New beginnings for Cuba?

Reports out of Cuba indicate that the new Port of Mariel is expected to be officially opened by the end of January 2014.

The ambitious port creation project and its accompanying special development zone are viewed by many as a major step change on Cuba’s economic horizon, providing the potential for this beleaguered island nation to become one of the largest trading hubs in the Caribbean.

Even though the United States embargo on Cuba has stifled trade for half a century, its trading activities are by no means minor. For example, China reportedly does more than $10 billion worth of trade with Cuba each year. However, this growth – up 25 per cent in 2013 – and the imminent opening of the expanded Panama Canal led the Cuban authorities to assess the country’s facilities and determine that its gateway port of Havana could not cope with the larger vessels expected after 2015.

The small fishing town and sometime port of Mariel, 45 km west of Havana on Cuba’s north coast, is the closest point to the US, just 145 km from Florida. It is perhaps best known for being the place where a mass exodus of Cubans to the US, the so-called Mariel boatlift, took place in 1980 following internal tensions and an economic downturn in Cuba. The granddaughter of long-time Mariel resident Ernest Hemmingway’s is also named after the town. Now it is the focus for a US$ 900 million development that includes a deepwater container port and an industrial zone.

The need for such a new port is clear. The Port of Havana cannot be expanded because a vehicle tunnel under the mouth of the bay prohibits further dredging. Therefore it will not be able to receive the larger containerships passing through the Panama Canal from 2015. Mariel, though undeveloped, was the ideal location for a new port, with deepwater access, a natural harbour and ample land available for development.

Joint venture

The project is being financed largely by Brazil, which is Cuba’s second-largest trading partner in Latin America. Brazil has provided an estimated US$ 680 towards the project through its development bank, BNDES, although the details of this are classified as secret, protected behind a confidentiality agreement.

The Cuba-Brazil joint venture was launched in 2010, with Grupo Odebrecht of Brazil building the container port in partnership with the Cuban company Zona de Desarrollo Integral de Mariel, a subsidiary of Almacenes Universal SA. Phase 1 of the deepwater port includes a 700 metre pier, enabling it to receive two large containerships simultaneously with draughts up to 15 metres (49 ft). At present, the largest vessel that can call Havana is 11 metres (36 ft). Four super post panamax ship-to-shore gantry cranes have already been delivered.

When finished, the deepwater facility, which will be operated by Singapore-based PSA International, will have an annual capacity of up to 1 million containers: three times that of Havana.

Development zone

The container terminal is located at the heart of the Zona Especial de Desarrollo del Mariel (Special Development Zone Mariel or ZEDM), a development zone and industrial park covering 465 sq km (180 square miles). The Cuban government is trying to use Mariel to attract manufacturers and service providers as a base for exports to the region, especially in the food, biotech, renewable energy, packaging and telecommunications industries. Extensive tax and custom breaks are available in order to attract investors.

It is hoped that the industrial zone will also encourage some local production and manufacturing, reducing the reliance on imports as well as encouraging some exports. The special development zone is attempting to attract foreign investment with 10 years of tax-free operation as an incentive. A local manufacturing base for, say, Chinese companies would provide many benefits, tapping into a well-educated Cuban workforce and the island’s close proximity to end markets.

However, the US trade embargo – which prohibits imports into the US and bans any vessel calling Cuba from calling at a US port for six months – is a serious hurdle for many potential investors. In spite of this, there has already been interest from Russia, China, Vietnam, Germany, Spain, Japan, Mexico and Brazil.

However, the Cuban authorities will still have an uphill struggle to attract investment when there are many other options, with lower labour costs, better infrastructure and no trade restrictions in the region.

As a slight sweetener, the Cuban government has promised property within the industrial zone cannot be expropriated, as was the case after Fidel Castro’s 1959 revolution, in which billions of dollars of foreign assets were nationalised.

In addition, investors will be given up to 50-year contracts, double those previously offered, and will have 100 per cent ownership during the contract. They will be charged almost no labour or local taxes; the only taxes applicable will be the 14 per cent social security tax, a one per cent sales or service tax for local transactions, and half of one per cent of income to maintain and develop the zone. The Cuban authorities hope this will incentivise investment.

Future

Whether the new port and industrial zone will provide the long-awaited shot in the arm for Cuba’s economy or have a more modest impact on the fortunes of the island, only time will tell.

Despite the long-standing US embargo, the new port will enable Mariel to compete on a global stage and handle larger volumes of cargo, as well as the larger vessels.

If all the pieces fall into place, Mariel could be the next major Caribbean hub port, competing against the likes of Kingston, Panama and Port of Spain.

While no date has been published regarding the opening, it was expected to coincide with the Brazilian president’s visit to Havana at the end of January.

Once fully open, the container terminal at Mariel will become Cuba’s main port of entry for goods, replacing the Port of Havana. It will also align Cuba with other shipping hubs in the region looking to take advantage of the expansion of the Panama Canal.

With a modern port capable of handling the largest vessels, Cuba is well positioned to take advantage of a trade boom if the US ever lifts the trade embargo and allows containerships to call.

This has been a vain hope for five decades, but with ever-growing opposition – including an almost unanimous vote from the UN General Assembly in 2013 to end the embargo – it could be time.