It is almost two years to the day that I wrote about the potential opportunity for investing into Mexico and Cuba. Well, certainly Mexico has had some ups and downs since that time and there have been good returns to be made when it was on the up. It`s economy relies to a great extent on the good fortunes of its big brother the U.S.A. to the north to whom it supplies manufactured goods and also to the price of oil which is abundant in the Gulf of Mexico. Recently the changes in government have also improved the economy by controlling the revenues of some of the “industrial robber barons” in favour of the population. So a continued improvement in the fortunes of the United States and a reversal upwards in the price of crude oil will almost certainly make E.T.Fs which mirror the economy of Mexico well worthy of examination and possible investment.
Yesterday`s announcement by President Obama that it is the intention of the United States to remove the trading embargo with Cuba as a response to an exchange of prisoners is a startling event. This will be a massive boost for the Cuban economy. The embargo was established in the early sixties leaving it with mainly the Soviet countries as trading partners who were free to purchase it`s main products of sugar and tobacco. The economy started to spiral down from that point onwards and has been on the point of collapse since the downfall of COMECOM and the Soviet Union in the early nineties. Fidel Castro has had absolute control of the country for fifty years until illness two years ago forced him to hand over control to his brother Raol.
Raol Castro immediately started to water down some of his brother`s communist dogma that had brought the country to financial ruin. He allowed a certain amount of capitalism to take place which allowed the people to sell their own goods and services. Now with the removal of the trading embargo it is going to let this capitalism flourish and take wings. The population under Fidel Castro always had a reasonable education but no outlet for its abilities to develop. This will no longer be the case. In 1980 around one hundred and twenty five thousand Cubans left Cuba to settle in Florida. They still have family connections in Cuba and some are likely to return bringing with them both money and skills.
This is now a country in the Caribbean which has the opportunity to develop its tourism, manufacturing and agricultural industries and to sell its products to whichever Western nation it wishes. Surely construction is going to boom as the infra-structure tries to catch up with fifty years of neglect. Hotels will be built and local airlines will expand in order to cope with the future influx of tourists. Factories will be built to employ a large under- used and well educated population and exports will boom.
There is no obvious route to investing directly into the Cuban Market since today no stock market exists. However it must be worth looking for the emerging market funds that start to buy into companies which are going to benefit from this huge change. Certainly at Saltydog we will be trying to track these funds down.