The Castros of Cuba are the Kardashians of the Caribbean
Jonathan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Moving on after a successful long term relationship is never easy.
Traditions are established, rituals are formed, understandings are reached that are very difficult to replicate or leave behind. Many times the next relationship with a new partner is doomed due to the lingering effects from the previous, lengthier, more intense affair. This happened to Kim Kardashian with her short-lived marriage to Kris Humphries of the Brooklyn Nets and to Cuba in its brief dalliance with Venezuela.
As with Kim Kardashian and Reggie Bush when he was with the New Orleans Saints, Cuba's relationship with the Soviet Union lasted far longer and was much more rewarding in that it generated prominence far greater than what it should have under any reasonable standard. But, tragically, nothing lasts forever. As former French Premier Charles DeGaulle once observed, "Nations do not have friends, they interests."
Eventually, support for Cuba dwindled in Moscow with the cessation of the Cold War. From there, Fidel Castro moved to an entente with President Hugo Chavez, the socialist leader of Venezuela who is presently battling cancer and faces a difficult re-election. Little came of it, however. So now Fidel's brother, Raul Castro, the President of Cuba now, is now cuddling up with the People's Republic of China, as detailed in a Wall Street Journal article by Bob Davis and Wayne Ma, "Cuba Seeks Closer Ties With Beijing."
President Raul Castro has traveled to China and Vietnam to meet with former communist leaders who have moved on to free market economies. In China, Cuban representatives signed economic, trade and agricultural agreements. According to Castro, "Currently relations are maturing with each passing day. The relationship has passed the test of time."
In recent years, Cuba has been attempting to foment economic growth in the country through the expansion of the private sector. While not sweeping reforms, operations that use non-professionals such as restaurants and street vendors have been allowed to open for business. Due to the limited opening of the economy to free enterprise, growth in Cuba was less than 3% in 2011. In China, economic growth averaged 10% before the recent slowdown. In the second quarter of 2012, the gross domestic product of China still grew at a 7.6% rate.
Last year, China National Petroleum Corp signed a $4.5 billion agreement with Cuba to upgrade the Cienfuegos refinery. But it could be difficult sledding for China in Cuba. There is still resentment that China did little to help the island nation after the collapse of the Soviet Union in 1991 and the reduction of support from The Kremlin. In addition, there is competition among Latin American nations to play China off against Taiwan as each vie for greater influence: Cuba is guilty of this, too.
Just as with the the Kardashians always looking for love with celebrities or "the best athlete available" as David Letterman recently quipped, there has to be the occasional thought ruminating in the minds of observers that maybe, just maybe, the "boy next door" might be the best partner to settle down with and stop all of the nonsense. The same applies with Cuba, just 90 miles from the United States; and with 1.5 million Cuban-Americans in the country, many living in Florida.
Unlike the Kardashians of Southern California, however, the Castros of Socialist Cuba have demonstrated little, if any, talent for making money. With year round sunshine, beautiful beaches, legendary cigars, great rum and natural resources including oil, Cuba has much to offer. Unleashing the capitalist system is all that is needed for Cuba, as China has demonstrated.
There is nothing that China has to offer to even compare with the economic development that would result for Cuba from Coca-Cola (NYSE: KO), Yum! Brands (NYSE: YUM), McDonald's (NYSE: MCD), Caterpillar (NYSE: CAT) or Wal-Mart (NYSE: CAT) and other American firms opening up shop on the island nation. The most obvious proof of this is how successful each has been in China. If China had so much to offer Cuba, there would be no market share for these US companies to have carved out in the People's Republic.
As but one example, China is the most important market for Yum! Brands, which operates and franchises KFC and Pizza Hut restaurants. KFC units in China are almost 7 times more profitable than those in the United States. Overall, Yum! Brands derives 40% of its profits from China.
McDonald's plans to double the number of its restaurants in China to 2000 by 2013. Caterpillar, the world's largest heavy equipment manufacturer, has invested in seventeen facilities in China. Wal-Mart has 376 retail units in China with more than 100,000 associates. Cuba is one of only two countries in the world now where Coca-Cola does not do business: the other is North Korea.
The United States is a far more attractive economic partner for Cuba than China or Venezuela. That is shown by the strength of the currency units for each. American companies such as Wal-Mart, Coca-Cola, Yum! Brands, Caterpillar and McDonald's would do much more to invigorate the Cuban economy. Logistics alone tell the story as to why US business is more attractive: it is 90 miles to Cuba from Florida, while being more than 8470 miles from China to Cuba.
There is economic activity between the United States and Cuba, even with the outdated and counter-productive fifty-year old embargo still in place. In 1993, the US Dollar was made legal tender by the Cuban Government, though it was later rescinded. More than 4500 companies from over 100 other countries do business in Cuba. These include such well known entities as Air France, Bell Canada, Bombardier, Sony Corporation, Aeroflot, Hyundai Group, Petrobras, Toyota Motors, Mexicana Airlines, Nissan Motors, Chanel, Lloyd's of London, Glaxo Wellcome, and Hard Rock Cafe, among many others. These have obviously done little to develop the country due to the policies of Havana. Hopefully, many American companies will join the list after the United States and Cuba reconcile; and let China and Taiwan have to compete to be "the one" with others in Latin America.
jonathanyates13 has no positions in the stocks mentioned above. The Motley Fool owns shares of The Coca-Cola Company and McDonald's. Motley Fool newsletter services recommend McDonald's, The Coca-Cola Company, and Yum! Brands. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.