Imagining Cuba after Chávez

Venezuelan President Hugo Chávez views Cuban revolutionary and former president Fidel Castro as his mentor, his “father.” The two countries have grown intertwined both ideologically and economically since Mr. Chávez rose to power in 1998.  

Cuba and Venezuela have grown so close, in fact, that at one point in 2005, Cuba’s Vice President Carlos Lage declared “We have two presidents: Fidel and Chávez.” Perhaps a moment of hyperbole, but the statement speaks to the growing dependence that Cuba has on Venezuela, long after it lost its cold war ally, the Soviet Union.

Venezuela provides Cuba with between $5 billion and $15 billion annually, nearly a quarter of the communist island's $63 billion GDP, depending on the figures that are banded together by various sources. Neither government supplies the public with official numbers. In exchange, Cuba provides Venezuela with needed human capital, like skilled doctors and sports coaches. 

But Chávez is battling cancer, and he faces his strongest opposition since he took office more than a decade ago. A potential loss of Chavismo, as Chávez’s left-wing ideology is called, would surely transform the oil-rich, South American nation. And it would have an equally big impact on Cuba.

“If Chávez were to lose power, Cuba would be more adversely affected than any other country. The impact on the Cuban economy would be enormous,” says Michael Shifter, president of the Inter-American Dialogue. “Cuba’s current leadership, no doubt aware of such an unhappy prospect, is trying to undertake economic reforms in part to offset such a blow.” This includes attempts at diversifying investors and creating a new class of entrepreneurs not dependent on the government’s payroll.

There are clear historical parallels for Cuba should Chávez fall. The so-called Special Period, following the collapse of the Soviet Union, saw Cuba left in chronic economic crisis as Havana was no longer able to offset the US embargo. The economy contracted 35 percent between 1989 and 1993, and oil imports decreased nearly 90 percent in that same period. The Cuban people were plunged into food shortages, some losing up to a quarter of their body weight.

"It was horrible," says one elderly man, walking along Havana’s seawall. He declined to provide any personal information because he feared retaliation from the state. "We had nothing, no food and no money but we survived.”

He blames the US embargo for Cuba’s isolation. Initiated in 1960, the embargo was designed to persuade Cuban authorities to move towards “democratization and greater respect for human rights,” however, the policy encourages this by limiting trade between Cuba and US companies. As a result, Cuba’s crumbling buildings and postcard-friendly old American cars have left the country looking like it is stuck in a time warp.

 The rise of Chávez

Life for Cubans began to improve when Chávez came to power in Caracas in 1998, nearly a decade after the Soviet Union fell.  The former paratrooper was looking to launch his own “Bolivarian,” socialist revolution in Venezuela, and saw Fidel Castro as his mentor. He admired Castro’s revolutionary zeal, and Chávez lavished oil and cash on his ideological ally.

Today, there is the real possibility that Chávez may not win or survive another six-year term. Venezuelan opposition leader Henrique Capriles Radonski – who recent polls say would likely lose to Chávez, but beat any other candidate from the incumbent party – says maintaining such high levels of investment in Cuba is not a given if he’s elected in October.

“Venezuelan money will no longer be used to gain personal loyalties,” Mr. Capriles says. In his enthusiasm to woo voters from across the political spectrum — including Chavistas — the centrist politician rarely makes precise policy statements, making it difficult to ascertain exactly what the future will hold.

New investors on the horizon

In late January 2012, an oilrig sailed from China into the 90-mile stretch of ocean between Cuba and Florida. It is Chinese-built, Italian-owned, and is to be used initially by Spanish, Norwegian, and Indian firms – a sign of Havana's strategy to diversify support and reach out to new investors.

As the oilrig shows, there is no shortage of countries willing to take a second look at Cuba, particularly in light of government statements that the waters contain around 20 billion barrels of oil.

One of Latin America's biggest investors in recent years is China, lending more to the region in 2010 than the World Bank, Inter-American Development Bank, and the Export-Import Bank of the United States combined. Relations between China and Cuba have warmed since the Special Period of the 90s. 

“If you look at what China has been doing in other countries, it hasn't been an ideological partner but a very capitalistic one,” says Gabriel Zinny, managing director of Blue Star Strategies in Washington. Mr. Zinny believes Cuba is in a much better position now than in the 90s, largely because it is trying to diversify investors.

“Cuba can reach out to investors in its own region [now],” he said. “[It] didn't have this opportunity when the Soviet Union collapsed because Latin America was not powerful enough in terms of capital.”

A number of politicians in the US have voiced anger at drilling in the Florida Straits, saying the US government should make companies “bleed” should a spill take place. While the rhetoric is designed to play on memories of the Deepwater Horizon/BP oil spill in 2010, it is one manifestation of an anti-Cuban sentiment within the US, bolstered by Miami's exile community. Also, the investment opportunities for foreign companies in Cuba may be frustrating for some US firms.

“Countries doing business with Cuba right now … will have a competitive advantage in the case of [a Cuban] regime change,” says Alejandro Grisanti, head of the Latin America Economics & Strategy team at Barclays Capital.

There are a number of business sectors in the US that are disappointed by the constraints of the embargo, says Boris Segura, a Latin America economist at investment bank Nomura. “There are a host of sectors that feel they are losing business to European companies [and] China,” Mr. Segura says, mentioning agricultural, oil, and pharmaceutical sectors.

Growing business from within

Cuba is making small-scale domestic changes as well. Cubans are now able to open up private — though heavily taxed and regulated — restaurants and guesthouses. Frequented by tourists, these businesses bring in valuable currency, and frees the Cuban government of nearly 371,000 people from its payroll. These steps towards capitalism may be slow, however, they could soften the economic blow if Chávez’s successor drastically cuts investment in Cuba.

Cuban economist Oscar Espinosa Chepe was imprisoned during the Black Spring crackdown of 2003 for crimes against the state, before being released 18 months later. In his tiny Havana home, filled with books and newspapers, he talks of how the government once took over the flat above his to install listening devices.

“Chávez is more important than the Castros,” Espinosa says. “He's this country's umbilical cord.... It won't be the same as in the '90s. It will be worse, much worse.”