Why relations with the Asia-Pacific are central to Cuba’s future

The Asia-Pacific (APAC) is of great importance for Cuba’s international relations, even more so in the current context of the country’s economic transformation, the US trade and financial embargo and the crisis generated by the Covid-19 pandemic. Historically, the areas closest to Cuba, such as the Americas and Europe, have had a close and direct relationship with Havana. However, Cuba’s links with Asian nations are very deep and have grown deeper over the years. APAC is the only region with countries with political systems similar to Cuba’s. Meanwhile, in the trade sector, it is the third most important partner for Cuba, and the second in terms of exports.

APAC is one of the regions exhibiting the greatest amount of political support for Cuba on bilateral and multilateral issues. An example of this is the region’s rejection of the US trade and financial embargo against Cuba. It is no coincidence that Asia was the destination of the first official trip of Cuba’s newly elected President Miguel Díaz-Canel Bermúdez, in November 2018, taking him to Russia, North Korea, China, Vietnam and Laos.

The Cuban President’s visit to these countries is a reminder of historical relations and their importance in the continuity of the Cuban process at a time of generational change. The warm welcome offered by each country to President Díaz-Canel Bermúdez can be seen as a gesture of rapprochement and interest in strengthening ties even further. Since 2018, Cuba has been experiencing a change in leadership with a new Constitution. The country is going through a new set of changes in political system and economic model.

The level of political agreement and mutual trust with Russia, North Korea, China, Vietnam and Laos contributes to the widening of areas for economic and financial relations. In particular, China and Vietnam are Cuba’s main trading partners in Asia. With the visit of the Cuban President to Beijing in 2018, the Caribbean country officially joined the Belt and Road Initiative (BRI). China is Cuba’s second largest trading partner worldwide, while Vietnam is the main APAC investor in Cuba. At the same time, Vietnam is the first country to obtain the concession of the first industrial park in the Mariel Special Economic Zone (SEZM).

Hanoi and Havana have a Bilateral Economic Agenda that defines the strategic economic sectors of the relationship. The two countries signed a Bilateral Trade Agreement that reduces tariffs on a large number of products. This agreement entered into force in May 2020 with the perspective of increasing bilateral trade to US$500 million by 2022. Cuba and Vietnam have mutual investments and cooperation in different sectors such as education, healthcare and agriculture. More recently, with the advance of the Covid-19 pandemic, both countries have been increasing collaboration, with Vietnam sharing with Cuba the technology to produce diagnostic kits for the detection of Covid-19, while Cuba provided Vietnam with the technology to produce its antiviral drug Interferon ALFA-2B.

Havana’s relations with the above-mentioned nations are historical and fraternal. In addition to the close relations with these five countries, in the current context, Cuba is taking steps to advance economic relations with other APAC nations. The reasons for this push towards deeper and more varied ties to the region are two-fold: first, the US economic and financial sanctions against Cuba, and second, the complex political situation in Latin America. In these times of crisis and pandemic, the Caribbean nation understands the need to speed up its internal transformations to attract more Asian companies and investments. 

The high level of cooperation with APAC is a major feature of recent Cuban economic development. Indeed, Cuban cooperation in the fields of healthcare, education and biotechnology, among others, has reached not only Vietnam, Laos, Cambodia, China, Pakistan, Indonesia, East Timor, but also the Pacific islands.

The United States, under President Obama’s administration, began a process of rapprochement with Cuba, thus opening up opportunities in a virgin and nearby market in sectors such as agriculture, finance, aviation, tourism, manufacturing, technology and others.

The position of the Obama administration contributed to a group of APAC countries, including Australia, New Zealand, Singapore and Japan, to start showing more interest in Cuba, a trend that was stopped to a large extent by President Trump’s reversal of Obama’s policy towards the Caribbean nation. Worth mentioning is that Japan’s Prime Minister Shinzo Abe became the first head of government of that country to visit Cuba, as Havana and Tokyo have a historic 400-year relationship and 91 years of diplomatic relations. Between 1970 and 1985, Japan was Cuba’s second largest trading partner. Today, Japanese assistance and cooperation counts as one of the most significant for Cuba.

Others APAC nations like the Republic of Korea (ROK) have maintained a favorable position towards Cuba, although both countries do not have diplomatic relations. According to the latest data published by the Cuban National Bureau of Statistics and Information in 2019, Seoul was Cuba’s third largest trading partner in Asia. In terms of investment, the ROK offers Cuba great opportunities for the development of its manufacturing industry through the transfer of technology and capital.

In spite of the renewed US trade embargo, several APAC nations continue to show interest in Havana. Meanwhile, one of the biggest challenges for the Cuban government is to promote a greater presence of Asian companies on the island, especially from the region’s largest economies. This implies not only avoiding the US economic and financial embargo against Cuba, but also improving the business environment and making further progress in the updating of the Cuban Socioeconomic Model initiated in 2011.

Cuba has several trump cards to become a regional trade center in the Latin America and the Caribbean (LAC) region. The SEZM in the port of Mariel in the West and the port of Santiago in the East both benefit from central geographical position in the Caribbean, at the crossroads of North, Central and South America. An improvement in the island’s business environment, as well as a greater level of openness could place Cuba in a special investment-friendly position for APAC businesses looking to approach LAC markets.

A major concern for APAC investors remains Cuba’s dual currency system. This situation does not encourage investment in Cuban pesos by national and foreign companies. The duality of currencies implies the existence of different exchange rates that distort the economic measurements of accounting activity. At the same time, it keeps one group of companies artificially profitable and others deceptively unprofitable. Therefore, it weakens the relationship between profitability and efficiency, encourages import dependence, weakens the Cuban domestic market, causes segmentation and reduces the links of Cuban companies with the external sector. The elimination of the monetary duality is a priority for the Cuban government, but it is a process that must be done carefully and gradually.

Other factors such as greater flexibility in investment approval procedures and the reduction in project execution time are also paramount to the island’s attractiveness for foreign, and APAC, investment.

Some of these challenges may disappear with an improvement in foreign investment policy. Cuba adopted a new constitution in 2019 and is in the process of amending several laws and passing others. This is the first time in 60 years that private property is formally recognized.

APAC has large potential investors with highly competitive companies that could support Cuba’s insertion in the Industrial Revolution 4.0 and overall economic take-off. The Caribbean nation is eager for investments, not only for the development of its domestic market, but also to generate areas of connection with nearby markets in the Greater Caribbean. China, Japan, the Republic of Korea, India, Australia, Singapore, Malaysia, Thailand, Indonesia and Vietnam are potential investors.

Beyond the difficulties, it is important to recognize that not all of the existing areas of cooperation have been fully exploited. For example, India has no significant investment in Cuba, China’s presence is greater in Cuba’s smaller neighbors and Japan’s is limited. However, the greatest challenge in the current context for Cuba in its relations with APAC has to do with the intensification of its confrontation with the US under President Trump’s administration. Increased pressure from its North American neighbor affects Cuba’s economic and financial ties with Asia, even though these have not been permeated by ideological aspects and pragmatism still prevails.

US economic and financial sanctions against Cuba have prevented a greater integration of Cuba with certain Asian economies. Among the measures that most affect the Cuba-APAC relations are the prohibition of the use of the US dollar in transactions with Cuba. In this regard, Cuba has been forced to use other currencies such as the Euro, the Japanese Yen and now the Chinese Yuan. In addition, Cuba cannot receive loans from international financial institutions such as the World Bank or the International Monetary Fund. Such sanctions bring Havana closer to Beijing and Chinese financial institutions such as the Asian Investment and Infrastructure Bank (AIIB).

The current strategic confrontation between Washington and Beijing opens a space for greater cooperation between Cuba and China. Some Chinese companies have expressed a strong interest in the Caribbean nation despite US pressure. Chinese tourism in Cuba is the largest in the Caribbean (approximately 60,000 visitors annually) and the numbers have become significant even in relation to other countries and regions such as Canada, Europe and Latin America (between 200,000 and 1.5 million). Meanwhile, Covid-19 has triggered reinforced collaboration between Cuba and China in the biotechnology and medical sectors. Both countries teamed up over the production of the drug Interferon ALFA-2B.

The political will of Cuba’s government to reduce internal obstacles, better manage the repayment of its external debt, give greater confidence to foreign investors and, in general, improve business environment, will all be key to increased and significant APAC economic involvement in Cuba. With Latin America marred in political divisions, Europe focusing on domestic stability issues and Africa’s economic momentum still uncertain, the APAC region is the partner that can be most beneficial to the Cuban economy.

Picture credits: chinhphu.vn