The Economist article re Embargo

[Danimal]

I haven't been on these boards in awhile so something along these lines may seem a bit redundant and overstated... Honestly, I could care less about its impact on my access to Cuban cigars or any concern related to degrading quality due to rising demand if the embargo is lifted... just think it's the feasible thing to do.

http://www.economist.com/world/la/displaystory.cfm?story_id=10180002&CFID=286356&CFTOKEN=1e728672aa354b52-93D63DF1-B27C-BB00-0129173143D86A34

Foreign investment in Cuba
Bye-bye embargo?
Nov 22nd 2007 | HAVANA
From The Economist print edition

Getting ready for a post-Castro bonanza

THE American businessman at this month's international trade fair in Havana was full of excitement about the communist island's investment prospects as its long-serving president ails. “It's a perfect storm,” he enthused: “Fidel will soon be gone, and a Democratic president will be in the White House. Bye-bye embargo!”

Few of the foreign investors who have spent years struggling to make money in Cuba, caught between American trade restrictions, communist bureaucracy and preferential deals for key allies such as China and Venezuela, see it quite so simply. But even the most jaded are wondering whether things might be looking up. Hopes have been raised by news of a huge deal in the making. It could be the shape of things to come.


After two years of negotiations, plans are moving forward for Dubai Ports World, a partly state-owned company in the United Arab Emirates, to invest $250m in converting the decrepit port in Mariel, just west of Havana, into a modern container facility. A formal feasibility study has been commissioned.

The choice of Mariel, one of the closest points in Cuba to the United States, is significant. The port is best known as the setting for a massive boatlift in 1980 when, over a period of six months, 125,000 Cubans set off in flimsy rafts as Fidel Castro turned a temporary blind eye to those wanting to leave his poor one-party state. They were picked up and taken to the United States by a flotilla of American yachts.

Mariel appeals to international port operators for the same reason—its proximity to the United States. “This deal isn't just about getting goods to Cuba,” said one analyst who had studied the project. “It's about getting into the US market.” American ports are close to capacity, and environmental restrictions make any big expansion of existing terminals unlikely. In a post-embargo world, Mariel, which is expected to be open for business by 2012, would be a well-positioned hub. Goods could be transferred from the big container ships arriving at the port to smaller vessels which could then reach dozens of harbours in the southern United States.

Dubai Ports World refuses to comment on the deal. But there can be little doubt that the company is eager to gain a foothold, if not actually in the United States, then as close as possible to it. Last year it was forced to abandon plans to operate six big ports in the United States after Congress expressed security concerns. Although the United Arab Emirates is considered a close American ally, two of the hijackers involved in the September 11th 2001 terrorist attacks were UAE nationals.

Does Cuba's acceptance of the Mariel project mean that the country's top brass is beginning to plan seriously for the day when the American embargo might end? That might appear premature, given that the Bush administration has explicitly ruled out unrestricted trading with a Cuban government under Raul Castro, Fidel's brother and presumed successor, and that only one American presidential candidate (Chris Dodd, a Democratic outsider) has called for a complete end to the embargo.

All the same, there is evidence that Cuban officials do believe that the days of the bloqueo (as they refer to the embargo) are numbered. The Cuban ministries that deal with foreign investment, known by their Orwellian abbreviations of MINVEC and MINFAR, have recently been putting the word out to foreign investors that tenders are welcome for a raft of projects. Theme parks, super-yacht marinas, golf courses, even airlines—all apparently geared to a future American market too—feature prominently on the list.

An end to the embargo could provide a bonanza to investors with assets in Cuba that would appeal to American corporations. The paltry returns from, say, a share in a Havana hotel would be dwarfed by the value that could be realised by selling that stake to an American hotel chain. “That's the game plan,” admitted one Havana-based businessman. “But,” he added, “so is patience.”

[Made in Dade]

Thanks for posting this article. Looking forward to the day when this embargo is lifted.

[TheDirector]

The Economist is always near the mark.:tu

[daniel2001]

From my perspective (English cuban cigar lover), its a mixed bag.

Cuban cigars are already very expensive over here (try nearly £30 for a Cohiba Siglo VI, as in near $60) as we have a 60% tax on all tobacco products. It is likely, as some of you may already know, that lifting the embargo would increase the worldwide demand for cuban cigars, pushing prices up and possibly pushing quality down.

From my perspective, therefore, its not entirely a good thing if the embargo gets lifted. Oh, and I've never liked the Economist, probably something to do with how my old politics teacher quoted it like the bible.

[TheDirector]

Oh, and I've never liked the Economist, probably something to do with how my old politics teacher quoted it like the bible.


I forgot to mention that you have to filter out the snotty English tone...but I give credit where it is due. :chk

[M1903A1]

<snip>It is likely, as some of you may already know, that lifting the embargo would increase the worldwide demand for cuban cigars, pushing prices up and possibly pushing quality down.

From my perspective, therefore, its not entirely a good thing if the embargo gets lifted.

Well, I've said before and will say again, when the embargo does fall I think you will see a quick rise in the demand, followed soon after by an almost equally quick drop.

I think a lot of Americans will go out and buy 'em, just because they're suddenly available and legal...then will decide, for a variety of reasons, that without the "forbidden fruit" factor Cubans really aren't for them.

[Danimal]

Well, I've said before and will say again, when the embargo does fall I think you will see a quick rise in the demand, followed soon after by an almost equally quick drop.

I think a lot of Americans will go out and buy 'em, just because they're suddenly available and legal...then will decide, for a variety of reasons, that without the "forbidden fruit" factor Cubans really aren't for them.

Not sure about that. America is probably one of the largest markets demanding cigars regardless of origin and will likely be so for Cuban cigars if/when the embargo ends. Sure there may be a blip with initial availability due to the 'forbidden fruit' factor you mention, but it should stay consistently high.. Cuban quality speaks for itself so I think there certainly won't be an equally quick drop in demand... it'll just drive the price up everywhere with the addition of another consumer (unless Cuba intends to increase production somehow ).

[Teninx]

I was born in the early 50's. Communist dictatorships can continue to rot in hell. I'm not a new age type of guy.

[adsantos13]

Communist dictatorships can continue to rot in hell.

I agree. However, 90% of what we buy is made in China (and if it wasn't then it'd a hell of a lot more expensive), so it seems we have no problem with selectivity in deciding who should continue to rot.

It makes no sense to strangle the populace of Cuba while we make all the other so-called communist nations like China and Vietnam rich through trade. If anything, opening trade with Cuba would put some money into the pockets of the people, possibly allowing them to facilitate change and finally break the stranglehold the communists have on the island. We use this kind of rationalization with China et al, why does it not apply to Cuba? This is even more perplexing considering we actually do see some progress in China (gradually).

Anyway just MHO

[Teninx]

I agree. However, 90% of what we buy is made in China (and if it wasn't then it'd a hell of a lot more expensive), so it seems we have no problem with selectivity in deciding who should continue to rot.

It makes no sense to strangle the populace of Cuba while we make all the other so-called communist nations like China and Vietnam rich through trade. If anything, opening trade with Cuba would put some money into the pockets of the people, possibly allowing them to facilitate change and finally break the stranglehold the communists have on the island. We use this kind of rationalization with China et al, why does it not apply to Cuba? This is even more perplexing considering we actually do see some progress in China (gradually).

Anyway just MHO

I didn't hate Nixon for Watergate. I hated him for opening up China to U.S. Markets. Communists get an infusion of capital and become more dangerous.
The United States isn't strangling the population of Cuba....Cuba has the rest of the world in trade while the population labors only for the State and generally lives in poverty.

[Addiction]

Well, I've said before and will say again, when the embargo does fall I think you will see a quick rise in the demand, followed soon after by an almost equally quick drop.

I think a lot of Americans will go out and buy 'em, just because they're suddenly available and legal...then will decide, for a variety of reasons, that without the "forbidden fruit" factor Cubans really aren't for them.
I agree with this thought for the most part. There are a few of us who are ready and prepared for Cubans, and wht it is entailed in getting a good one. But I don't think the average american consumer is prepared to buy a cigar today that he may have to wait 6-12 months before its ready to be smoked. Or to roll the dice on cigars and hope that this box is as good as the last box.

I just don't think the $8 and under cigar crowd (which is the clear majority at the two B&Ms I frequent) are ready for that challenge.

[Blueface]

It's days are certainly numbered.
Nothing I would love more than to go to where I was born at least once before I die.
A dream many have not realized.

[Dgar]

It's days are certainly numbered.
Nothing I would love more than to go to where I was born at least once before I die.
A dream many have not realized.

I hope you get that chance!!!

[tfar]

The political issue aside, who is good in microeconomics to predict what will happen with regards to cigars?

In principal Cubans have something that has a very limited supply and a unique quality. Both is determined by the geographic location, size and climate of the island. They are already supplying the entire world with their cigars except the USA. If we figure in the black imports to the US most people here who can afford and want to smoke Cuban cigars are already buying all they can smoke and more (by the way, all those hardcore conservatives who are for the embargo and against a leftist political system even in the slightest - I agree Cuba goes too far but for some Europe is a socialist system- stop buying Cubans, you hypocrits).

So I guess the basic question is: how much more demand will there be for Cuban cigars if the embargo gets booted? How many more people would buy Cuban cigars? Would it be enough to cause a signficant price increase e.g. 20% as soon as the Embargo falls? In terms of price elasticity, would they still be able to sell as many cigars in Europe if prices went up even more. England and Germany are already pretty prohibitive pricewise. But they do get good quality from Cuba. Or, on the other side, if price stays the same but quality goes down (easy with any agricultural product that requires great care in the final process, see wine) in order to satisfy the American market, will the rest of the world still buy the luxury product that Cuban cigars are? We were able to observe a decrease in quality during the cigar craze of the 90s and then Cubans weren't even allowed but still the demand was so strong that Cuba just produced more because eventually the stuff would find its way to the US.

Personally, I think it will be a combination of things and a healthy equilibrium will be reached at the end. Prices will go up slightly (10% or so) and quality will go down a bit. When the first enthusiasm is over the prices will stay up but the quality will come u again. After all, cigar smokers are reasonable people: If the quality of the product doesn't warrant the price premium they will buy another product. Sure, we are talking about a luxury product here and those live of their reputation and the premium associated with it to guarantee the exclusivity of the product. This works for Louis Vuitton handbags and Mercedes cars. But then again, it is hard to say the said bags and cars are not of premium quality. The craftsmanship, material, engineering and customer service that go into these products are all first rate. Lexus can build a car as good as a Mercedes but it will still be the same price range.

Same is true for cigars. There are NC cigars that smoke just as well and are as delicious as Cubans but they usually go for about the same price. I just saw a Padron 1926 (?) for around $25 a stick. Wow! I would try that once and then revert back to my Cuban RJ and Cohiba for which I pay maximum $20 a stick or perhaps my Davidoffs in the $8-20 range.

So what do you predict?

Till

[hotreds]

[quote=Blueface;1339169]It's days are certainly numbered.
Nothing I would love more than to go to where I was born at least once before I die.quote]

¡Ojalà!

[M1903A1]

(by the way, all those hardcore conservatives who are for the embargo and against a leftist political system even in the slightest - I agree Cuba goes too far but for some Europe is a socialist system- stop buying Cubans, you hypocrits).


It is our fundamental duty, as hardcore hate-red-unless-it's-inside-a-steak conservatives, to attack Fidel by burning his prime export commodity as much as possible. :D

[tfar]

Right on, let's smoke all his supply. If he were smart, he'd make cigars free for all Americans so the arch nemesis gets cancer. :)

What about the quality/economics question? Any takers?

Till

[Pendaboot]

I travel outside this country a lot, and I always leave with 16 cigars, since that is how many my favorite traveldor holds. I save the bands and always come back with just as many cigars, with the same bands on them, but maybe different cigars within. I do it because many of my friends enjoy the forbidden fruit of a Cuban cigar.

For the record: I have never smoked a Cuban that is better than Dominican, Honduran, or Nicaraguan cigars I can get for a lot less money. Money, for me, is not really an issue. I just do not like the heavy characteristics of Cubans. My favorite cigars are milder and smoother, and are ready to smoke the day I buy them.

I predict that when Cuban cigars are freely available here, and the market is level, which means, no forbidden fruit, all cigars are whatever is inside the wrapper, first the price of Cubans will go up a bit. Then those who had curiosity for forbidden fruit will have smoked them, and no macho advantage will obtain in favor of the Cubans, then the market will settle, with all cigars will be available at reduced price, since a fourth nation supplying will cause increased supply, and the Cuban mystique will be gone forever.

The fact is and will remain that state owned industry will never be able to out-compete capitalistic, family-owned businesses. Simple as that. The result of the barrier coming down will be, after the rush, for maybe a year or so then Cubans will be worth less than Dominicans. No sense arguing, we shall see what we shall see.

Perhaps letting them into our world will result in their socialist, top-down economy failing, and family owned cigar factories will establish themselves within Cuba. Then the availability of possibly superior raw material will result in a superior product. Back when Cubans made the world's best cigars, Dominican cigars were crap. Now Dominican cigars are great. (and Nicaraguan and Honduran cigars also.) Change is the one unchangeable thing about the world we live in. We shall see. But in a blind taste test I once held, Cubans scored last of the four nations which produce superior cigars.

[dennis569]

It is our fundamental duty, as hardcore hate-red-unless-it's-inside-a-steak conservatives, to attack Fidel by burning his prime export commodity as much as possible. :D

I'm a hardcore gun toting conservative (voting for Ron Paul)
who thinks the embargo has been a stupid idea for many years.
As for living in a leftist country, welcome to the U.S.A.
Don't get me wrong, I love my country. Just saddened to see the way it's
going.

[Airborne RU]

Certainly there will be short run pressure felt by NC manufacturers. I wonder how they do elsewhere in the world? I don't think they do very well with perhaps a few exceptions, and then on a very limited basis. I my travels I have never seen a NC stick being sold at an international duty free store or B&M.

Perhaps many of the smaller companies will die out if the embargo is lifted? I would have to believe so, only a limited amount of smoking money to spread around.

However I believe that the trademark conflicts will prevent the instant availability of many Cuban marcas. Litigation ahoy!

Change is the imutable fact of life. I however sort of enjoy things the way they are.

[Pendaboot]

The way I see it, when Cubans are no longer on the forbidden list, they will have to compete head to head with NCs. I am not so sure that the price premium they sell for will be sustainable. Many people buy them simply because they are forbidden. And, FWIW, I have seen NC vitolas for sale all over Europe.

We shall see, since this embargo lifting will surely happen sooner or later.

[Tredegar]

My suggestion: Buy Imperial Tobacco LTD shares. They just bought Altadis SA. Altadis SA is the company that has a 50% stake in the Cuban cigar companies. When the embargo lifts their sales will probably increase dramatically. I may be wrong, but I have never lost money buying tobacco stocks.:ss