June 01, 2011

Canada’s Mark Entwistle offers expert advice on Cuba

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Most career foreign-service officers rise up the ranks of the diplomatic serv- ice, serve as ambassadors in three or four countries and end their careers in their late 60s or early 70s, often retiring to write their memoirs or play golf in Florida.

Mark Entwistle chose a different path. After representing Canada as ambassador in Havana from 1993 to 1997, he quit the for- eign service at the age of 41 and made Cuba his career instead.

“I retired from the foreign service after my Havana posting, largely because I saw the potential Cuba offered. So I built a consulting business for myself specifically focused on Cuba, and I now work with foreign compa- nies, including U.S. companies preparing to go back there at some point in the future.”

As president of Chibas Consulting Inc., Entwistle travels to his favorite island eight to 10 times a year. Before his Cuba posting, he served in the Soviet Union (from 1986 to 1989) and spent the three years before that as a Canadian diplomat in Israel.

The Montreal-born consultant also served a couple of years as press secretary for for- mer Prime Minister Brian Mulroney.

During his time in Havana, he said, “I had extremely good relations with my American colleagues, and the Cubans knew that. The fact is, we’re friends with both countries. Ob- viously, one is infinitely more important to us economically than the other one, but we have a long-standing relationship with Cuba based on respect, even where we don’t agree with them on everything.”

Entwistle, 55, spoke with CubaNews in Tor- onto following a May 30 lunch organized by the Canadian Council for the Americas and titled “Cuba Libre: Is now the time to invest?”

Cuba's 3 Target Sectors

Absolutely it is, he says, though some sec- tors are clearly more accessible than others.

“Some people think Cuba is some kind of middle kingdom or isolated country. It’s not,” he told us. “It’s a market of largely untapped potential.”

Despite the fact that Cuba has identified specific areas of the economy as its priorities, says Entwistle, potential foreign investors fre- quently take a kind of shotgun approach.

“They think, ‘here’s a country with minimal access to global capital, therefore they’ll want to do everything under the sun.’ There’s an assumption that maybe the Cubans are vulne- rable,” he told us. “But in reality, the Cubans have very explicit ideas of what their national priorities are. If you listen to them carefully, they’ll tell you what they’re interested in.”

Entwistle focuses on three specific sectors of interest, reflecting realities on the ground: tourism, agriculture and mining.

This is an obvious choice, given that tourism contributes nearly $2.5 billion a year to the Cuban economy — and that since 1990, Canada has been the single most important source of tourism to Cuba, sending more visi- tors to the Caribbean island than all other countries combined.

In fact, Canadians comprised 555,872 out of the 1,179,963 vacationers who visited Cuba during the first four months of this year, according to Cuba’s Oficina Nacional de Esta- dísticas, making it likely that the final number for 2011 will top one million.

“It seems almost rare to encounter a Cana- dian who has not visited Cuba,” notes Arch Ritter, a Cuba expert at Ottawa’s Carleton University, noting on his blog that foreign- exchange earnings from Canadian tourism were likely around $882 million for 2008 (cal- culated as 37.6% of total tourism earnings of $2.347 billion).

Ritter added that “if one takes both Canadi- an tourism plus Canadian merchandise im- ports, mainly nickel, from Cuba into consid- eration, Canada contributed about $1.6 billion in 2008, a substantial proportion of Cuba’s for- eign-exchange availability.”

Why are Canadians so drawn to Cuba? we asked Entwistle.

“The winter,” he replied dryly. But it’s not just that, he insisted. “There’s an affinity between the two countries. Partly it’s history, dating from when ships from Nova Scotia would send down fish and bring back rum.”

Entwistle explained: “Canadian banks helped finance the sugar industry, and the Ro- yal Bank of Canada opened a Havana branch in 1898 even before it had any in Toronto. In its heyday, before 1959, RBC had about 60 branches in Cuba. And the Bank of Nova Sco- tia [now Scotiabank] had over 40 branches.”

It also helps that Cuba is an incredible trav- el bargain for Canadians, whose dollar is cur- rently trading at around US$1.03.

Packages that include round-trip airfare from Montreal or Toronto, seven nights in a tourist-class hotel, and meals, tours and trans- fers are available for as little as $600 per per- son double occupancy. Yet the Canadians who go to Cuba rarely speak Spanish and have lit- tle interaction with ordinary Cubans outside designated tourist sectors.

“They tend to stay in the beach areas and visit small towns around those areas. What they don’t tend to do is go to Havana, where you find Europeans and other Latins, but rela- tively few Canadians,” Entwistle said.

Traditionally, most Canadian visitors to Cuba had come from French-speaking Quebec, though that’s changing — thanks to regular charter flights from places like Calgary, Winnipeg and Vancouver to tourist magnets such as Varadero and Holguín.

“In the high season, you probably have 50 charters now from western Canada to Cuba every week. This is a very important market segment for the Cubans,” he explained.

“What has been frustrating about Canadian tourism from a pure business model is its pro- file — sun and sand — so the margins for tour operators are minimual. There’s been a long- standing interest in Cuba to diversify the product and make it more valuable.”

Plenty of Tourists, But No Insvestment

Also frustrating, he said, is the fact that “there’s virtually no Canadian investment” in Cuba’s tourism sector since Delta pulled out in the late 1990s.

“Canada supplies the bodies, but does not invest in the tourism sector, which has always been ironic from a Cuban point of view. The Cubans have long tried to encourage Canadi- an investment because it would be so logical.”

One project getting lots of headlines lately is a $410 million joint venture between Cuba’s state-run Grupo Palmares SA and Ottawa- based Standing Feather International Inc. In April, the partners signed a memo of under- standing to build a golf course community at Guardalavaca, in the province of Holguín.

The timelines and the processes will be careful and meticulous. I think the trend is toward greater economic liberalization
of the domestic economy — but in a very step-by-step process where each step is assessed before they go to the next one.

- MARK ENTWISTLE, PRESIDENT OF OTTAWA-BASED CHIBAS CONSULTING INC.

Estancias de Golf Loma Linda Golf, occupy- ing a 520-acre site, is to include an 1,200 lux- ury villas, bungalows and apartments, as well as an 18-hole golf course, a commercial center and a 170-room boutique hotel. Rooms at that hotel will go for $200 a night, reported theNew York Times, and the residences are likely to average $600,000 each.

Standing Feather’s shareholders are mem- bers of a Canadian Indian tribe. Entwistle was a key participant in the venture but is no long- er, for reasons he declined to discuss publicly.

Entwistle is, however, involved with Old Havana’s boutique Hotel Saratoga — “the sin- gle best hotel in Cuba,” he calls it — because Entwistle advises the board of Coral Capital Group, which partly owns the hotel.

Mining: Back on the Radar Screen

Mining is one sector of Cuba’s economy that hasn’t gotten much attention but is likely to as the island’s cash-strapped government increasingly turns to foreign investment.

“In 1995-96, there was an invasion of Cana- dian juniors looking for kind of mineral, kick- ing the tires, drilling holes. They were all over the place. We probably had 20 joint ventures,” Entwistle told CubaNews. “I was going to the Ministry of Basic Industry once a month to joint-venture signing ceremonies. Then the Bre-X mining scandal happened, and that — combined with a global retraction — caused the capital market to dry up for mining.”

By the late 1990s, all the Canadian junior mining companies had left, unable to finance their activities. The glaring exception was Sherritt International, the largest single for- eign investor in Cuba (see box at right).

“For a period of 14 years, the mining sector was barren — no activity at all. No Canadians came. They were involved in other parts of the world. Cuba fell off the radar screen.”

But two years ago, commodity prices sud- denly started to rise, and base metals became more attractive again.

“Canadian companies have started to come back, looking for lead, zinc and copper. The Chinese have an insatiable demand for cop- per, so prices are being pushed up. We’re just now seeing gold exploration companies com- ing around. The mining sector is not close to the frenetic activity of the mid-90s, but it’s come back on the radar screen.”

It’s worth noting that the CCA luncheon at which Entwistle spoke was co-sponsored by Barrick Gold, one of Canada’s largest gold ex- ploration firms (Barrick is investing more than $3 billion in the nearby Dominican Republic).

Also worth noting was the complete ab- sence of Sherritt at the event. The Toronto- based company — whose main office is two and a half miles up Yonge Street from where the conference was held — keeps a very low profile with regard to its Cuba activities.
That’s because Sherritt’s top executives would be arrested if they ever stepped onto U.S. soil, due to that company’s violation of Title IV of the 1996 Helms-Burton Act, which punishes foreign companies from “trafficking in confiscated property” of U.S. entities.

“The reason there’s a Title IV punitive action against Sherritt is because Sherritt’s nickel mine is operating on property subject to a U.S. certified claim. The claim holder, Freeport McMoRan, objected, but Sherritt has made a strategic decision that this is a part of doing business,” Entwistle explained.

“I’m a Canadian citizen, so I’m not gov- erned by the regulations. I’m not an agent for U.S. companies, but I do give advice, and I’m not involved in any business that is defined as trafficking in confiscated Cuban property.”
Another key area for potential investment is agriculture, says Entwistle.

“For the longest time, Cuban agriculture was closed to foreign direct investment as a strategic sector,” he told us. “There were en- claves like the Israelis working in citrus, but in general, the sector was not open. That changed roughly two years ago.”

Entwistle said he’s now working with a Canadian distributor that has annual sales of $125 million and operates around the world.

“They’ve seen the strategic potential for Cuba in the future to supply mostly fresh fruits and vegetables, specifically for export,” he said, declining to name the company. “The ultimate goal is to move beyond purchase of product to a dedicated joint production facili- ty. The idea is to hedge production against things like freezes in Mexico or Florida.”

The project specifically targets tomatoes, peppers and cucumbers using drip-irrigation technology. Exactly where in Cuba the project will be located and how much will be invested in the project is still undetermined.
“This would be interesting,” said Entwistle, “because it hits agriculture across three seg- ments: producing for export, supplying the next level down in quality — the tourism sec- tor as import substitution, and that produces hard currency — and sending increased pro- duction into the domestic Cuban market.”

Entwistle: Be Realistic About Cuba

As ambassador, Entwistle said he met Fidel Castro 28 times and probably spent 100 hours with him. “Fidel used to stop by the resi- dence. I used to get phone calls at midnight from the switchboard of the president’s office because he wanted to see me,” he recalled.

“Regardless of what one might think of him, this guy’s a historic figure, a skilled ora- tor. You feel you’re in the presence of history, a guy who took a ragtag bunch of guerrilla fighters and, helped by the collapse of the Batista army, took control of Cuba.”

He added: “I don’t think even Fidel imag- ined that we’d be here in 2011 and that he wouldn’t be fully in control of the country. But his health prevented that, and he’s adapted.”

Under the leadership of Fidel’s 80-year-old brother Raúl, economic changes are indeed transforming Cuba. But Entwistle warned that investors must have a realistic under- standing of what’s happening on the island.

“The Cuban political leadership has said pretty clear that the way they’ve been doing things is no longer sustainable. There will have to be changes; there have already been, and there will be more. The Cubans are mak- ing adjustments to make sure it works better. People should be wary of reading something into those decisions that isn’t there. These reforms are not intended to radically restruc- ture the Cuban system.”

“The timelines and the processes will be careful and meticulous,” he added. “I think the trend is toward greater economic liberal- ization of the domestic economy — but in a very step-by-step process where each step is assessed before they go to the next one.”

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