Will the Golden Arches Soon be Soaring above the Streets of Havana?

By Jonathan Yates - July 6, 2012 | Tickers: BKW, KO, MCD, YUM | 0 Comments

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Nothing so makes a point to a country that it was on the wrong side of the Cold War as when the first Coca-Cola (NYSE: KO) is poured or the initial pair of golden arches soars above a street, announcing to all that McDonalds (NYSE: MCD) is now open for business, as is that nation.  With Coca-Cola now moving into Myanmar, the former socialist Burma, after an absence of 60 years, there are now only two countries left in the world where it does not do business: North Korea and Cuba.

Cuba looks to be next.

The United States embargo with Cuba, fully implemented after American properties were nationalized and the failed Bay of Pigs invasion of 1961, is just, plain and simple, silly.  The United States should have declared victory and ended the embargo long ago.  It is counterproductive as the embargo only denies the United States a valuable trading partner and market of 11 million consumers, about the same number of people in New York City and Chicago, just 90 miles from the shores of Florida with beautiful beaches, year round sunshine, great rum, and legendary cigars.  Furthering this point, The Pope just visited Cuba in March 2012 and called for an end to the United States embargo.

The Obama Administration has taken some steps towards opening up trade and, hopefully, eventually ending the embargo.  In November of last year, it announced plans to let student, church and cultural groups visit Cuba.  Nothing so represents the American culture as Coca-Cola and McDonalds, so hopefully their business entrance will be next.

American businesses such as Coca-Cola, McDonalds, Burger King (NYSE: BKW) and KFC (part of Yum! Brands (NYSE: YUM) along with Taco Bell and Pizza Hut) are the great equalizers for restoring relations between former bitter enemies.  McDonalds just reported a 3 percent increase in global sales from its more than 33,000 restaurants in 119 countries.  Yum! Brands has targeted China for growth as its same store sales are more than twice as high in the People's Republic than the others around the world.  China is also the focus of expansion for Burger King, which recently announced that 1,000 new restaurants would be built in the People's Republic.

Just as China moved tenderly in opening up to the West, Cuba is moving gently towards liberalizing its economy for private enterprise.  Businesses that use non-professionals such as restaurants and street vendors can now obtain a business license from Havana to sell to the public...just like you have to in Chicago and New York City.   In an article in USA Today by Girish Gupata detailing this movement towards the free market, a family opened a restaurant near the Bay of Pigs with $5,000 in seed capital from relatives in Florida...how ironic.

Life has become more difficult in Cuba since the collapse of communism in the Soviet Union.  Chavez is not going to be alive in Venezuela forever and the plunging price of oil makes has his support dwindling.  This has forced President Raul Castro, Fidel's brother, to look to the entrepreneurial talents of the Cuban people for greater economic development rather than the largesses of anti-American regimes.  According to President Castro in Girish Gupta's USA Today piece,  "Cuba loosens restrictions on private enteprise," this "...is proceeding without haste, so that we don't make new mistakes."

There have been plenty of old mistakes in US-Cuba relations since Fidel Castro took power.  The enduring embargo has become the most egregious.  The largest trading partners for the United States now are Germany, Japan and China, countries that it squared off against in World War II, Korea and Vietnam.  About this, Charlie Munger, Warren Buffett's partner counseled that, "During World War II, Japan tortured our soldiers to death. They marched them around. The Germans put people in ovens. Just awful. And what did we do after the war? We gave them money to rebuild. We said, 'Let bygones be bygones.' The result was a magnificent global economic system and a win for human rights."

What makes it even more compelling to all for a Full Monty of American enterprise to be unleashed is that the United States has a solid business relationship existing already with Cuba.  At present, the United States is a top 5  trading partner with Cuba.  In 2000, Congress passed reforms to that embargo allowing U.S.-based companies to export approved products to Cuba.  On the United States Department of Commerce list,  there are hundreds of permissible items.  According to AgriLife Extension at Texas A&M University,  exports from the United States to Cuba peaked in 2008 at $711 million.  Like so many others, that fell during The Great Recession.  In 2010, AgriLIFE Extension says $94.8 million in corn, $99.8 million in frozen chicken and $17.8 million in wheat were exported from the United States to Cuba.

Now that it is in Myanmar after an absence of six decades, hopefully Coca Cola and then McDonalds, Yum! Brands and others will further the commercial activities with the United States that will benefit all parties concerned by bringing Cuba into "a magnificent global economic system."

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