So Close, Yet So Far?

August 14, 2018

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Photo by World Affairs Council of Atlanta.
(Michael Laverty is pictured to the far left in the light gray jacket, and his brother, Collin, is sitting to the right in the blue jacket. Fernanda Luchine, director of programs at the World Affairs Council of Atlanta, is in the center. Luchine moderated the Cuba discussion.)

Recent steps to scale back U.S.-Cuba ties have dampened U.S. travel and business interest in the island nation, two American entrepreneurs in the country told a forum at the Federal Reserve Bank of Atlanta.

"The word of the day in Cuba right now is uncertainty," said Collin Laverty, who operates an educational travel business for U.S. residents visiting the island country. "It's very different from two years ago when the word of the day would have been optimism."

The current ambiguity stems not only from shifting U.S.-Cuba relations, but also from changes taking place inside Cuba, Laverty said. A new Cuban president, Miguel Díaz-Canel, took office in April from Raul Castro, brother of the late Fidel Castro, the country's longtime leader. The nation has taken steps toward social and political reform, though it remains a socialist economy. For instance, the government has begun providing internet service on mobile phones for some users. A new draft constitution calls for recognizing private property and the role of market forces. It would also set term limits on the president.

"There's a lot of progressive features" to the new constitution, Laverty told a World Affairs Council of Atlanta program held on August 2 at the Atlanta Fed. Even so, "that document will not change policymaking or the way Cuba functions."

U.S. implements new policy changes

Former president Barack Obama restored formal diplomatic relations with Cuba in December 2014, easing more than a half-century of estrangement with the Communist-led country. During the next two years, the United States began relaxing some trade limits and restrictions on travel by American citizens to Cuba. However, in the past year, President Donald Trump reversed some of the Obama-era changes, including the policy that made it easier for Americans to travel to Cuba.

Collin Laverty and his brother, Michael, said news of the latest policy changes confused many would-be travelers to Cuba and induced caution in U.S. companies that had been looking to forge business ties on the island. Other factors, such as unusual health incidents that led the U.S. State Department to recall much of its embassy staff from Havana, have also discouraged engagement.

"There's been a lot of misunderstanding, so that people think that it's no longer possible to travel" to the island, said Michael Laverty, who helps U.S. companies pursue trade investment in Cuba. "So there are fewer people traveling, not because they can't but because they think they can't."

An annual internet survey by Allianz Global Assistance, a travel insurance company, found that just 13 percent of 1,500 U.S. respondents had interest in traveling to Cuba, down from 40 percent in 2017. The poll, taken in June 2018, found that many people felt unsure about how they could travel to the island country. The survey also suggested that U.S. sentiment toward Cuba was improving, as 38 percent of respondents expressed a view that the country has changed for the better, compared with 34 percent in the year-earlier poll.

A "gold-rush mentality" seen among U.S. companies looking to do business in Cuba just after the Obama-led policy change kept the Lavertys busy coordinating corporate travel and trips for universities, Michael said. The brothers assisted Netflix, the streaming video provider, in planning a company retreat in Havana a couple of years ago. They have also worked with Facebook and the short-term rental lodging service Airbnb.

Businesses adopt a wait-and-see attitude

Companies' initial optimism has given way to a wait-and-see attitude in the wake of new U.S. trade restrictions, which include a ban on Americans doing business with many entities that have links to Cuban military and security agencies. "The overall demand for real investment, with some exceptions, has gone down," Michael Laverty said.

Though the latest U.S. policy principally scaled back people-to-people travel for Americans to Cuba, the Laverty brothers said U.S. citizens can still venture to the island. "We're developing curated educational programs for families, couples, or small groups of friends who want to go," Michael Laverty added.

Last month, Reuters reported that 266,000 Americans went to Cuba in the first half of this year, down 24 percent from 2017. Citing unnamed sources, the report also stated that the number of U.S. visitors to Cuba came to 68,000 in June 2018, up 5 percent from a year earlier.

"The drop-off in tourism is having an economic impact, as is the decline in trade with Venezuela, which includes a reduction in subsidized oil shipments," said Stephen Kay, director of the Atlanta Fed's Americas Center program. Cuba's economy expanded just 1.1 percent in the first half of this year. Quantitative analysis firm Oxford Economics said in a March 2018 report that it expects Cuba to have real gross domestic product growth of around 1 percent in 2018 and 2.2 percent in 2019.

Though some American airlines scaled back Cuba routes after the United States announced a pullback of the détente last year, several carriers in recent months have increased flights. In late July, for instance, Delta Air Lines said it would add a second nonstop flight between Miami and Havana later this year.

The entrepreneurs expressed optimism that with time, relations between the United States and Cuba will improve and Cuba will continue its internal reforms. "There's no going backwards," Collin Laverty said. "There can be hurdles, but I think it's clear that in the medium and long term, there'll be positive change on both of those fronts."

photo of Karen Jacobs
Karen Jacobs

Staff writer for Economy Matters


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