Splashy announcements

Expect splashy announcements but no flood of trade from Obama's trip to Cuba

By Victoria Guida

While some big business deals with Cuba are expected to be announced this week during President Barack Obama’s landmark trip to Havana, a flood of U.S. investment is unlikely for at least another year or two.

And that’s if things go well.

That’s because Congress must still end the U.S. embargo, a process that will be a heavy political lift— too heavy for Obama's final year in office and made heavier by the fact that Cuban President Raul Castro, whose last name still inspires animosity, is still in office. The 84-year-old won't step down until 2018.

Cuba, meanwhile, maintains strict control over investments in the country and requires any foreign businesses to partner with a state-owned monopoly to sell to the Cuban people. Those business practices are deeply intertwined with the regime's communist philosophy and economic reforms are happening painstakingly slowly.

Ticklish questions also remain about compensation for thousands of individuals and companies whose assets were seized after Fidel Castro came to power and the ownership of Guantanamo Bay Naval Base.

But for next week, the administration and U.S. businesses will be basking in the progress so far; the mere fact of Obama's visit to this long-isolated Communist nation would have seemed unimaginable just two years ago.

“This is not the time to be working out multi-layered incredibly complex issues, but this kind of visit can ignite or reignite the process to actually get at them,” said Mark Entwistle, a former Canadian ambassador to Cuba.

The U.S. this week further loosened regulations on trade and travel with Cuba to pry open space so that deals could go through during Obama’s visit. Those deals in the telecommunications, hospitality, renewable energy, health services, agricultural technology and transportation sectors will be significant -- whether symbolically, as a harbinger of more such business to come, or monetarily.

One of the biggest announcements could come from AT&T, which is in talks with Cuba to expand equipment and infrastructure for cellular roaming services, following on a similar agreement between Sprint and the Telecommunications Company of Cuba in November. Such a deal would also allow for the proliferation of Internet hotspots on the island, a U.S. business source told POLITICO. Internet connectivity has been pushed by the Obama administration as a way to empower average Cubans.

Good news for U.S. travelers, meanwhile, could come in the financial services sector. Stonegate Bank, the one U.S. bank allowed to operate in Cuba, struck a deal with the government in November to provide MasterCard debit cards for American travelers to the island. The U.S. business source said if Stonegate is allowed to open up an office in Cuba -- and industry groups are hopeful they will be -- it could open the door to issuing credit cards, pave the way for other banks and make it simpler to use dollars on the island.

The Department of Transportation could also announce more airline routes to Cuba, following U.S. regulations that allow Americans to travel there on their own, rather than as part of a group, for educational purposes.

Hotel chain Starwood will benefit from that travel surge; the company struck a deal Saturday with the Cuban government to manage three hotels, making it the first U.S.-based hotel chain to gain permission to operate on the island in almost 60 years.

Two Cuban hotels, Hotel Ingaterra and Hotel Quinta Avenida, will be managed by Starwood, with the former joining The Luxury Collection and the latter becoming part of the Four Points by Sheraton line, a Starwood press release said, adding that the hotels will first be renovated before reopening later this year. Starwood has additionally signed a letter of intent to change Hotel Santa Isabel into a member of its Luxury Collection.

Marriott is reportedly working on its own deal.

A couple of cruise lines are also close to signing deals, though construction work has had to be done on the port of Havana. The ships could also double as temporary floating hotels, the business source said.

But all of these deals have had to be calibrated to meet the regulatory constraints on both sides. And not all of them may come together in time for the visit.

“I think that they will be able to make at least two of them happen,” said John Kavulich, president of the U.S.-Cuba Trade and Economic Council.

The outstanding claims for compensation held by U.S. companies — many of which have changed hands multiple times over more than 50 years — will need to be resolved to increase certainty, said National Foreign Trade Council Vice President Jake Colvin. Banks and potential investors always worry that any deals they do will somehow be wrapped up in that litigation.

U.S. nationals hold a total of about $1.8 billion worth of claims, or nearly 6,000 individual actions, which have been certified by the Department of Justice. Cuban nationals also have their own outstanding claims against their government. While Cuba acknowledges that it owes money to those whose assets were expropriated, it rejects the valuation. Contributing to the deadlock is the fact that Havana claims the U.S. already owes Cuba between $800 billion and $1 trillion in damages due to the trade embargo.

Entwistle said even a commitment to advance that issue would be significant, though the U.S. business source said the two governments have already had preliminary conversations on how to resolve the issue.

White House Deputy National Security Adviser for Strategic Communications Ben Rhodes said on a press call that the two sides would also discuss how they could continue opening up commerce. “Just as we pursue regulatory changes, there are steps that the Cuban government can take to make it easier for international businesses to operate, make it less cumbersome, again, to operate, and to have our businesses engage directly with the Cuban people.”

Havana did that only a couple of days ago by announcing it would lift the 10 percent penalty on dollar conversions, an apparent response to the U.S. decision to allow transactions originating in Cuba to pass through U.S. financial institutions. Cuban Foreign Minister Bruno Rodriguez Parrilla told reporters that his government will attempt to make a series of international financial transactions in the coming days, and if they work, the surcharge would be lifted, according to the Associated Press.

In the short term, any changes from the Cuban government are likely to come out of the Communist Party’s seventh congress, scheduled next month, Kavulich said.

Some of the more likely actions could provide more space for private companies to be established and grow.

But whatever the two sides cover in their meetings next week “may not become clear before, during, or after the party congress,” he said. And sources generally agreed that Cuba would never directly attribute any of its actions to something that came out of conversations with the U.S.

“They’re basically each backing into one another, looking over their shoulders to make certain that they hit,” Kavulich said.