Cuba

1. Cuba Foreign Investment in the New Millennium Grupo 3

2. Cuba FDI in Cuba-Grupo 3

3. Columbus landed in 1492 Settled 1511 18th Century Exporter of Sugar and Tobacco 19th Century most mechanized Sugar Exporter Slavery and Wealth Disparity War torn years of latter 19th century 1895 War for Independence from Spain US intervention and the Platt amendment Dependency on US Sugar Exports to 1960 Historical Perspective FDI in Cuba-Grupo 3

4. Cuban Revolution • 1959 - Fidel Castro & Che Guevera Lead Revolution v. Batista regime • Property Nationalization - US Retaliation and Escalation lead Cuba into Soviet Arms • US Embargo FDI in Cuba-Grupo 3

5. Cuba Today • Fall of the Soviet Bloc - Cuba loses equivalent of 22% income subsidy • 1989-1993 Massive contraction of Cuban economy • 1996 Helms-Burton act continues and expands the US embargo • Cuba productivity enters downward spiral FDI in Cuba-Grupo 3

6. Macroeconomic Overview 1998 Figures • GDP: $20.3 Billion • National Debt: $12.5 Billion • Balance of Payments • Current account: -$0.4 Billion • Historical Inflation: 2.9% • Currency Trends: Not Traded • Officially 1:1 • Reality - 95:1 down to 22:1 Pesos/Dollar FDI in Cuba-Grupo 3

7. Why Cuba? • Human Capital • Natural Resources • Government Incentives FDI in Cuba-Grupo 3

8. Human Capital Development • Education & Literacy • Free and Compulsory to Age 12 • 45% complete High School • 4% complete University degree • 96% Literacy Rate FDI in Cuba-Grupo 3

9. Human Capital Development • Health Care • Publicly Available Preventative Health Care • Life Expectancy at Birth of 74.8 yrs (1998) • Employment • Unemployment 6.6% (1998) • Underemployment (Incl. Unemployment) 34% (1996-ECLAC) FDI in Cuba-Grupo 3

10. Natural Resources • “Geographical pearl” • Dominant nickel and cobalt deposits • Sugar and Tobacco FDI in Cuba-Grupo 3

11. Government Incentives • Foreign Investment Act • Seeking Hard Currency • Apertura: Opening of the markets • Privatization efforts • Joint Ventures FDI in Cuba-Grupo 3

12. Why Not Cuba? • Island economy • Low purchasing power • JV partner is usually the Government • Government Bureaucracy • Import restrictions on Foreign entities FDI in Cuba-Grupo 3

13. Why Not Cuba? • Highly regulated environment • Weak transportation system • Insufficient Power and Telecom Infrastructure • Teledensity 4.3% • “Complex” banking system FDI in Cuba-Grupo 3

14. Current FDI Climate • 1995 Law on Foreign Investment. • As of February 2000, FDI in Cuba totals US$2 billion. • Another US$2 billion committed through signing of JV agreements. JVs total 360. • Telecom leads at $650 million, followed by mining at $350 million and tourism at $200 million. • Biggest investors are Canada at $600 million, Mexico at $450 million and Italy at $387 million. FDI in Cuba-Grupo 3

15. Cuba’s FDI Opportunities: Tourism • The Opportunity • Location, Location, Location • Lure of an untouched island getaway • Enormous foreign demand • Government’s commitment to infrastructure • The Reality • Sol Melia of Spain with 12 hotels • Jamaica’s Superclub chain with 10 hotels by end of Y2K • US citizens’ property claims under H-B Act FDI in Cuba-Grupo 3

16. Cuba’s FDI Opportunities: Telecom • The Opportunity • Potential for huge growth in Cuba • No monopoly on cellular service • The Reality • Empresa de Telecomunicaciones (Etecsa) has monopoly • Etecsa 51% owned by government, 29% owned by Telecom Italia • $940 million investment program to upgrade network • Full employment issue FDI in Cuba-Grupo 3

17. Cuba’s FDI Opportunities:Power, Oil & Mining • The Opportunity • Aggressive opening to FDI • Huge nickel & cobalt reserves • The Reality • First 100% foreign-owned deal with Genpower Cuba SA of Panama for construction of power station • JVs account for 30% of oil exploration and production • Canadian Sherritt International Corp. planned to invest $475 million in mining and other sectors - pulling back due to human rights abuses FDI in Cuba-Grupo 3

18. Current Strategies for U.S. Corporations • 1994 Ruling by U.S. Treasury Dept’s Office of Foreign Assets Control. • Ford via Volvo • U.S. companies signing letters of intent to enter Cuba when embargo ends • U.S. Chamber of Commerce & Congressional efforts • Agricultural and Medical “Humanitarian” Opportunities • Cultural Exchanges • Baseball • Musica FDI in Cuba-Grupo 3

19. Opportunities for U.S. FDI to Cuba: Biotech • The Opportunity • Cuba’s “well kept secret” • 25 state-sponsored research centers • Potential for ‘cheap’ manufacturing base • Global interest in Cuban research and products • Open to foreign & U.S. participation • The Reality • SKB US testing & manufacturing Cuban meningitis vaccine in U.S. • Genesis Medical Technologies of CO testing needleless injector in Cuba FDI in Cuba-Grupo 3

20. Opportunities for U.S. FDI to Cuba: Financial Services • The Opportunity • Investment in Cuba via international subsidiaries • Third party processing activities • Archaic banking system requires reform • The Reality • Charles Schwab & Merrill Lynch have bought Canadian firms • Citibank profits from processing charges on credit cards issued by its foreign subsidiaries FDI in Cuba-Grupo 3

21. Post-Embargo Opportunities • Autos & Heavy Machinery • Spare parts needed • Vintage 1950s used autos • Entertainment • Cable, TV, Radio • Related electronics FDI in Cuba-Grupo 3

22. Post-Embargo Opportunities • Needs outweigh purchasing power • Concentrate on basic supplies first • Privatization opportunities - Infrastructure • Banking and Finance • Manufacturing base • Tobacco - Cigars • Mining and related equipment FDI in Cuba-Grupo 3

23. Conclusions for the Future • Uncertainty is high for US Corporations • Cuban market is opening, but slowly • US is missing an opportunity in Cuba • Companies need to have scenarios in place to take advantage FDI in Cuba-Grupo 3

24. Questions? Ross Dolgoff Fernando Aguirre Sue Mundell Kirk Gilpin Linda Naranjo Greg Londres FDI in Cuba-Grupo 3