An introduction to Cuban foreign trade: a framework of opportunities for Colombian companies

Introduction

Foreign trade is a crucial aspect of the Cuban economy, characterized by distinctive features that influence its trade relations with the world. This report analyzes the main characteristics of this sector, highlighting relevant aspects of its structure and dynamics.

Over time, Cuban foreign trade has undergone several transformations. It has been marked by a significant dependence on imports and a traditional export structure centered on primary goods. After the economic crisis of the 1990s and the loss of preferential relations with socialist countries, Cuba faced challenges in this area, reflected in the reduction of industrial capacity, the contraction of GDP and the need to adapt to international market conditions.

The diversification of Cuba's external links, especially since the mid-1990s, has been notable, with a focus on expanding trade partners and the export basket. Despite this increased diversification, Venezuela became an important trading partner, transforming Cuba's export profile toward services such as medicine and tourism. However, the Venezuelan recession and the decline in oil prices impacted these trade relations, generating an inflection in exchanges and influencing Cuban foreign income.

The opening to new markets for professional services and the exposure to the situation of its trading partners have generated vulnerabilities for the Cuban economy, especially in times of financial stress, as evidenced from 2015 onwards with defaults on international commitments and GDP contraction in 2016. The recent evolution of Cuban foreign trade reflects the interconnection of the country's economy with international ups and downs and the importance of diversification and stability in trade relations for its economic stability.

Contextualization of Cuba's international trade

In August 2020, the Economic Commission for Latin America and the Caribbean (ECLAC) estimated a 23 % drop in the region's international trade. Thus, this institution predicted a contraction of 30 % in the Island's exports and 40 % in its imports by 2020.

The main impacts on the country's external sector during 2020 were the measures adopted by former U.S. President Donald Trump during his term in office; the economic crisis in Venezuela; the reduction in international tourism; the decrease in remittances; the loss of export markets for medical services, such as those of Bolivia, Brazil and Ecuador; in addition to the decrease in the prices of goods such as nickel and sugar; and the fall in foreign sales of rum and tobacco, Cuba's main export products, as a consequence of the confinement actions adopted by other countries to contain COVID-19, according to an ECLAC report.

Between 2019 and 2022 there is a perceptible deterioration in the external sector of the Cuban economy, which had been manifesting itself since the middle of the previous decade. This recent worsening has multiple causal factors, but among them the following should be highlighted:

• The fragmented and partial implementation of the transformations in the Cuban economic model, which has not improved the levels of competitiveness and growth of the economy on an aggregate scale, and in more recent times has exacerbated macro and microeconomic distortions.
• The sharp setback in the climate of bilateral relations with the United States since the Trump administration came to power and the notable increase in applied sanctions that have greatly harmed external economic transactions.
• The deep global economic recession following the COVID-19 pandemic (not yet overcome) and its effects on the external demand for goods, tourism revenues, remittances and the increase in the price of imports.
• The severe institutional and performance problems experienced by the Venezuelan economy since 2014, which constituted Cuba's main trade and external economic cooperation partner until 2020.
• The high economic-financial costs that the Cuban State had to assume at that juncture to deal with the COVID-19 pandemic and its effects in economic and social terms.

Among some characteristics of Cuban foreign trade, he notes:

• Import Dependence: Cuba is characterized as highly dependent on imports to meet domestic consumption needs, including food, fuel, machinery and manufactured goods. The lack of diversification of domestic production and limited industrial capacity have contributed to this marked external dependence.
• Exports of Goods and Services: Cuban exports are dominated by traditional products such as sugar, tobacco, nickel, and certain medical and biotechnology products. There is an effort to diversify the export basket, promoting sectors such as tourism, biotechnology and remittances as drivers of foreign income.
• Regional and International Trade Relations: Cuba maintains trade relations mainly with countries in Latin America, Europe and Asia. Outstanding partners include Venezuela, China, Spain and Canada. Regional trade agreements, such as ALBA-TCP and the Community of Latin American and Caribbean States (CELAC), are important for regional economic cooperation.
• Financial and Trade Restrictions: The financial restrictions imposed by the U.S. embargo have had a significant impact on Cuban foreign trade, limiting access to international financing and restricting commercial operations with U.S. companies.
• Diversification and Economic Opening Strategies: Cuba has implemented trade diversification and economic opening strategies, seeking to attract foreign investment, modernize key sectors and strengthen international competitiveness. The creation of Special Economic Development Zones and the updating of the economic model are important steps in this direction.

According to the Observatory of Economic Complexity (OEC), in 2019 the main destinations for Cuban merchandise exports were:

• China (38.2 %), Spain (10.5 %) and the Netherlands (5.44 %).
• The most exported products that year were tobacco and its substitutes (24.4 %), sugars and confectionery (17.6 %); as well as nickel and its manufactures (11.7 %).
• From 2014 to 2019, the export values that increased the most were minerals, metalliferous, slag and ash, from $5.86 million (2014) to $136 million (2019); tobacco, from $246 million to $295 million; and fish, crustaceans, mollusks and other invertebrates, from $47.1 million to $85.4 million.
• In the same period, the values that fell the most were fuels, minerals and oils, from 315 million to 53.3 million; sugar and confectionery, from 391 million to 212 million; and pharmaceuticals, from 121 million to 22.5 million.
• Exports of services, meanwhile, constituted the main item of total exports in 2018, ECLAC notes, where the sectors with the highest share corresponded to human health and social care services (56.7 %), support services (11.7 %) and accommodation, food supply and beverages (8.6 %).
• Imported services were concentrated in professional, scientific and technical services at 20.9 %; while freight transportation, supporting agriculture, hunting, forestry, fishing, mining and public made up 13.3 %; and telecommunications, transmission and information supply made up 11.5 % in 2018.

Commercial agreements and opportunities

In favor of business opportunities, trade agreements offer favorable conditions to promote investments, facilitate trade and administrative procedures. Correspondingly, Cuban authorities have made progress in the formalization of legal instruments, with different schemes and levels of complexity.

According to data from the World Trade Organization (WTO), Cuba has reciprocal trade agreements with 44 countries, of which 15 are located in the Americas (Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, El Salvador, Guyana, Mexico, Nicaragua, Paraguay, Peru, Trinidad and Tobago, Uruguay and Venezuela), 15 in Asia and the Middle East (Bangladesh, India, Indonesia, Iran, Iraq, North Korea, Malaysia, Burma, Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Thailand and Vietnam) and 14 in Africa (Algeria, Benin, Cameroon, Egypt, Ghana, Guinea, Libya, Morocco, Mozambique, Nigeria, Sudan, Tanzania, Tunisia and Zimbabwe). It denotes the absence of trade agreements with North America and Europe, which significantly limits its opportunities.

In this relationship, it denotes the importance of the Latin American Integration Association (ALADI) in the Cuban economy with the consent of 17 legal instruments. Trade agreements within the framework of ALADI can have several benefits for the Cuban economy. These benefits include:

Access to new markets: The trade agreements allow Cuba to access larger markets in the Latin American and Caribbean region. This can result in an increase in Cuban exports and open new opportunities for Cuban companies and products.

Market diversification: Trade agreements can help diversify Cuba's export destinations. By having preferential access to several ALADI member countries, Cuba can reduce its economic dependence on a single market and mitigate the negative impact of possible economic or political crises in a particular country.

Encouraging foreign direct investment: Trade agreements can encourage foreign direct investment (FDI) to enter Cuba. By providing a more predictable and stable business environment, trade agreements can increase the confidence of foreign investors and encourage investment in priority sectors of the Cuban economy.

Transfer of know-how and technology: Trade agreements can facilitate the exchange of know-how and technology among ALADI member countries. This can help improve the productive capacity of Cuban industry by adopting more efficient practices and technologies, which in turn could increase its competitiveness in international markets.

Regional cooperation: Trade agreements within the framework of ALADI are not limited only to trade aspects, but also promote regional cooperation in areas such as investment, transportation, tourism and other sectors of common interest. This collaboration can generate synergies and additional benefits for the Cuban economy, as well as strengthen ties with other countries in the region.

It is important to note that the specific impact and benefits of trade agreements on the Cuban economy may vary depending on the nature of the agreements, the sectors involved and the effective implementation of the associated policies.

Opportunities for Colombian companies

The Economic Complementation Agreement No. 49 between Colombia and Cuba was signed in 2000 under the framework of ALADI and entered into force on July 10, 2001. The Agreement and the protocols incorporate general and basic articles related to: Market access, non-tariff restrictions, rules of origin, safeguards agreement, unfair practices, trade in services, transportation, technical standards, investments, trade cooperation, industrial property, dispute settlement, administration of the agreement.

As a result of the Agreement, tariff preferences are achieved in more than 4,600 subheadings ranging from 10% to 100%. By way of example, Colombia can enter the Cuban market with duty-free access to: live animals, beef, dairy products, flowers, potatoes, vegetables, bananas, coffee, rice, palm oil, margarine, candies, confectionery, chocolate, bakery products, jams, mineral and aerated water, beer, automotive sector, textiles and clothing, among others. For its part, Cuba can sell with 100% of tariff preference to the Colombian market: cheese, vegetables, processed foods, chemicals, cosmetics, leather goods, clothing, among others.

Among the main aspects of the agreement are:

• Elimination of tariffs: The gradual elimination of tariffs on imports of products originating in both countries is established. A tariff degradation schedule is established to promote free trade.
• Market access: The agreement seeks to facilitate access of Cuban and Colombian products to the markets of both countries by eliminating non-tariff barriers and streamlining customs procedures.

Cuba and Colombia have a solid and long-standing relationship in various areas, and this is also reflected in the business sphere. Both countries have shown interest in strengthening their commercial ties and increasing economic collaboration. This report analyzes business opportunities between Cuba and Colombia in several key sectors, highlighting areas with potential for growth and investment.

Tourism: Tourism is an important and promising sector for both nations. Cuba is known for its tourist attraction, beautiful beaches and rich culture, while Colombia offers unique geographic and cultural diversity. Opportunities exist for cooperation in joint tourism promotion, exchange of experiences and investment in tourism infrastructure.

Agriculture and Agribusiness: Colombia has extensive experience in agriculture and agribusiness, while Cuba has natural resources and a favorable climate to boost agricultural production. There are opportunities for cooperation in technology transfer, modernization of agriculture, exchange of agricultural products and implementation of joint projects in the agro-industrial sector.

Renewable Energies: Both Cuba and Colombia are seeking to diversify their energy matrix and promote the use of renewable sources. Opportunities exist for collaboration in the development of wind, solar and hydroelectric energy projects. Colombian experience and technology in this field can benefit Cuba in its transition to cleaner and more sustainable energy.

Pharmaceutical Industry: Cuba has a recognized pharmaceutical industry and a tradition in medical research. Colombia, for its part, has a solid base in the production and export of pharmaceutical products. Opportunities exist for collaboration in joint research, knowledge sharing and investment in pharmaceutical production.

Infrastructure and Construction: Cuba needs to modernize and develop its infrastructure to boost its economy. Colombia, with its expertise in construction and engineering, can offer investment and cooperation opportunities through infrastructure development projects such as roads, ports and airports.

Information and Communication Technology (ICT): Both countries can benefit from collaboration in the ICT sector. Cuba seeks to improve its telecommunications infrastructure and expand Internet access, while Colombia has experience in this field. Opportunities exist for investment in digital infrastructure, exchange of experience and expertise, and collaboration on software development projects and technology services.

Final considerations

Cuban foreign trade is characterized by its dependence on imports, concentration on traditional exports, limitations imposed by financial and trade restrictions, and efforts to diversify the economy and strengthen international trade relations. Promoting foreign investment, modernizing infrastructure and improving competitiveness are key elements in boosting foreign trade and the Cuban economy as a whole.

This report highlights the complexity and challenges facing Cuban foreign trade, as well as the opportunities for moving toward greater integration into global markets and a more diversified and sustainable economy.

The Partial Scope Economic Complementation Agreement No. 49 between Cuba and Colombia seeks to strengthen trade and economic ties between the two countries, fostering the exchange of goods and services, technical and scientific cooperation, and the promotion of investment and regional economic integration.

Cuba and Colombia have significant potential to increase their economic and commercial collaboration in various sectors. The development of joint projects and investment in areas such as tourism, agriculture, renewable energy, pharmaceuticals, infrastructure and ICT can generate mutual benefits and strengthen bilateral ties. Both countries can take advantage of the existing legal framework, such as the trade agreements within the framework of ALADI, to facilitate trade and promote economic growth. It is advisable to establish cooperation, promotion and investment facilitation mechanisms to make the most of these opportunities and foster a solid and beneficial trade relationship for both nations.

The Commercial Agreement is available at  http://www2.aladi.org/biblioteca/publicaciones/aladi/acuerdos/ace/es/ace49/ACE_049_Rectificado.pdf

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Author: Armando Amorós