Shopping Centers Today

MAR 2015

Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)

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dreamers who believe significant change will come about soon," said Haar. Under current regulations in Cuba, foreign businesses are unable to trans- fer payments and profits back to their home countries. They also must cope with a lack of administrative and judi- cial transparency, as well as levels of cor- ruption and an infrastructure that has never been updated since as far back as the 1950s, Haar points out. "The fasci- nation with investment in Cuba under the current political and economic con- ditions boggles the mind," said Haar. "There is a saying that forbidden fruit is always tastier. Not in this case. With a consumer class that has a monthly salary of $200, pray tell: What will the people buy, even if the embargo were lifted?" Others share that view. "I don't think conditions in Cuba for for- eign investment are yet optimal," said Andrew Zimbalist, a professor of economics at Smith College and the author of several books on Cu- ba's economy. "The government still tightly controls most aspects of busi- ness, from input availability and pric- ing, foreign exchange, permits, labor contracting [and] taxation, to owner- ship." Zimbalist says he foresees all this changing over the next decade or so, however. "There are advantages to en- tering Cuba now, being patient for a few years and being positioned well as the market begins to mature," he said. Currently, tourism is the only busi- ness sector that is likely to benefit from the thaw in relations, but there are bar- riers to overcome there, too. Foreign hotel chains in Cuba are permitted to build and operate properties but not to own them outright. Instead, the owner would be one of three government enti- ties dedicated to the tourism business. "All investments in Cuba are subject to Cuba's foreign-investment law, which requires a partnership with a Cuban governmental entity," said Pedro Freire, chairman of the international practice group at Miami law firm Akerman LLP. Tourism will certainly get a major boost as U.S. citizens allowed to travel to Cuba under 12 categories will no lon- ger need to apply for a license to do that. Neither will visitors be subject to lim- its on what they spend there, and they will be permitted to use U.S. credit and debit cards while in Cuba. And under new regulations shoppers will be able to bring back up to $400 worth of goods for personal use, including up to $100 worth of alcohol or tobacco products. Cuba's priority will be to develop that tourist industry, says James de Win- ter, Caribbean real estate director at CBRE. "But it will take some years for the logistics and operational obstacles to be sorted out," he said. To be sure, no one ought to expect things to change as fast as they did in other communist countries, such as China and Vietnam, where capitalism has mushroomed, observers say. "Both have much more developed economies and a track record of incentivizing entrepreneurial activity," said Freire, who has written and lectured about the U.S.-Cuba embargo. "The biggest chal- lenge, apart from U.S. and Cuba legal constraints, is capital," he said. Invest- ing in Cuba at this point is "likely to be a risky and intricate process," Freire said. "Transitioning a centrally planned economy to a market-driven model is difficult and time consuming." Global retailers are in no hurry to rush into Cuba. Spain's Inditex retailing group said in an email to SCT that it has no plan to enter the Cuban market. Also staying out are the Mexico-based Alsea Group — Latin America's largest fast-food franchisee — and Mexico's Femsa, parent of Oxxo, which is Latin America's leading convenience-store chain. "However, we are permanently observant of the right and propitious conditions that other mar- kets can present," said Alma Beltrán, a Femsa spokeswoman. Arcos Dorados, the biggest operator of McDonald's franchises in Latin Amer- ica, told this magazine by email that it does not have the right to franchise in Cuba. "Once there is more clarity on how U.S. policies with respect to Cuba may change, we will evaluate the poten- tial for the McDonald's brand in the Cuban market," the company said. Meanwhile, Venezuelan mall devel- oper Sambil Group, which has invest- ments in three Caribbean islands, is monitoring Cuba. Though the U.S. announcement will increase the flow of American tourists to the island, this by itself does not make the market at- tractive enough, says Freddie Cohen, Sambil's director. "Cuba's residents will need to have the economic resources to shop and consume, to make a mall vi- able," said Cohen. "Tourists who visit Cuba most likely have good shopping centers back at home." S C T M a r c h 2 0 1 5 / S C T 51

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