Cuba libre time for Russian investors heading to Havana

Cuba libre time for Russian investors heading to Havana
A street in the Cuban capital of Havana, which is about to see a flood of Russian investment as the country opens up.
By Jason Corcoran in Moscow March 1, 2016

Pioneering investors from Russia are sizing up investments in Cuban real estate, transport, hospitality and food catering as the Caribbean island nation emerges from 50 years of isolation.

John Rose, an American who set up Moscow’s first-ever advertising and public relations agency in 1989, is in the vanguard of the mini-Russian invasion and has founded Cuba’s first-ever media, marketing, advertising and PR group.  

His firm Rose Marketing, which has worked in Russia with Coca-Cola, Starbucks, Citigroup, Samsung and GSK, amongst others, has already set up an operation in Havana and hired four consultants.  

Rose and other investors from Moscow are betting that the thawing of relations between the US and Cuba will present opportunities to other countries with deep historical and economic ties. Cuba became closely allied with the Soviet Union in 1961 after US President John F Kennedy sent CIA-sponsored Cuban exiles order to overthrow Fidel Castro in the disastrous Bay of Pigs Invasion. The subsequent Cuban missile crisis brought the world to the brink of nuclear war and cemented Castro’s reliance with Moscow until the breakup of the Soviet Union.

“The problem with a lot of media is that they are focusing on the US changes and not on what on Cuba is reacting to,” Rose tells bne IntelliNews in a Moscow interview. “But Cuba and America are not exactly on the same wavelength, and the Cubans tell me that they don’t want to just lie back and open their legs for the Americans.”

A group of Russian private equity investors are also putting together a ‘Russia Cuba Investment Fund’, which is seeking to invest in tourism, energy and power, agriculture, transport infrastructure and public catering. 

The firm, WFA Russia, recently hired Alexander Savinov as a director of investment and finance. A former adviser at the International Finance Corp. and Russian private equity firm Quadriga, Savinov tells bne IntelliNews that the Russia Cuba Fund is planning an event soon that will publicly outline its targets, backers and strategy.  

The fund’s chief executive is Gary Chaglasyan, the founder and chief executive of InterDining Group, which specializes in operating theme restaurant concepts in Moscow such as the Hard Rock Café, the Hungry Duck and Taco Bar.

The Russia Cuba Fund is seeking to attract investment from high net worth family offices and sovereign funds, which are believed to include Russia’s Direct Investment Fund. 

“Russia has deep experience with Cuba,” Kirill Dmitriev, the CEO of Russia’s Direct Investment Fund, said in a December interview. “So investment in ports and airports is quite interesting given the potential growth of the Cuban economy.”

Ties that bind

The Russian state is doing its bit. In July 2014, Russia agreed to write off 90%, or almost $32bn, of Cuba’s Soviet-era debt after President Vladimir Putin came to broker energy deals and renew ties with the Castros.

Russiam state firms Rosneft, Inter RAO and RusHydro all signed agreements with Cuban counterparts at a ceremony in Havana. An Inter RAO deal on four energy generation units with Cuba’s Union Electrica is valued at €1.2bn.

Russian airline Aeroflot and the UAE are also planning to build a hub airport for the Americas in Havana at a cost of $200mn.

Direct flights from Moscow to Cuba is a great advantage, but Rose, as an American, can only do so much and his firm is leveraging its Russian staff and connections with the Russian embassy in Havana to get ahead. “Our timing is not so much because things are going the way they are in Russia,” says Rose. “It’s really because I have been looking at Cuba for a long time and now seems to be the right time. We continue to work in Russia, but it’s not exactly an advantage with the ruble being upside down, which doesn’t fund us very well. “

Rose, who has been going to Cuba for 14 years, has had to set up a representative structure and an operational structure and can work in two currencies with local and international partners like he did back in the Soviet Union. The process of setting up any business venture in Cuba is “mui complicado [very complicated],” according to Rose. “Nobody knows how things will be in the future and people are going through the process of experimenting, which is kind of what happened in Russia,” says Rose. “So it’s like I will open up a business and I will be one of those guys who get sent to jail or I will be the first of those guys who don’t get sent to jail.”

Samsung, which has been a key client of Rose’s for years, is looking to enter Cuba and is working with Rose about potentially entering the market from Panama. Most sales in Cuba are done through trades shows and Samsung had a large pavilion showcasing their TVs and Galaxy Note phones at the most recent event.

Rose’s first ever trip to Cuba was in 2002 to the world famous Havana cigar festival, where he posed as a Canadian and managed to get a selfie with Fidel Castro behind him. In 2004, he returned and has been going back twice to three times a year, and now he goes every second month.

His involvement in Cuban business was also stimulated by his shareholding in Moscow restaurant Floridita, modelled on one of Ernest Hemingway’s favourite Havana haunts. “We opened up Floridita on Arbat, which was part of a process of working with Havana Holdings,” he explains. “That was their first endeavor to work with restaurants and then they expanded into travel business and importing products into Cuba. I got first-hand chance to observe how things are coming together with joint ventures, and how things are changing in Cuba and what can be done down there in terms of the business.”

Much of the media reporting of Cuba’s potential consumer market focuses on the average salary of $20-30 a month. But at least a third of the country receives remittances from the US, which is very significant. Cubans are also hugely resourceful and they found ways to supplement their income to get that up to several hundred bucks.

Caribbean hub

Cuba currently has little to no advertising or public relations, and so far prohibits mass media from accepting ads. Rose’s firm is planning to organize Cuba’s first marketing and media summit in Havana in May to help stimulate the market.  

From a marketing communications standpoint, Cuba is in much the same state as Russia was when Rose came to Moscow in the late 1980’s. In Russia, Rose erected some of the first billboards, drew talent from the film industry to create some of the first commercials on Russian TV, painted the first ads on buses and trolleys, and ran the first promotions and contests.

“I was in Cuba when [former Venezuelan president Hugo] Chavez died [in 2013] and that was a national day of mourning and also the signal for many of these changes now and the idea that we can’t be hitching our wagon to any one nation,” recalls Rose. “It doesn’t mean there will be a McDonald’s there. Cuba’s mission is to be on a level playing field and to retake their position as a hub for the Caribbean.”

In November, the Cuban government published a Portfolio of Foreign Investment Opportunities document outlining which infrastructure where they would like to attract foreign investment. The document focused on nearly 250 projects that would require about $8bn of investment in the short term and $20bn over the medium to long term.

Many of the projects are in sectors where Cuba wants investment to boost the local economy and potentially ramp up exports. Nearly 100 projects are in energy, 56 in tourism and 32 in agriculture and food production.

Purchases of goods from Western companies is still made by centralized state enterprises that focus more on price rather than quality, according to Rose. “Samsung say they have to watch the weather, says Rose. “If there’s a big storm, Cuba won’t buy so much because they have to spend money on whatever was broken during the storm. It’s one pocket and ultimately they redirect the money just like they did in the Soviet Union.”