BUSINESS OPPORTUNITIES FOR SWEDISH COMPANIES IN CUBA
Transcription
BUSINESS OPPORTUNITIES FOR SWEDISH COMPANIES IN CUBA
BUSINESS OPPORTUNITIES FOR SWEDISH COMPANIES IN CUBA March 2016 Business Sweden - Mexico City CUBA IS FACING A TIME OF MANY CHANGES WITH OPPORTUNITIES & RISKS FOR FOREIGN COMPANIES INTRODUCTION The removal of Cuba from the “State Sponsors of Terrorism” list in May 2015 and the subsequent easing of the economic restrictions imposed by the US are undoubtedly the most critical game changers for the Cuban economy. The projections are that it will boost international trade and improve the access to foreign financing. In 2014, the government presented a vast list of projects offered to foreign investors. The ‘Cuba Portfolio of Opportunities for Foreign Investment’ includes 246 projects seeking over 15 BUSD of capital. It covers critical sectors such as energy, food, construction, pharmaceuticals and biotechnology, and others. The objective with this report is to inform Swedish companies about the current development in Cuba and the identified business opportunities. Cuba is still a very complex market where local knowledge is key. Access to public statistics is restricted and sometimes unreliable; therefore the sources for most conclusions in this report are based on direct interviews in Cuba with foreign companies and governmental representatives, as well as external market intelligence reports. BUSINESS SWEDEN BUSINESS SWEDEN IN CUBA Business Sweden’s office in Mexico City, that covers Mexico, Central America and the Caribbean, has eight business consultants with extensive market knowledge and long experience of promoting Swedish business in the region. Over the last years we have supported business entries and growth in various sectors, such as Healthcare & Life Sciences, Energy and Environmental Technologies, Telecom and IT, Automotive and Transport Systems. Welcome to contact us! Olof Hällerman Trade Commissioner Mexico, Central America and the Caribbean 1 APRIL, 2016 2 SUMMARY OF FINDINGS (1/2) AGRICULTURE, FOOD & BEVERAGES LIGHT MANUFACTURE TOURISM • • • The Cuban sugar industry requires heavy capital investment to be rehabilitated as 8 sugar mills were built between 1970-1980 and 51 before 1959 Cuba’s sectoral policy aims to reduce food imports and to increase and diversify exports • • ENERGY • • Cuba has discovered several dozen extra-heavy oil fields, although there is also fields with light, medium and very light oil Cuba has the goal of reaching 25% of renewable energy use by 2030, several projects are planned to reach this goal Cuba’s manufacture sector includes basic products aimed to cover the local demand and, in a second stage, generate exports This industry is mainly interested in foreign investments to modernize existing technology • ICT • • Governmental control and the stateowned monopoly provider (ETECSA) of mobile, internet and fixed line services have led to lower penetration rates in these sectors than other markets in the region ETECSA plans to launch several new mobile services, including internet access and email in Havana Foreign investments in this sector are aimed to promote new hotels through new building projects, or reconstructions, of accommodation facilities as well as complementary infrastructure Another objective is to diversify the management and commercialization of tourist facilities by renowned foreign chains HEALTHCARE • The government has taken a proactive approach to developing the pharmaceutical industry • Cuba assigns almost 9% of its GDP in public health services for its population • The majority of material parts for medical equipment are imported SOURCE: BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 3 SUMMARY OF FINDINGS (2/2) Easing of economic restrictions imposed by the US • The removal of Cuba from the “State Sponsors of Terrorism” list in May 2015 and the subsequent easing of the economic restrictions imposed by the US are undoubtedly the most critical game changers for the Cuban economy • It will boost trade with the US and improve the access to foreign financing. Although the complete lifting of the embargo requires a vote in Congress, it is expected that the restrictions will continue throughout the remainder of Obama’s mandate New law for foreign investment • Though some clauses remain highly constraining, and control by the State is to remain prominent, the new law adopted in March 2014 provides a much more favorable and pragmatic framework than the previous 1995 regulations for foreign investment, especially in the Mariel Free Trade Zone New investment opportunities • In 2014, the government presented a vast list of projects offered to foreign investors. The ‘Cuba Portfolio of Opportunities for Foreign Investment’ includes 246 projects seeking over 15 BUSD of capital • It covers critical sectors such as energy, food, construction, pharmaceuticals and biotechnology, and others, while giving a particular emphasis on developing the Special Zone of Mariel Currency and financing risks will increase • The Cuban exchange rate system is complex, featuring two coexisting official currencies (the CUP and the CUC) with different (fixed) exchange rates • The government has already expressed its will of unifying the exchange rate system. However, no concrete steps have been taken, as unification might lead to drastic economic adjustments, with high economic and social costs Political and business climate risks to remain high • The desired ‘upgrade to the Cuban economic model’ by President Castro will require strong support from the Party • Foreign investments will remain tightly controlled by the State, with most foreign ventures requiring majority Cuban ownership • Despite the positive developments, the Cuban economy will remain rationed and mostly State-driven, as labor, wages and price controls will remain in place Credit risk to be watched intensely • In the short-run, non-payment risks by Cuban companies will remain high. EKN rates Cuba’s country risk class as 7/7 (high risk) – normally off cover CUBA IS FACING A TIME OF MANY CHANGES WITH OPPORTUNITIES & RISKS FOR FOREIGN COMPANIES SOURCE: EULER HERMES; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 4 AGENDA Cuba overview Business Climate for FDI Focus sectors Embargo Contact information BUSINESS SWEDEN 1 APRIL, 2016 5 CUBA GENERAL INFORMATION Area: 110,860 km2 Inhabitants: 11.03 million Government type: Communist state Head of State: Raul Castro Ruz La Habana Languages: Spanish (official) Inhabitants per km2: 99.49 /km2 Currency: Cuban pesos (CUP) GDP 2014: 77.15 Billion USD GDP per capita 2010: 10,200 USD Inflation rate 2014: 5.3% Main exports: Petroleum, nickel, medical products, sugar, tobacco, fish, citrus, coffee Santiago de Cuba Mexico City Main imports: Petroleum, food, machinery and equipment, chemicals 2014 Swedish exports to Cuba: 190 130 TSEK 2014 Swedish imports from Cuba: 19 924 TSEK SOURCE: CIA WORLD FACTBOOK, SCB BUSINESS SWEDEN 1 APRIL, 2016 6 CUBA HAS THE 62ND LARGEST GDP IN THE WORLD WITH 77 BUSD CUBA GDP, 2010 – 2014 BUSD GDP COMPARISON, 2014 BUSD 1 400 90 1 200 75 1 000 60 800 45 600 30 400 15 200 0 2010 2011 2012 2013 2014 Mexico #15 Turkey Sweden Ecuador #18 #20 #59 Cuba #62 Uruguay #72 CUBA HAS SHOWN A STEADY GROWTH IN ITS ECONOMY IN RECENT YEARS SOURCE: WORLD BANK BUSINESS SWEDEN 1 APRIL 2016 7 SWEDISH EXPORTS TO CUBA CONSIST MAINLY OF ELECTRIC APPLIANCES FOR FIXED LINE TELEPHONY TOP-15 SWEDISH EXPORTS (K USD) TO CUBA, 2014 SWEDISH IMPORTS (K USD) 2014 FROM CUBA, 2014 Electric apps for line telephony, incl curr line system 4,084 Electric app for line telephony,incl curr line system Polymers of ethylene, in primary forms 3,013 Cigars, cheroots, cigarillos & cigarettes Centrifuges, incl centrifugal dryers; filtering/purifying machinery 2,904 Television camera, transmissn app for radio-telephony 8 Antiknock preparations, oxidation & gum inhibitors, viscosity improver Commodities not elsewhere specified 4 2,432 Tubes & pipe nes, ext diam >406.4mm,of iron & steel 1,503 Pumps for liquids; liquid elevators 1,472 Parts & access of motor vehicles 1,222 Mechano-therapy appliance (artif resp, massage app, ozon/oxygen) 879 Iron & steel screws,bolts,nuts,coach-screws, etc 866 Printed books, brochures, leaflets & similar printed matter 756 Diesel or semi-diesel engines 684 Electro-medical apparatus (electro-cardiographs, infra-red ray app, sy 650 Chemical wood pulp, soda or sulphate, other than dissolving grades 457 Electric transformer,static converter (for example rectifiers) 415 Sulphuric acid; oleum 400 1,020 660 TOP-5 EXPORT MARKETS TO CUBA, 2014, SHARE OF 5.96 BUSD China 18% Others 45% Spain 15% Brazil 9% MexicoCanada 7% 6% SOURCE: INTERNATIONAL TRADE CENTRE (ITC); BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 8 AGENDA Cuba overview Business Climate for FDI Focus sectors Embargo Contact information BUSINESS SWEDEN 1 APRIL, 2016 9 NEW FORMS OF FOREIGN INVESTMENT HAVE BEEN APPROVED IN CUBA IN THE LAST FEW YEARS JOINT VENTURES THE MOST COMMON INVESTMENT MODEL Joint Ventures • Cuban commercial company which adopts the form of a nominal share corporation in which shareholders participate with one or more national investors and one or more foreign investors (51% Cuban government and 49% the foreign company) *NEW* International Economic Association Contracts - IEA Management Production Contracts • Agreement between one or more national investors and foreign investors to perform acts proper to an international economic association without constituting a new legal entity distinct from both parties • A Cuban legal person grants to a foreign legal person the management of a facility during a given period of time, in return for a remuneration that is conditioned to the economic efficiency and results of the entity *NEW* Enterprises with 100% Foreign Capital • Foreign investors can set up on national territory as: - Natural persons acting on their own behalf - Juridical persons constituting a Cuban affiliate of the foreign entity - Juridical person setting up a branch of a foreign entity Cooperated Production Contracts • Partnerships between one or more local parties with one or more foreign parties to carry out joint production and/or service rendering activities Hotel Management Contracts • The hotel management contract is similar to the Management Production Contracts, but needs to be approved by the Ministry of Tourism SOURCE: FOREIGN INVESTMENT LAW; SOURCE: MINISTRY OF FOREIGN COMMERCE AND INVESTMENT; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 10 BUSINESS SWEDEN 1 APRIL, 2016 11 MOST ATTRACTIVE SECTOR FOR FOREIGN INVESTMENT IS TOURISM FOLLOWED BY MINING AND ENERGY FOREIGN INVESTMENT BUSINESS BY TYPE – 2013 BUSINESS WITH FI BY SECTOR – 2013 Management Production Contracts Sugar industry and derivatives 100% Foreign Capital Others 12% 4% 2% 2% Agriculture 2% Cooperated Production Contracts 4% 1% Communications 12% Transportation 4% Tourism 42% IEA* contracts Construction 6% Joint Ventures Foods 7% 28% Industrial 10% 51% Hotel Management Contracts Energy and Mining 13% AT THE END OF 2013, JOINT ENTERPRISES WERE THE MOST PREVALENT TYPE OF FOREIGN INVESTMENT IN CUBA SOURCE: MINISTRY OF FOREIGN COMMERCE AND INVESTMENT; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN * INTERNATIONAL ECONOMIC ASSOCIATION 1 APRIL, 2016 12 PROMOTION OF FOREIGN INVESTMENT IS KEY FOR THE PROCESS OF UPDATING THE CUBAN ECONOMIC MODEL FDI OVERVIEW SPECIAL DEVELOPMENT ZONE MARIEL (ZEDM) Foreign Investment strategy is focused on export and import substitution industries, and eliminating bottlenecks in production lines, favoring modernization, infrastructure development and technological change pattern The ZEDM has favorable location and logistical conditions, especially since the investment in its port and container terminal It has been estimated that to achieve the targeted growth rates of GDP it is required to attract foreign investment flows of between 2 BUSD and 2.5 BUSD annually In line with recognizing the importance of foreign investment for economic development in the country, Cuba has taken actions to enhance the strategy, such as: New Foreign Investment Policy New Law 118, Law on Foreign Investment, and the issuing of its supplementary regulations Creation of the Special Development Zone Mariel Publication of the Portfolio of Opportunities for Foreign Investment It provides an attractive special treatment for foreign investors, more favorable than the one applied in the rest of the country Its operation is regulated by Decree Law No. 313, Decree No. 316 and other regulations issued in September 2013 The Mariel Special Development Zone is placed 45 km west of Havana and has an area of 465.4 km² It is located in the center of trade in the Caribbean and the Americas Its port is designed with an integrated approach which includes the application of best practices of port marine development and environmental protection THE SPECIAL DEVELOPMENT ZONE MARIEL (ZEDM) PROMOTES THE ATTRACTION OF FOREIGN INVESTMENT SOURCE: MINISTRY OF FOREIGN COMMERCE AND INVESTMENT; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 13 A SPECIAL TAXATION REGIME HAS BEEN ESTABLISHED FOR FOREIGN INVESTMENT REGULATORY FRAMEWORK Type Of Company Profit Tax Sales and Service Tax Land Tax Natural Resources Import Estimated Tax Burden (assuming 30% of profits) Joint Ventures & IEA (0%) 8 years (15%) 8+ years (0%) 1 year (1%) 1+ years 0% during payback period 50% bonus during payback period Exempted (Investment assets) 20% Management Contracts. 35% Exempted 1% of sales According to Law 113 According legislation 37% 100% Foreign Capital 35% 2% wholesaler 10% retail 1% of sales According to Law 113 According legislation 40% Commercial representation 0% / 35% 0% / 2% 0 % / 1% N/A According legislation N/A ZED- Mariel (0%) 10 years (12%)10+ years (0%) 1 year (1%) 1+ years Exempted 50% bonus during payback period Exempted (Investment assets) 15% State Enterprise 35% 2% wholesaler 10% retail 1% of sales According to Law 113 According legislation 40% SOURCE: CEEC; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 14 AGENDA Cuba overview Business Climate for FDI Focus sectors Embargo Contact information BUSINESS SWEDEN 1 APRIL, 2016 15 MAIN OFFICIAL INVESTMENT OPPORTUNITIES IN CUBA ACCOUNT FOR 221 PROJECTS VALUED AT 13.58 BUSD Number of projects Estimated investment (MUSD) 221 13,586 32 711 4 160 10 3,118 Construction 6 916 Transportation 3 49 56 1,029 1 8 Renewable energy 13 7,595 Oil 86 N/A Mining 10 N/A 25 1,612 13 860 Industry (Light manufacture) 6 378 Agriculture, food & beverages 5 374 Energy 1 N/A 246 15,198 Outside the Mariel Zone Agriculture, food & beverages Sugar Industry Industry (Light manufacture) Tourism SECTORS INCLUDED IN THIS STUDY* Retail In the Mariel Zone Biotech + Pharma Total SOURCES: CUBAN GOVERNMENT; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN *ADDITIONALLY THE ICT SECTOR 1 APRIL, 2016 16 AGENDA Cuba overview Business Climate for FDI Focus sectors Agriculture, food & beverages Light manufacture Tourism Energy ICT Healthcare Embargo Contact information BUSINESS SWEDEN 1 APRIL, 2016 17 THE CUBAN SUGAR INDUSTRY IS CONTROLLED BY AZCUBA AND ITS SUBSIDIARIES AZCUBA AZCUBA is the sugar industry group in charge of managing the entities that make up the sugar agroindustry for developing: Sugar productions (16.10 million tons of sugar cane 2013) 59 sugar mills (8 built between 1970-1980, 51 before 1959) 7 refineries 12 distilleries 35 animal food plants Electrical energy Sugar cane by-products (20,31 million liters ethanol 2012) Agricultural and industrialized food Available area: 800 000 HA SECTOR INFRASTRUCTURE Area under exploitation: 600 000 HA 2 board factories 10 rum companies 3 CO2 plants Mechanized harvesting 90% 70 000 workers THE CUBAN SUGAR INDUSTRY REQUIRES HEAVY CAPITAL INVESTMENT TO BE REHABILITATED SOURCE: AZCUBA BUSINESS SWEDEN 1 APRIL, 2016 18 CUBA IS LOOKING TO RECOVER PREVIOUS SUGAR PRODUCTION FIGURES WITH A FOREIGN PARTNERSHIP Project Sugar Mill Production Management (4 sub-projects) In the 1980s, the sugarcane production reached 90,000 tons per year, with a 150-days harvest season, and with a yield of 65 tons sugarcane per hectare (T/ha). The objective of this project is to invest in the installed sugar mills to recover the figures from 1980s, to identify an “administrative” foreign partner to who would be responsible to finding the necessary financing and contribute with modern business administration tools and all necessary resources. Description The aim is to: • • • • • Recover capacities of original sugar mill designs Gradually increase sugarcane and sugar production Introduce new production and managerial technologies Improve sugar production efficiency, its quality and reducing costs Self-finance the recovery Investment Type International Economic Association Contract for Production Management Cuban Party Sugar industry companies owning each sugar mill Estimated Investment Amount 40 MUSD for each project (160 MUSD in total) Market Potential Exportation and the local market SOURCE: AZCUBA; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 19 SIX PRODUCTS COMPRISE THE CUBAN AGRICULTURE SECTOR, DOMINATED BY TOBACCO PRODUCTION TOBACCO CITRUS FRUITS HONEY PRODUCTION Cuban Premium tobacco is internationally recognized for its quality and advantageous position among the competition The product has a great demand among smokers in the upper economic range market Associated with the prestige of its portfolio of brands and Cuban tobacco leaves, Cuba is developing other export products Fresh citrus fruits (oranges and grapefruits), concentrated and simple juices and essential oils are products with experience and consolidated markets There are possibilities for assortments of specific types of honeys (organic honey) and to diversify the formats in addition to exporting soft extract & dry pollen and diversified products such as beauty creams based on honey COFFEE CACAO FRUIT Exports basically include Superior Arabica (Crystal Mountain, Extraturquino, Turquino and Altura) The main export market is Japan, but also France, UK, New Zealand, Australia, Germany and other European countries Product with great foreign market potential due to its many benefits Product with a great export potential; currently it is being exported to European countries such as Switzerland and Belgium Main types are fruit pulp, especially mango and pineapple juice CUBA’S SECTORAL POLICY AIMS TO REDUCE FOOD IMPORTS AND TO INCREASE AND DIVERSIFY EXPORTS SOURCE: MINISTRY OF AGRICULTURE; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 20 SEVERAL AGRO-INDUSTRIAL PROJECTS ARE PLANNED TO ATTRACT FOREIGN INVESTMENTS (1/2) Project Production of beef, its industrial processing and commercializing special cuts (2 projects) Pork Production for channeled commercialization and finished pork products (5 projects) Buffalo cattle production for industrialization and the commercialization of milk and Its byproducts Investment type Joint Enterprise Joint Enterprise Joint Enterprise Cuban Party Livestock Genetics Enterprise Empresa Porcina & Coralso Empresa Pecuaria Genetica Bufalina Estimated Investment 10 MUSD 120 MUSD 55.20 MUSD Estimated anticipated results 5,000 metric tons of beef for special cuts 108,000 metric tons of finished products and byproducts 70.5 million liters of buffalo milk Project Poultry Meat Production and its channeled commercialization (9 projects) Rice Production in the southern part of Artemisa and Mayabeque Provinces Peanut Production Investment type Joint Enterprise Joint Enterprise Joint Enterprise Cuban Party Empresas Avicolas Empresa Agroindustrial de Granos José Martí Empresa Agroindustrial de Granos Jovellanos Estimated Investment 35.50 MUSD 37.06 MUSD 70.50 MUSD Estimated anticipated results 150,000 metric tons of channeled chicken 10.0 MTM yearly average 7,400 metric tons per year SOURCE: MINISTRY OF AGRICULTURE; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 21 SEVERAL AGRO-INDUSTRIAL PROJECTS ARE PLANNED TO ATTRACT FOREIGN INVESTMENTS (2/2) Project Processing and commercialization of Elite quality conventional coffee Increased Production Potential for Shrimp Farming Production of carbonated drinks and bottled water Investment type International Economic Association Contract Joint Enterprise Joint Enterprise Cuban Party Empresa Procesadora de Café Asdrubal Lopez Vazquez of Guantanamo CORALSA CORALSA Estimated Investment 10.30 MUSD 19.90 MUSD 12.30 MUSD Estimated anticipated results Coffee production will be destined for exportation, for the Elite Quality market Export market, principally Asia 500, 000hl per year of carbonated drinks and bottled water Project Industrial processing of cacao and increased production of chocolate-based products Production of Confectionary and Cereals Soy processing plant to produce refined oil Investment type Joint Enterprise Joint Enterprise Joint Enterprise Cuban Party CORALSA CORALSA CORALSA Estimated Investment 16.80 MUSD 15.30 MUSD 149 MUSD Estimated anticipated results Processing 1,000 tons per year of cacao (liquor, butter and cocoa) Current demands, with a view to replace imports, reaches an annual total of approximately 18 to 20 MUSD 85,000 tons of refined oil and 375,000 tons of soy flour for animal consumption SOURCE: MINISTRY OF AGRICULTURE; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 22 AGENDA Cuba overview Business Climate for FDI Focus sectors Agriculture, food & beverages Light manufacture Tourism Energy ICT Healthcare Embargo Contact information BUSINESS SWEDEN 1 APRIL, 2016 23 CUBA’S INDUSTRIAL SECTOR MANUFACTURES BASIC PRODUCTS TO COVER THE LOCAL DEMAND ELECTRONICS, INFORMATICS, AUTOMATION AND TELECOM Solar panels WORKER AVAILABILITY Voltage protectors, home and industrial lighting LCD to LED TVs Qualified workers 5,182 CONSUMER GOODS INDUSTRY Textile garment Printing Textile Cleaning products and cosmetics Furniture Matches, leatherwork, footwear and paint Higher education level 9,831 CHEMICAL INDUSTRY Industrial gases Chemicals Fertilizers and pesticides Rubber Paper Glass Middle technician level 15,635 METAL-MECHANICAL AND RECYCLING INDUSTRY SOURCE: MINISTRY OF INDUSTRIES; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 24 PLANNED PROJECTS AIM TO MODERNIZE THE SECTOR REPLACING IMPORTS AND PROMOTING EXPORTS Project Production and commercialization of products and services for Informatics Solutions Production and commercialization of Footwear Solid Urban Waste Handling Integrated System Investment type Joint Enterprise Joint Enterprise Joint Enterprise Cuban Party GEDEME COMBELL footwear company Union of Raw Materials Recovery Enterprises (UERMP) Estimated Investment 9.60 MUSD 12.60 MUSD First stage: 115 MUSD Estimated anticipated results Current estimated annual demand 75,000 computers. In 10 years approximately one million 47 million pairs of shoes per year Domestic industry and the excess will be exported Project Production and Commercialization of Newsprint and Bond Paper Production and Commercialization of Tissue Paper and its conversion Production and Commercialization of Long Products made of Stainless Steel and Alloys Investment type Joint Enterprise Joint Enterprise Joint Enterprise Cuban Party QUIMI S.A. QUIMI S.A. “Acinox Tunas” Stainless Steel Enterprise Estimated Investment 107.20 MUSD 73.10 MUSD 222.50 MUSD Estimated anticipated results Domestic demand of 40,000 tons and 20,000 tons for exportation Domestic demand of 20,000 tons Domestic demand of 4,000 tons per year and exports SOURCE: MINISTRY OF INDUSTRIES; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 25 AGENDA Cuba overview Business Climate for FDI Focus sectors Agriculture, food & beverages Light manufacture Tourism Energy ICT Healthcare Embargo Contact information BUSINESS SWEDEN 1 APRIL, 2016 26 THE CUBAN TOURISM SECTOR RECEIVED OVER 3 MILLION VISITORS IN 2014, MAINLY FROM CANADA VISITOR ARRIVALS (1985-2014) MAIN VISITORS BY TOP-5 COUNTRY MILLION SHARE OF 1.65 MILLION VISITORS 3,50 +2,76 million visitors France 7% 3,00 Italy 6% Germany 8% 2,50 2,00 England 8% 1,50 Canada 71% 1,00 0,50 0,00 1985 2010 2011 2012 2013 2014 THE CUBAN TOURISM SECTOR HAS A CAPACITY OF OVER 61,000 ROOMS (28% 5-STARS AND 37% 4-STARS) SOURCE: MINTUR; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 27 FOUR MAIN ACTORS ARE INVOLVED IN THE TOURISM SECTOR IN CUBA GRAN CARIBE CUBANACAN With 20 years of experience in the Cuban tourist industry, it operates 45 tourist facilities divided into All Inclusive, Family, Historical, Business/City, Beach and Cays categories. Since 1987 its business has grown to include associations with prestigious international hotel chains. Its services can be found under the brand names: Hola Club, Club Premium and Classic. Besides city hotels it has secured these commercial Sun and Beach brand names: Brisas and Cub Amigo Horizontes, with hotels that are located in natural settings. GAVIOTA S.A. CUBAGOLF S.A. With 25 years of experience today it is the fastest growing organization in Cuban tourism. This tourism group has among its aims to promote and sell hotel and tourism services as well as specialty packages for health, boating, fishing, diving and others. Newly created, CUBAGOLF S.A., belonging to the Grupo Empresarial Extra Hotelero Palmares looks after the development of the Cuban project to promote the island as a golf-holiday destination. Currently it is in negotiations with several foreign partners to incorporate joint ventures to build, manage and run tourism-real estate golf complexes throughout the country. ALL PLANNED PROJECTS HAVE THESE FOUR CUBAN COMPANIES AS MAIN PARTNERS SOURCE: MINTUR; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 28 CUBA IS LOOKING FOR FOREIGN INVESTMENT DIRECTED TO NEW HOTELS CONSTRUCTION Project Building and Commercializing topquality hotel accommodations in the Trinidad Resort Area in Sancti Spiritus Building and commercializing topquality hotel and villa capacities at the Covarrubias Resort Area in Las Tunas Building and commercializing topquality hotel and villa capacities at the Guardalavaca Resort Area in Holguin Investment type Joint Enterprise Joint Enterprise Joint Enterprise Cuban Party Cubanacan S.A. Cubanacan S.A. Cubanacan S.A. Estimated Investment 480 MUSD 183 MUSD 215 MUSD Estimated anticipated results 2,400 rooms in seven resorts 1,080 rooms in two resorts 862 rooms in three resorts Project Building and commercializing topquality hotel and villa accommodations in the Santa Lucia Resort Area of Camaguey Real Estate Development associated with the Golf Course at El Faro/El Jagüey. Rancho Luna Pasacaballos Resort Area Real Estate Development associated with the Golf Course at Loma Linda Investment type Joint Enterprise Joint Enterprise Joint Enterprise Cuban Party Cubanacan S.A. or the Gran Caribe Hotel Group CUBAGOLF, S.A. CUBAGOLF, S.A. Estimated Investment 175 MUSD 580 MUSD 380 MUSD Estimated anticipated results 1,070 rooms in four resorts 70.8 MUSD/year (60% for owners, 40% for the joint enterprise) 70.8 MUSD/year (60% for owners, 40% for the joint enterprise) SOURCE: MINTUR; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 29 AGENDA Cuba overview Business Climate for FDI Focus sectors Agriculture, food & beverages Light manufacture Tourism Energy ICT Healthcare Embargo Contact information BUSINESS SWEDEN 1 APRIL, 2016 30 THE USE OF RENEWABLE ENERGY SOURCES IS ONE OF THE MAIN PRIORITIES FOR CUBA’S DEVELOPMENT 43,057 FACILITIES USING RENEWABLE SOURCES: FOSSIL SOURCES Total oil and gas production – 4 million tones per year (25 million barrels) 3 million tons per year (10 million barrels) crude oil 1,100 million cubic meters natural gas per year 20 prospects with potential of 10,000-20,000 extractible barrels Modify the energy matrix of generation and consumption of electricity Reduce dependence on fossil fuels Increase competitiveness of the economy as a whole 24% RENEWABLE ENERGY - 2030 Decrease the inefficiencies in the electrical system Contribute to environmental sustainability Decrease the high cost of energy delivered to consumers due to fuel prices 4 Wind farms 7 57 169 Solar parks (11 MW) Sugar mills (470 MW) Hydroelectric facilities 827 Biogas plants 9,343 Windmills 9,476 Solar panels 10,595 Solar heaters UP TO DATE ONLY 4.3% OF ENERGY IN CUBA IS OBTAINED FROM RENEWABLE SOURCES SOURCE: UNE; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 31 THE CURRENT SECTOR POLICY IS FOCUSED IN FOUR MAIN AREAS FOR RENEWABLE SOURCES DEVELOPMENT • Top priority for Cuba’s goal to change its Energy Matrix • Plans to install 755MW at 19 Bioelectric Plants at Sugar Mills • The 19 Bioelectric plants will produce over 1900 GWh/year and will stop issuing approximately 1,700,000 tons of CO2 into the atmosphere • Studies are now underway to indicate project feasibility • The potential of solar radiation registered in Cuba is approximately 5KWh per square meter per day • Studies for the installation of 700 MWp by 2030 in Photovoltaic Solar Parks (PSFV) connected to the National Electrical System • Cuba has one Solar Panel Manufacturing Plant to produce 150 and 240 Wp photovoltaic panels Biomass Photovoltaic • Technical Project Assessment for Wind Power Prospects by Garrad Hassan Iberica estimated 10 potential zones and installed 4 demonstration wind farms (11.7 MW) • UNE has studied the installation of 633 MW in 13 Wind Farms, with capacity factors over 30% which will produce over 1000 GWh/year and thereby not be issuing some 900,000 tons of CO2 into the atmosphere • Program to build 74 small hydroelectric plants (PCHE) with over 56 MW • Once all the planned power has been installed, the program will produce 274 GWh generated power per year, thereby stopping harmful emissions into the atmosphere of 230,000 tons of CO2 Windpower Hydroenergy SOURCE: UNE; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 32 SEVERAL PROJECTS ARE PLANNED TO REACH CUBA'S 2030 GOAL – 25% GENERATION FROM RENEWABLES Project Banes Wind Farm Project Maisi Wind Farm Project Bioelectrical Plants Investment type 100% Foreign Capital Enterprise 100% Foreign Capital Enterprise Joint Enterprise Cuban Party Union Electrica (UNE) Union Electrica (UNE) ZERUS S.A. Estimated Investment 200 MUSD 285 MUSD 72/144 MUSD Estimated anticipated results 102 MW 174 MW 30/60 MW Project Generating Energy from Forestry Biomass Oil Exploration at risk and shared production in blocks in national territory shallow waters (8 Blocks) Oil Exploration at Risk and shared production in blocks of the Exclusive Economic Zone in the Gulf of Mexico (52 Blocks) Investment type Joint Enterprise International Economic Association Contract at risk for exploration of hydrocarbons and its production International Economic Association Contract at risk for exploration of hydrocarbons and its production Cuban Party Empresas Forestales Integrales Union Cuba Petroleo (CUPET) Union Cuba Petroleo (CUPET) Estimated Investment Macurije 32.3 MUSD Minas de Matahambre 14.4 MUSD N/A N/A Estimated anticipated results 54.9 GWh N/A N/A SOURCE: UNE; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 33 AGENDA Cuba overview Business Climate for FDI Focus sectors Agriculture, food & beverages Light manufacture Tourism Energy ICT Healthcare Embargo Contact information BUSINESS SWEDEN 1 APRIL, 2016 34 CUBA REACHED 3.2 MILLION MOBILE SUBSCRIBERS BY 2015 AND 88 THOUSAND BROADBAND INTERNET USERS 2012 2013 2014e 2015f 2016f 2017f 2018f 2019f 1,681.6 1,995.7 2,530.8 3,296.6 4,091.8 4,698.6 5,339.9 5,873.9 14.9 17.7 22.5 29.3 36.4 41.9 47.7 52.5 1,216.5 1,237.3 1,268.2 1,296.1 1,315.6 1,328.6 1,335.0 1,340.3 Main Telephone Lines/100 Inhabitants 10.8 11.0 11.3 11.5 11.7 11.8 11.9 12.0 Broadband internet subscribers, '000 54.0 64.3 75.6 88.4 101.1 114.0 127.0 144.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.3 Cellular Mobile Phone Subscribers, '000 Mobile Phone Subscribers/100 Inhabitants Main telephone lines in service, '000 Broadband internet subscribers/100 Inhabitants Cuba experienced major developments in its relationship with the US during this past year, which could have huge long-term ramifications for the telecoms market The US government has said that it is initiating new efforts to increase Cubans' access to telecoms and their ability to communicate freely, as part of reconciliation steps announced This timeframe could be as long as five to ten years, however, combined with more recent developments with ETECSA* expanding products and coverage SOURCE: BMI; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN * EMPRESA DE TELECOMUNICACIONES DE CUBA 1 APRIL, 2016 35 SEVERAL INTERNATIONAL COMPANIES HAVE ALREADY APPROACHED ETECSA FOR COOPERATION EMPRESA DE TELECOMUNICACIONES DE CUBA (ETECSA) Ownership: Government (73%), Rafin (27%) Cuba - fixed-line telephony (local, long distance, international), mobile (AMPS, TDMA, GSM), data, internet http://www.etecsa.cu/ MINISTERIO DE LA INFORMÁTICA Y LAS COMUNICACIONES (MIC) The Cuban telecoms market is supervised by the Ministry of Communication http://www.mincom.gob.cu/ ETECSA, was 27% owned by Telecom Italia until Q3 2010, when it sold its stake to Havana-based financial company Rafin, which is owned by Fidel and Raúl Castro. ETECSA has announced plans to offer residential ADSL broadband access to reach 50% of the households by 2020. Chinese telecoms firm Huawei is in discussions with the government of Cuba to invest in the country's telecoms market. Cuba aims to boost internet access to 50% of its homes by 2020, while increasing penetration of mobile telephony services to 60%. Cuba's ability to reach the objectives will depend on its capability to buy required infrastructure upgrades. Orange signed a confidential agreement with ETECSA in July 2014 to sell phones and services through its Orange Horizons Digital subsidiary and to share knowhow with ETECSA. It also made a commitment to create an institute to provide national and regional training. THE TELECOMMUNICATIONS COMPANY OF CUBA, ETECSA, HAS A MONOPOLY ON THE TELECOM SECTOR SOURCE: BMI; ETECSA; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 36 AGENDA Cuba overview Business Climate for FDI Focus sectors Agriculture, food & beverages Light manufacture Tourism Energy ICT Healthcare Embargo Contact information BUSINESS SWEDEN 1 APRIL, 2016 37 CUBA ASSIGNS ALMOST 9% OF ITS GDP IN PUBLIC HEALTH SERVICES FOR ITS POPULATION SECTOR OVERVIEW HEALTHCARE EXPENDITURE BUSD 10 The healthcare expenditure in Cuba reached a value of 7.2 BUSD in 2014, accounting for 8.9% of its GDP 8 Public healthcare spending accounts for nearly all expenditure on healthcare (94% in 2014) 6 Given that all medical care is officially free, private expenditure is limited to unofficial payments to officials and healthcare professionals in the 'black market‘ Although officially Cuba's healthcare system remains under the control of the National Health System (SNS Sistema Nacional de Salud), part of the Ministry of Public Health (MINSAP - Ministerio de Salud Pública), healthcare service is gradually increasing on the 'black market‘ 4 2 0 2012 2013 2014 Public Expenditure 2015f 2016f Private Expenditure The trade embargo imposed by the US since the 1960s has led to serious deterioration in Cuba's national healthcare facilities and a lack of essential medicines IT IS EXPECTED THAT BY 2016 THE HEALTHCARE EXPENDITURE WILL REACH ALMOST 8 BUSD SOURCE: BMI; SNS; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 38 CUBA ACCOUNTS FOR AN EXTENSIVE PUBLIC HEALTH CARE SERVICES INFRASTRUCTURE TRAINING HUMAN CAPITAL 11,550 497,021 451 doctor’s offices health workers polyclinics 13 research institutions 142 maternity homes 246 144 old age homes 152 hospitals community seniors’ centers 1,215 dentistry services 14 universities 3 independent medical sciences faculties and 18 affiliates University campuses in all the country’s municipalities National School of Public Health National Center for Technical Improvement and Professional DEVELOPMENT OF SCIENCE AND TECHNOLOGY 48 science and technological innovation entities 18 research institutes and centers 30 scientific-technological development centers 2,095 categorized researchers (867 doctors in sciences) BASIC MEDICINES 885 items 305 imported 580 national produced CUBA'S STRONG HEALTHCARE SECTOR HAS A GREAT WORLDWIDE RECOGNITION SOURCE: BMI; SNS; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 39 IT IS EXPECTED THAT THE CUBAN MEDICAL DEVICE MARKET WILL REACH 154 MUSD IN 2016 MARKET OVERVIEW MEDICAL DEVICE MARKET TOTAL VALUE MUSD 200 PER CAPITA USD 20 It is forecasted that the small Cuban market will register moderate growth over the coming years, supported by stronger economic growth 160 16 The market will rely on imports from mainly Europe and China, and increasingly from Japan 120 12 US suppliers cannot compete due to the economic embargo 8 Opportunities remain for other foreign companies, particularly from the fellow communist China 4 The market will register a moderate 2014-2019 CAGR of 7.6% in US dollar terms, which will take expenditure to 182.5 MUSD 0 Import reliance will remain strong despite the government's efforts to contain imports 80 40 0 2014 2015f 2016f 2017f 2018f 2019f THE MEDICAL DEVICE MARKET EXPENDITURE PER CAPITA REACHED 13,7 USD IN 2016 SOURCE: BMI; SNS; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 40 IN 2014 CUBA IMPORTED 110 MUSD OF MEDICAL DEVICES MEDICAL DEVICE IMPORTS BY PRODUCT AREA, 2010-2014 (K USD) 2010 2011 2012 2013 2014 15,395 24,796 19,282 33,115 25,882 Bandages & Dressings 4,425 6,486 3,101 8,501 3,438 Suturing Materials 2,161 4,570 4,691 5,237 7,097 Syringes, Needles & Catheters 7,584 10,474 8,030 14,422 12,348 Other Consumables 1,225 3,266 3,460 4,955 2,999 DIAGNOSTIC IMAGING 13,996 11,068 13,472 23,059 21,818 Electrodiagnostic Apparatus 6,019 2,819 3,194 4,837 6,651 Radiation Apparatus 1,240 1,507 1,411 4,255 5,146 Imaging Parts & Accessories 6,737 6,742 8,867 13,967 10,021 4,681 5,566 3,110 3,223 4,898 255 1,156 508 916 918 4,426 4,410 2,602 2,307 3,980 2,873 3,940 5,288 4,772 4,328 14,068 5,254 7,727 13,566 15,995 10,288 3,973 6,254 10,862 10,186 Therapeutic Appliances 3,780 1,281 1,473 2,704 5,809 OTHER MEDICAL DEVICES 23,517 28,181 26,089 32,351 37,989 TOTAL 74,530 78,805 74,968 110,086 110,910 CONSUMABLES DENTAL PRODUCTS Capital Equipment Instruments & Supplies ORTHOPEDICS & PROSTHETICS PATIENT AIDS Portable Aids CONSUMABLES AND DIAGNOSTIC IMAGING EQUIPMENT ACCOUNTED FOR ALMOST 50% OF THE IMPORTS IN 2014 SOURCE: BMI; SNS; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 41 OVER 50% OF CUBA’S IMPORTS OF MEDICAL DEVICES ARE FROM GERMANY, CHINA AND ITALY TOP 10 MEDICAL DEVICE SUPPLIERS TO CUBA, 2014 Rank Country Value (K USD) % Total 1 Germany 22,229 20.0 2 China 20,814 18.8 3 Italy 19,829 17.9 4 Japan 12,908 11.6 5 Spain 12,175 11.0 6 South Korea 3,983 3.6 7 Brazil 2,738 2.5 8 France 2,270 2.0 9 Mexico 1,533 1.4 10 Sweden 1,529 1.4 Others 10,902 1.3 TOTAL 110,910 100.0 Import reliance will remain strong despite the government's efforts to contain imports It is expected that the import growth will remain volatile, following a period of contraction evident since 2008 In May 2015, the Japanese government agreed to issue credit lines and donate medical equipment to state companies in Cuba. It is expected that Japan will strengthen its market share due to this announcement The German company Ottobock has donated around 500 K USD to refurbish the production facilities operated by the National Centre of Technical Orthopedics (CNOT) Cuba/RDA. This means that production will increase in 2016 In addition, Ottobock will issue selected grants for Cuban students to study orthoprosthesis in Germany The improved US-Cuban diplomatic relations is expected to drive scientific exchanges in coming years SWEDEN EXPORTED 1.53 MUSD OF MEDICAL DEVICES TO CUBA DURING 2014 SOURCE: BMI; SNS; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 42 CUBA’S PHARMACEUTICAL MARKET WAS VALUED AT 1.50 BUSD IN 2015, ACCOUNTING 1.76 OF THE GDP PHARMACEUTICAL MARKET Imports MUSD Sales MUSD % of health expenditure % of GDP 2011 N/A 1,244 16.7 1.74 2012 N/A 1,282 20.4 1.74 2013 77.18 1,348 19.8 1.74 2014 81.75 1,428 19.8 1.75 2015f 86.65 1,513 19.9 1.76 2016f 91.91 1,605 20.1 1.78 2017f 97.54 1,704 20.3 1.79 2018f 103.58 1,809 20.5 1.81 2019f 110.06 1,922 20.7 1.82 MARKET OVERVIEW Cuba's high quality pharmaceutical sector and manufacturing capabilities, along with its advanced R&D capabilities, will ensure the country's positive pharmaceutical trade balance in the coming years Cuba's decades of isolation has resulted in an increased self-sufficiency to meet the healthcare needs of its population Although Cuba has a relatively strong pharmaceutical industry, an isolated country with limited resources cannot produce all medicines that local patients need Cuba established health system and pharmaceutical industry generates highly innovative medicines for which many countries have established trade ties to recap the benefits of Cuban medications PHARMACEUTICAL IMPORTS IN CUBA ONLY ACCOUNT FOR 5.7% OF THE MARKET VALUE SOURCE: BMI; SNS; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 43 AGENDA Cuba overview Business Climate for FDI Focus sectors Embargo Contact information BUSINESS SWEDEN 1 APRIL, 2016 44 SEVERAL INITIATIVES HAVE BEEN DEVELOPED IN RECENT MONTHS TO REGULATE CUBA'S EMBARGO Presidents Barack Obama and Raúl Castro announce moves to reestablish diplomatic relations and to loosen travel and economic restrictions Cuba officially removed from U.S. list of state sponsors of terrorism Jan 2015 1958 Dec 2014 The United States imposed an arms embargo on Cuba during the armed conflict with rebels led by Fidel Castro 2016-2018 Feb 2015 Talks between U.S. and Cuban officials began in Havana to discuss lifting the embargo Economic embargo expected to be completely lifted ECONOMIC EMBARGO IS EXPECTED TO BE LIFTED IN THE COMING YEARS, ALLOWING TRADE BETWEEN CUBA, U.S. AND THIRD COUNTRIES SOURCE: BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 45 IN 2014 SEVERAL ECONOMIC AND DIPLOMATIC CHANGES BETWEEN U.S. AND CUBA WERE ANNOUNCED Travel Insurance Telecommunications Financial Services US insurers will be authorized to provide coverage for global health, life, or travel insurance policies for individuals residing in a third country who travel to or within Cuba Travelers may now receive emergency medical services and make related payments In order to facilitate improved and efficient telecommunications between the two countries, a new OFAC license will allow formal establishment of commercial telecommunications including authorized internet-based communications US credit and debit cards are now authorized for use in Cuba and financial institutions will now be able to process transactions for improved efficiency Remittances Third-Country Effects Small Business Growth “Cash in Advance” The limits on generally licensed remittances to Cuban nationals other than certain prohibited Cuban Government and Cuban Communist Party officials will be increased from $500 to $2,000 per quarter US-owned or controlled entities in third countries, including banks, will be authorized to provide goods and services to an individual Cuban national located outside of Cuba, provided the transaction does not involve a commercial exportation of goods or services to or from Cuba Certain micro-financing projects and entrepreneurial and business training, such as for private business and agricultural operations, will be authorized Several categories of travel are authorized to Cuba without the need to apply for a specific license before a trip Authorized travelers will be allowed to carry with them to Cuba $10,000 Trips solely meant for tourist purposes are not yet permissible Commercial imports of certain independent Cuban entrepreneur-produced goods and services will be authorized In order to enable expanded financing for exports, the regulatory interpretation of "cash in advance" was redefined from "cash before shipment" to "cash before transfer of title to, and control of" SOURCE: LOOP CAPITAL MARKETS; BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 1 APRIL, 2016 46 AGENDA Cuba overview Business Climate for FDI Focus sectors Embargo Contact information BUSINESS SWEDEN 1 APRIL, 2016 47 CONTACT US BUSINESS SWEDEN IN MEXICO, CENTRAL AMERICA AND THE CARIBBEAN Business Sweden Miguel de Cervantes Saavedra 193 – 802. Mexico D.F. 11520 T +52 55 9126 3430, F +52 55 9126 3440 [email protected] www.business-sweden.se/mexico