HAVANA, Cuba — Welcome to Cuba! Well maybe not, because technically U.S. citizens are not yet allowed to travel to Cuba as the U.S. slowly updates laws around traveling to the Caribbean country. Luckily, I was able to travel here for educational purposes. Beyond experiencing the country’s fabulous culture, people, and history, from its cities and countryside, I also took some time to research the changing business climate from my role as an investor.
Let’s start with some facts: Cuba has approximately 11 million residents and a gross domestic product of around $70 billion. As the U.S. starts a process of lifting embargos and easing restrictions (including, but not limited to travel) it’s likely that both the population and GDP will rise. One question is whether that will lead to great opportunities for investors. There are many factors that can make a place ripe for investment, including: 1. People/Human capital, 2. Market opportunity/need, 3. Timing 4. Capital (Political structure is another major consideration, of course, but one we’ll avoid for this post).
Let’s explore each of the others in a little more detail:
- People: Cuba has one of the highest literacy rates in the world. The country also offers free education to all of its citizens. According to various reports, Cuba spends over 10% of its GDP on education (U.S. spends around 4%). If the country opens up borders and reforms, it’s likely that there will be an increase of talent looking for opportunities.
- Opportunity/Need: Cuba hasn’t changed much over the past 50 years because of many varied reasons, which involve topics we won’t go into here. But as reforms likely happen, there will be more VCs and other investors wading in carefully to the island nation’s economy.
- Timing: Along with the opportunity, there is a timing issue. Which verticals will see the most change over the next 5 years? Here are a few areas it seems capital may find a home:
- Travel/Tourism: With Key West only 90 miles away, it’s not matter of if, but a matter of when, U.S. citizens will again start vacationing and taking advantage of Cuba’s white-sand beaches, rolling mountains, cigars and rum. It’s likely those travelers will also bring new opportunities, ranging from souvenir shops to financial technology and services companies like Airbnb and Uber or their own versions.
- Agriculture: As with most of the economy, agriculture and farming also hasn’t changed for many years. Recently, a U.S. company received the go-ahead to manufacture tractors to sell to Cuban farmers. Look for more deals in agriculture to help usher Cuban farmers into the 21st century.
- New Basic Needs: For lack of a better word, there are many web and software applications that most parts of the world have just become accustomed to having: Google Maps, Facebook, communication tools, even food delivery and dating apps. It’s likely people will also try to introduce these to the country as well.
- Capital: With the above factors lining up, another item that is needed is, of course, money. How quickly U.S. money can invest in Cuba will depend on how fast the U.S. government eases restrictions.
Even if all of these are aligned, U.S. investors have to find a way to invest in Cuba. One possibility is that law firms will assist bringing capital to the foreign marketplace, as they do in other countries around the world.
There’s undoubtedly a lot of change coming to Cuba. Walking around during this trip, I’ve naturally gravitated toward thinking about how different the country will look in 6 months, years and decades. As an investor, it’s natural to think about how the market will look and if there will be opportunity to invest in a Cuban company that may one day grow into a new Bicardi, a firm founded more than 150 years ago in Cuba that is now the largest spirits company in the world. One thing is certain, when it comes it will happen fast. For those who may want to invest, start doing your research.
Shobhan Thakkar is a partner at HealthX Ventures. He recently spent 5 days with his fiancé visiting Havana and other parts of Cuba.