Time is winding down for the World’s Dictators Club. According to PlanetRulers, in a world comprised of 196 sovereign nations, there are currently 47 run by Dictators in authoritarian regimes. That’s down from 60 back in the early ‘70’s. So we’re moving in the right direction.
But it’s not good enough.
The world is being awoken and all of the dominoes are in play. People desire freedom and an opportunity to shape their own destiny. Aside from disenchanted henchmen, the worst enemies of a dictator are a young population with technology & knowledge but no jobs.
The "Arab Spring” is a case in point with 5 dictators having fallen since 2010, with several more currently being contested. All a function of young educated disaffected populations using social media. The status quo is unacceptable.
The latest example, Communist Cuba, is now taking centre stage. Obama has put forth a recommendation to remove the trade and travel restrictions for Americans dealing with Cuba. And the first step forward, according to the US Congress, is that Cuba and the USA must settle on a value exchange for the illegal seizure of real estate and businesses back at the beginning of the revolution. Assets that were once valued at approximately $100M in 1959, are now burgeoning on a valuation of $7B. For patient investors, if this all settles well, it would be like Communism never existed in Cuba.
Fast forward 60 years and all of those properties and business interests are now ‘in play’. Yet, the clock is ticking down towards the U.S. presidential elections of November 2016. After that, a potentially less-Cuban-friendly regime may take the place of the current administration. Obama’s plan immediately boosted the shares of some companies that lay claim to ownership rights in Cuba. The Herzfeld Caribbean Basin Fund, a closed-end mutual fund oversees $45 million in assets with a Cuban connection and has now risen 25% since the announcement. Its top holdings are airline Copa Holdings SA and Coca-Cola Femsa SAB, the world’s largest Coke bottler.
Cuba also needs oil. The economy of their main supplier, Venezuela is faltering and supplies need to be procured from other sources. Perhaps the USA may be a supplier of choice, if the US Congress repeals a law that prevents US companies from exporting oil. The life blood of a nation is a sustainable energy supply and is a matter that sits heavily on the minds of Fidel and Raul. Although they have outlasted the administrations of 10 US Presidents, as senior citizens, their clocks are also ticking. Issues of pure economics may finally out-trump these die-hard Marxists.
Beyond this, Cuba just needs a whole lot of capital. The infrastructure is beyond derelict. A thawing of relations will bring that capital.
So, is this an investment opportunity for the retail investor?
The first waves of capital will most likely be in tourism where tourists willingly import hard currency. Cruise companies like Carnival ($CCL) and travel & leisure businesses such as Orbitz ($OWW ) will likely be the first to land any real business. With minimal existing financial infrastructure, Citicorp, Bank of America ($BAC) and other financial institutions will be needed to help re-establish the necessary financial links to the mainland.
Companies that supply cement (Cemex: $CX), steel (ArcelorMittal: $MT) and telecommunications systems will likely be priorities for the Cuban government. Since only 5% of Cubans currently have access to the Internet, it seems like a dream opportunity for AT&T ($T). And despite that this is a small population of 11 million, they are brand aware and will be quite supportive of any and all things branded American. The caveat is that, right now, Cubans need jobs and incomes to get them ready for the incoming tide of retailers. Basic necessities will be the big draw, so the likes of discount chains like Walmart ($WMT) & McDonald's ($MCD) could be first to pounce. Strangely enough, the ability to have preserved vehicles of 1950’s vintage may actually be a worthy export industry for Cuban’s so-endowed with ownership, along with world renowned Cuban rum and cigars.
If your investment interests include land purchases, beware! Just like all other revolutionized countries, the land titles will be mired in legal challenges for possibly many years. With negotiations, it is hopeful that there may be a lump sum settlement for all concerns to fulfill the US Congress’ requirement and to allow Cuba to rejoin the global economy.
And though this may take time, start planning your trip to Varadero Beach while the clocks are ticking…..
Do your research and tread carefully.
By the Numbers
5,913: The number of U.S. land claims for property seized after the Cuban revolution
$7 billion: The current price tag on the U.S. claims
$80 billion: Cuba’s gross domestic product (GDP)
$100 billion: The amount the Cuban government says the U.S. owes them for economic losses and hardships due to the embargo.
Ready to seize some of these economic opportunities?