New Insights Article: Cuba After Castro: Outlook for Reforms and Investment Insurance

Tue, 09/05/2017 - 10:56
by Anastazia Clouting and Alexander Frost

Cuba has emerged as a promising market for insurers seeking to leverage protection gaps

Characterized by high education levels, a sophisticated understanding of social security, and relatively developed connections to the financial sector, Cuba is not impeded by the common cultural barriers to the development of insurance markets. These obstacles often include hostility to premium payments, given the uncertainty of payouts; religious opposition to gambling on fate; and limited access to formal financial networks.

Sanctions, which have separated Cuba from the rest of the global economy, have rendered it the Americas’ last investment frontier. U.S. companies are currently unable to operate in Cuba, although they remain interested in future investment. External investors also require greater clarity regarding the island’s environmental and operating hazards and potential opportunities for the (re)insurance industry. Meanwhile, Cuba’s political class could slow economic reforms as conservatives close ranks after the death of Fidel Castro.

Political Background

Notwithstanding the endurance of communist pop icons on T-shirts worn by college students everywhere, support for the official ideology in Cuba has faded with its leadership, following the revolution in 1959. Despite recurrent signs of rapprochement with the U.S., conservatism is directing government policy through what it sees as a sensitive transition period. The mantle is expected to pass from Raul Castro, who officially succeeded his brother Fidel in 2008, to Miguel Diaz-Canel, who is poised to lead the party after Castro steps down in February 2018. Reform efforts will proceed slowly in the interim period. Opposition to the U.S., still central to regime legitimacy and diplomatic breakthroughs, could undermine policy hawks in both countries.

Meanwhile, independent journalism has increased. Publications now provide more facts-based reporting and document benchmarks for living standards, like food shortages. Although Cuban news still stops short of criticizing the government, this openness marks a change in the media landscape, pioneered by younger bloggers.

The government also introduced public Wi-Fi spots in Havana and other major urban areas beginning in June 2015. Access is somewhat limited by the $2 usage fee, equivalent to 10 percent of Cuban monthly earnings. Information will become more readily available as internet penetration grows. Few Cuban leaders are digital natives, affording a temporary advantage to reformists, but Diaz-Canel reportedly favors both expanded internet access and greater government responsiveness on online platforms.

Economic Outlook

In addition to the changes brought about by greater transparency, the government must manage increased economic risk after losing aid from Venezuela because of the latter’s economic and political crisis. Venezuela is understood to have stopped its import of Cuban doctors, a vital service export for the island. The value of Venezuela’s transfers and discounted oil for the Cuban government was estimated to have fallen from 10 percent of GDP in 2008 to 6 percent of GDP in 2015. It is believed to have fallen further in 2016.

 

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