Along with the release of a US prisoner held in Cuba since 2009, the agreement between the two countries has allowed for easing of trade restrictions that have been in place since the two countries cut ties five decades ago.

Although the trade embargo that can only be lifted by the US Congress is still in place, President Obama’s announcement has given optimism to both US businesses with operations in Cuba and Cuban businesses with operations in the US. Following the announcement, the share prices of several US businesses linked to Cuba have already experienced increases.

Among the industries that may benefit the most from thawing US-Cuba relations are the rice and wheat industries. Although food was excluded from the trade embargo, it was still very difficult and expensive to complete transactions between the two countries. Despite the cost and difficulty, Cuba has imported hundreds of thousands of tons of meat, soy and corn products from the US. Early forecasts by US wheat companies suggest that with easier trade policies, Cuba could import over 500,000 tons of wheat from the US annually. A similar forecast for rice has been made, with Cuban consumption of rice potentially reaching as high as 700,000 tons per year, presenting huge opportunities for US rice companies.

Another industry that could greatly benefit from easing US-Cuba diplomatic relations is the real-estate industry. Although Cuba has yet to make internal reforms to its real-estate policies, the country is still home to valuable seaside properties as well as rural and urban properties in need of development.  Investors from other countries such as Canada and China are already heavily invested in Cuban real-estate. However, Cuban real estate still presents the classic trade-off for potential foreign investors, that is, high risk for high returns.

With US officials stating that easing US-Cuba relations are focusing more on benefiting business between the two countries rather than aiding the Cuban economy directly, US-Cuban businesses are optimistic. However, since the trade embargo is still in place and only removable by Congress, businesses should not be too quick to get their hopes up. Formal talks between the US and Cuba are to take place in January and it remains to be seen whether or not easing US-Cuba relations will be long-term or short-lived.

Kazutaka Miyuzumi
Kazutaka Mayuzumi is currently a 4th year undergraduate student pursuing a double major in Economics and Human Resources/Industrial Relations at the University of Toronto. His main research interests include: economic policy and macroeconomics, financial economics, and financial market structure. His other interests include the causes, impacts and results of financial crises, in particular the 2008 Financial Crisis. After completing his undergraduate degree, he hopes to pursue his Masters degree in Economics and to work at a central bank or other type of financial institution. During his leisure time, he enjoys browsing the web and catching up on events occurring around the world.