See all Insights

Seizing Cuba’s Opportunity to Get Back to the Future: The Post COP21 Sustainability-Based Economy

By Dr. Julia Sagebien

Contemplating the fate of a post-embargo Cuba has been a popular pastime for some time. As of the 17th of December 2014 the pastime has hit a feverish pitch. Inside Cuba, popular expectation for an improved standard of living is high, as is the government’s assertion that these improved conditions will be achieved within the parameters of socialism and a state planned economy. Outside of Cuba, especially in the USA, the general sentiment seems to be: ‘we better get to there before we (the Americans, that is) ruin it’. As for Cuba’s long-time business and diplomatic partners such as Canada and the EU, the concern appears to center around the question: ‘will they still love us tomorrow?’ But rather than crystal ball gazing and reacting with hope, fear or indifference, perhaps observers could instead ask themselves: how can Cuba leverage the particular internal and external circumstances facing both the country and the world at large, at this point in time, in order to achieve an optimum outcome in terms of economic well-being, the preservation of long-held values, and contributions to global sustainability? A sixty billion dollar question for sure, but oddly enough, one with a possible feasible answer. This short essay explores a most unusual constellation of circumstances, considers two options, and suggests a course of action meant to foster the exploration of an optimum outcome.

10 Causes and Conditions

1)    Logros de la Revolucion - High Levels of Technical Education: Cuba has for over half a century invested heavily in basic education as well as technical, professional and scientific training. Its work force is educated, skilled, hard working, polyglot and used to foreign partnerships. The country has managed to maintain a small but impressive biotechnology center of excellence as well as a very active medical school despite serious the economic woes.

2)    The Collapse of the Soviet Union and the Contraction of Productive Capacity - The 1989 break of COMECON and the end of Soviet largesse ushered in a precipitous contraction of the economy. This ‘Special Period’, in turn, crippled Cuba’s productive capacity and over time, rendered its physical and industrial infrastructure fundamentally obsolete.

3)    The “Accidental (and the Proactive) Eden”: The US embargo and the collapse of the Soviet Union both made “accidental” contributions to the survival of Cuban wildlife, to the adoption of organic and low-intensity methods of food production, and to low levels of industrial overall carbon-emissions. Since 1992, however, the country’s relatively enviable environmental record has also been the result of top leadership and proactive environmental policies, even in to some degree in sectors such as tourism, the country most important economic lifeline.

4)    The Updating of the Cuban Economy and the Expanded Space for Enterprise. The 2011 Lineamientos ushered in an era of enterprise renewal in the state sector, as well in the non-state sector (cooperatives and “self-employed”). This industrial restructuring was soon followed by a new foreign investment law and by a campaign aimed at attracting FDI. The unification of the two currencies (convertible and peso) will put further pressure on enterprise efficiency and competitiveness. Though still very much a state controlled economy with numerous challenges and distortions, entrepreneurship at all levels seems to be having a revival.

5)    “17 D” the Beginning of the End of the Embargo: the surprising announcement of the rapprochement has been followed up by concrete actions by both governments. Diplomatic relationships have been established and efforts to renew trade and travel, and even security relations, are underway. Despite the support of US public opinion and of the business lobby, the complete lifting of the embargo, however, remains less than certain given the need for Congressional approval.

6)    “17 D Plus”, the Lifting of the International Bell Jar: The US-Cuba rapprochement also allows for Cuba’s progressive full reinsertion into the global economy a status that had been hampered by draconian US efforts to isolate the island financially. In order to take advantage of these opportunities, Cuban companies, especially those in joint ventures and in dealings with international banks, will have to ‘update’ their accounting and financial reporting methods since they still echo Soviet planning methods, reflect multiple internal currency transfer pricing schemes, and are rarely made public in order to foil the US embargo. Companies will also have to observe greater levels of accountability and transparency since they will be subjected to corporate responsibility scrutiny by foreign entities. This implies that the Cuban government’s choice of joint venture partner would be well-served by a careful analysis of the partner’s global corporate responsibility record

7)    The Big Bang - Cuba and the IFI’s An aspect of the re-insertion in the international financial system is the prospect of re-joining the IMF, the World Bank and Inter-American Development Bank, essential players in the island’s re-industrialization. For Cuba’s redevelopment, this is the big bang moment. Some are of the opinion that Cuba has not been proactively seeking readmission to the IFIs because it does not want to open its books to international (or national for that matter) scrutiny, or to establish standard or transparent financial accountability methods. Cuban leaders will have to have find positive quid pro quo that makes going forward quickly worthwhile.

8)    US Immigration Reform and the Acceleration of The Brain Drain: Cuban political asylum seekers and economic migrants alike have for decades benefitted from preferential US immigration policies. Spain’s policy to grant Spanish citizenship (thus EU passports) to foreign-born individuals who could prove their grandparents were born in Spain had thousands of Cubans researching their family trees. The recent weakening of Cuba’s restrictions on its citizen’s travel abroad further increased the ease of emigration. Well-established and economically prosperous Cuban communities in the US (and to a lesser degree Spain) have made relocation abroad a very attractive prospect. Since 17 D, the well-grounded fear that the US is about to end its preferential treatment of Cuban immigrants – has turned to trickle of migrants into an exodus. A redeveloped Cuba must find a way to stop this debilitating brain drain by offering its youth attractive career prospects and to reverse the flow to some extent by attracting a new generation of transnational Cubans who stride both sides of the Florida Straits.

9)    COP 21: This Time Business is Ready and Willing. The fact that global survival is dependent on a radically different approach to production, consumption, energy and transportation has been clear for some time. Recently, it has become irrefutable (bar a segment of the US Republican electorate). Nation-states with the assistance of supra national organizations and NGOs must lead the way in the creation of a policy environment that can spur such a transformation. Significantly COP 21 is the first Climate Change Conference that is being backed by important sectors of the business community, as well as by the financial muscle needed to bring about this transformation. The companies and investors that are leading the charge for a low carbon economy are obviously betting on first mover competitive advantages and considerable profits for the long term. Though relatively new in its coherence and stridency, there is evidence that this coalition is already affecting world markets positively. Since the majority of emission is likely to come from the developing world, the developed countries and the business and investment community is considering approaches to decarbonization that include the reduction of emissions in a fair and equitable way. Developing countries must be enabled to power their economic growth while reducing emissions, and this will require even more forward thinking business innovation and investment.

10)Venezuelan Cheap Oil Supplies Threatened: On of December 7, 2015, Venezuela's opposition party claimed the majority of seats in the National Assembly. This major shift in power in the legislative branch away from the Bolivarian Revolution is likely to threaten the continuation of the cheap oil for Cuban doctor’s lifeline that has maintained Cuba’s albeit weak growth. Cuba’s oil and gas rich ALBA allies have balked at developed country calls for them to lower their fossil fuel production in the global effort to lower CO2 emissions. But the fact that, to date, Cuba has no known and/or operational major oil or gas reserves and its hydro-electric energy generating potential in extremely low, may make it palatable for the island to take a radically different position on energy production without alienating its closest allies.

Two Options:

Cuba has faced many crossroads in its unique history. The constellation of issues outlined above suggests that the future of Cuba will depend heavily on the kind of industrial model it adopts in its redevelopment.  In essence, Cuba has an opportunity to either:

a)    Adopt a 19th century industrialization mode of heavy industry, low wage manufacturing and tourism service sector, high carbon energy sources; or

b)    Take advantage of this ‘momento coyuntural’ (specific moment in place and time) in its own history and in the global response to climate change to leapfrog into a 21st century industrial economy of highly paid knowledge workers, innovative science based R&D, and low-carbon production modes.

Though Choices A and B are far from mutually exclusive choices and will, by necessity, co-exist in the future, Choice B is the obvious optimum choice. Many in and out of Cuba have envisioned and wished for feasible Choice B, however the capital and partners were lacking. What makes Choice B actually feasible this time is that Cuba’s national priorities, as described above, are in line with global external resources committed to innovation in decarbonisation in both developed and developing countries (i.e. possible joint venture partners, IFI and private investment capital, and greener global regulatory regimes).

The pursuit of Choice B will entail a very proactive approach from Cuban planners. Rather than wait for joint venture partners and investor interest to complement the portfolio of traditional industries the country has attempted to market, the Cuban government should instead proactively pursue the companies that best fit the development of a low carbon industrial policy through sustainable business models. This in turn would require visionary thinking on the part of the country’s economic planners, a substantial period of mutual exploration, research on options, conversations and negotiations. But it is possible, it can begin to take place now and it has the potential to create a niche for Cuba’s emerging economy and development model as a global leader in technological and industrial responses to climate change

One “To Do” - Explore the Development of a State-led Low Carbon Industrial Policy Based on Sustainable Business Models.

  1. The Cuban Government: For over 55 years Cuba’s development has been guided by its egalitarian socialist values, a strong need to protect the country’s sovereignty, a leading role for the state as planner and producer, and more recently, by a commitment to environmental protection. These four factors will undoubtedly continue to provide the essential pillars of any development policy as well as sine qua non conditions for any external proposal. Therefore, any consideration of the issues and options outlined above must begin with the fostering of a positive and supportive climate of opinion within Cuba’s highest circles of power.
  2. European Union – Trusted interlocutors are absolutely essential in the success of any Cuba-related endeavour. The EU is one such interlocutor. Moreover, the EU has developed strong environmental leadership through a combination of policy and the fostering of private green ecosystems. Its installed ‘green’ base, its commitment to the use of policy mechanisms while at the same time fostering private initiative is unmatched elsewhere. Moreover, the recent Paris Club-Cuba debt agreement should further favourably position EU projects and companies.
  3. The IFIs and International Aid Agencies– The IFIs would have to provide the bulk of the development investment, supported by Canadian (CIDA) and European aid agency cooperation. International private foundation money for green and or low carbon research and development could also provide some funding. For example: Could Bill Gates fund a Cuban research center on climate change adaptation for coastal zones that could then export this knowledge to other small tropical island countries? Could Cuban scientist join international efforts to explore the pluses and minuses of climate engineering? Could Cuban ingenuity be used to develop low cost technological solutions for developing world consumers?). In addition number of international agencies and NGO’s with successful track records in Cuba such as the UNDP could consider ways to adapt their development projects in pursuit of low carbon innovations.
  4. Business and Investor Coalitions – As mentioned earlier, business and investment readiness for launching into an era of decarbonization is advancing swiftly. Preliminary research indicates that there are business coalitions and organizations that would consider entering into exploratory conversations with Cuban authorities (e.g. Business for Social Responsibility, We Mean Business, The Circular Economy, the World Business Council on Sustainable Development and the UN Global Compact) on how their concepts, projects and business ideas could be woven into Cuba’s redevelopment. These players would, however, be better received by Cuban officials if they were part of a working group under the guidance of trusted international interlocutors.
  5. Knowledge Partners - Environmental and development NGOs (e.g. EDF, Oxfam, CARE Canada), environmental and economic think tanks and university researcher (e.g. Center for the Study of the Cuban Economy, International Development Research Canada, and specialized low carbon and alternative energy centers) could help Cuba explore these options.

A FINAL CAVEAT - NO ES FACIL. Working in Cuba can be exasperating, frustrating, confusing and contradictory, especially when the bureaucratic machine is frozen and overwhelmed by the enormity of the task at hand and the scarcity of the resources. Moreover, one always runs the risk of offending Cuban sensitivities, especially when they might not be well versed on the recent advances by private industry, investors and mega philanthropists in pursuit of a low carbon future. Nonetheless, if successful Choice B would offer a ground breaking solution for development in a post COP 21 world.  It is well worth a try and support from all quarters.