Despite high hopes for business development in Cuba, two major factors inhibit European banks from lending to the fledgling economy. The threat of sanctions from the U.S and Cuba’s “rock-bottom” debt rating give bankers in France, the UK, Germany and Switzerland pause, thus stalling big and small projects alike. The sanctions problem originates with a currency embargo, enacted post-WWII and recently ended with the Obama administration’s commitment to “normalize” economic relations with Cuba in 2014.
Concerning the issue of credit, a debt-to-projects conversion fund set up by the French and Cuban governments would provide a guarantee for loan-term loans from the French development agency AFD. Moody’s has also upgraded Cuba’s debt rating from “stable” to “positive outlook” and multilateral lenders such as CAF-Development Bank of Latin America are making an effort to include the previously outcast Caribbean country.
The outlook for returns and potential revenue are optimistic but the threat of fines being imposed on third-party European countries by the U.S. that keeps the financiers at bey; and makes competing for a $500 million Havana airport project and more than $1 billion in renewable energy projects an exercise in frustration. This is especially true for small start-ups like Andrew Macdonald’s Havana Energy. An inability to secure funding for his project over the past few years ultimately led him to sell the majority stake of the company to the China-based Shanghai Electric Co. Ltd. – which is less threatened by the chance of sanctions from the U.S.
Residual fear from the U.S. embargo, combined with vague rules regarding the “normalization” of Cuban-American relations, paves the way for international lenders outside the European-American consortium. Along with China, banks in Spain and Canada, the National Bank of Qatar, and Panama’s Multibank are all in the process of opening representative offices in Cuba. What is a conundrum for investors in Europe and the U.S. may become an opportunity for financiers of the global South.
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