MTU Friedrichshafen and Hyundai Heavy Industries executives probably didn’t know what “hit” them earlier this year, when their Cuban subsidiaries landed contracts to sell a total of 180 diesel engines to Venezuela. The generator sales of the German and South Korean manufacturer were small, but companies doing business with the island better take note. There’s a bigger story behind the sale—Cuba is not only breaking out of the cage built by the neighbor to the north, it is taking the first steps to becoming a launch pad for business to other markets. Partly due to the more than four-decades old US embargo against Cuba, foreign businesspeople still see the island as one of the most isolated markets in the world. But in rapid succession over the past three years, Cuba signed an accord with South American trade bloc Mercosur and occupied the rotating presidency of NAM, the 113-member bloc of developing nations. Most importantly, Cuba and Venezuela in late 2004 started the Bolivarian Alternative of the Americas. And within that trade and integration agreement, known by its Spanish acronym ALBA, the Cuban government is beginning to act as an intermediary for sales to other member nations. Cuban trade with Venezuela is already important. And, although exports from Cuba to ALBA members Nicaragua and Bolivia are still small, companies that sell Cuba goods ranging from aircraft to medical systems, from generators to frozen chicken, from mining equipment to buses stand to gain if they understand the new business opportunity. Because ALBA’s philosophy is based on the state as a primary economic player, the Cuban government could become the go-between for other member governments with private-sector suppliers in areas where it has more expertise or leverage than its partners. The mechanism for the MTU and Hyundai generator sales, for instance, was Cuba’s “energy revolution,” a new concept of decentralized electricity generation coupled with energy savings. Under this modernization effort, Cuba’s Ministry of Basic Industries has bought some 1,300 small and midsize generators since 2006 from a variety of manufacturers in Europe and South Korea. As the Cuban government is now trying to export its energy revolution to other developing countries troubled by systemic blackout problems, the 180-generator sale to Venezuela may soon be seen as just a beginning. Another mechanism on which foreign companies—particularly German medical equipment manufacturers—have been piggy-backing recently is “Operación Milagro,” the free eye surgery program fueled by Venezuelan petrodollars. Under Milagro, Cuba is building dozens of clinics not only in ALBA member nations, but all over Latin America, using cutting-edge laser surgery technology. Medicuba, the healthcare agency that has long funneled drug and medical equipment imports into Cuba, is probably the main buying agent for the eye surgery program. There are other state institutions in Havana that have the potential of playing go-between roles within ALBA. State food importer Alimport S.A., for instance, has years of experience buying food and agricultural commodities anywhere on the globe. Unecamoto, the state automobile company, is gaining experience of assembling vehicles in joint ventures with foreign manufacturers. Cubasolar has an ambitious program to manufacture and install solar panels in rural areas of the island; it recently began to export its expertise to Africa.
If ALBA keeps expanding at the breakneck speed Venezuelan President Hugo Chávez has been pushing it over the past 12 months, more and bigger opportunities should open up soon. The “grandnational” companies the ALBA partners are planning to set up as multilateral joint ventures of state entities will have to buy hundreds of millions of dollars worth of goods and services to get started (see sidebar 1). To be sure, whether ALBA can expand and thrive is far from certain. For one, ALBA started out as a project driven by Venezuelan petro dollars, and as a very personalized instrument of Hugo Chávez and Fidel Castro. Since Castro was sidelined by disease, it is mainly Chávez who has been pushing ALBA ahead, sometimes setting overly ambitious deadlines. Only late this year did the three-year old agreement receive some institutional structures (see sidebar 2). Even after the creation of a permanent secretariat, the pact remains a somewhat opaque institution. The official ALBA Web site is short on detail and only provides cursory descriptions of agreements, as published by Cuban and Venezuelan state media. The only place to find the full text of some ALBA agreements is the Web site of Venezuela’s foreign ministry. The “Bolivarian” integration of Latin America is a core part of his project (it was going to be written into the reformed constitution).In this context, the narrow defeat of Chávez’ constitutional reform referendum December 2 will certainly impact cooperation with Cuba and the expansion of ALBA. Alluding to possible mayhem in Venezuela, Fidel Castro warned Cubans in a somber editorial November 30 about the chance of a return of harder times. Indeed, even if unsuccessful, efforts to overthrow or kill Chávez—the driving force behind Venezuela’s international ventures—could trigger major conflict inside Venezuela, which would likely put on hold the country’s integration efforts. Even if the Venezuelan government continues on an even keel, cooperation with the island and ALBA may lose some speed for a while because Chávez will be busy getting his revolution at home back on track. But, chaos and massive oppression aside, there’s no viable political alternative to Chávez in Venezuela.
Another problem: The pact has been facing a poverty challenge from the get-go. ALBA, thanks to its focus on complementary development and social justice, has attracted the poorest nations in the hemisphere. Most of these nations, dragged down by low-skill populations and poor infrastructure, used to compete with each other as primary-sector exporters rather than cooperate. Venezuela, flush in petrodollars, is the only deep-pocketed member. Everybody else so far depends on Venezuela’s largesse. Nicaragua has the lowest per-capita income of Central America, Bolivia is the poorest nation in South America. The two next nations standing in line for ALBA membership, Haiti and Ecuador, are also at the bottom of the wealth barrel in the hemisphere. Therefore, everything hinges on continued domestic support in Venezuela for their government’s subsidies to the development of other nations. What’s more, ALBA is not a contiguous block of neighboring nations. The geographical distance makes trade expensive. Importing soybeans from Bolivia, for instance, is currently cost prohibitive for Cuba. The landlocked South American nation doesn’t even have a port. Also, ALBA started out as a very personalized instrument of Hugo Chávez and Fidel Castro. Since Castro was sidelined by disease, it is mainly Chávez who has been pushing ALBA ahead, sometimes setting overly ambitious deadlines. Only late this year did the three-year old agreement receive some institutional structures (see sidebar 2). Even after the creation of a permanent secretariat, the pact remains a somewhat opaque institution. The official ALBA Web site is short on detail and abounds with cursory descriptions of agreements, as published by Cuban and Venezuelan state media. The only place to find the full text of some ALBA agreements is the Web site of Venezuela’s foreign ministry. Last but not least, the ALBA movers have not yet answered the crucial question of how they will finance the ambitious project. While the Banco del ALBA, created to pay the setup of the “grandnational” projects, is scheduled to start in December 2007, precise information about its funding had, as of November, yet to be released (see sidebar 3). In spite of such challenges, ALBA is the hemispheric agreement that has already made the biggest impact in the shortest amount of time. Thousands of Cuban doctors have spread out in the most underserved areas of Venezuela, Bolivia and Nicaragua, providing services that help stabilize the lives of millions of the most vulnerable people. Thousands of medical students from Bolivia, Nicaragua and Venezuela are now studying in Cuba. Cuban teachers have brought massive literacy campaigns to hundreds of thousands of adults who couldn’t write or read. While many economists pooh-pooh such progress as “soft,” it is actually a necessary first step to turn millions of marginalized people into active participants in their national economies. If Bolivia and Nicaragua don’t cover these bases, they would never be able to become interesting economic partners to their Latin American peers. Venezuela, whose population has benefited from similar policies (in combination with hefty state spending) for nearly a decade now, is making strides. If official statistics are correct, the non-oil sector of the economy grew 9.7 percent during the most recent four-month period—a major success from an economic development and diversification standpoint. For most Cubans, the benefits of its close relation with Venezuela are obvious. While there is some grumbling about the lack of doctors, nobody denies that Venezuelan oil supplies and imports of construction material, textiles, shoes and consumer goods have already made a big difference. As do rising Cuban service and goods exports that are paid partly in oil, partly in hard currency. And while Cuban trade with Bolivia and Nicaragua still is negligible, it is likely to grow if these countries are increasingly able to pay for their needs and find products to export. A half-dozen of the generators sold to Venezuela via Cuba, for that matter, ended up in Nicaragua, fixing an immediate need in that blackout-prone country. If Nicaragua adopts Cuba’s energy revolution, MTU and Hyundai better ready themselves for bigger contracts. |
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