From Havana, this lawyer advises international companies on deals

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Gregory Biniowsky of Gowling WLG stands on a rooftop in Havana.

As a Havana-based foreign lawyer representing an international law firm, Gregory Biniowsky offers a unique perspective on doing business in Cuba. The 48-year-old from western Canada began living in Havana in 1992, and has worked as a consultant on the island for a variety of clients including the Canadian government, the United Nations, nonprofits, foreign companies and now, law firm Gowling WLG.

Bioniowsky sees Cuba as a promising market, but warns foreign executives not to confuse its moves toward a state-driven, mixed economy as a rush toward capitalism. He suggests that entrepreneurs embed their projects within Cuba’s social and political priorities, while staying polite and patient. The potential payoff: In Biniowosky’s view, “Within five years, I think Cuba will be a booming place.” Here are some excerpts from our interview with Biniowsky.

 

CT: How did you get started with Gowling WLG, the merged Canadian-British law and consulting firm?

Gowling is a very entrepreneurial firm. In fact, they opened up an office in Moscow in 1988. They heard about me, reached out and said they wanted to be the first international law firm with a presence in Cuba. I’ve been with them exclusively for two years as their representative on the island.

To be very clear, I’m not a Cuban lawyer, although I did a year of law school at the University of Havana. And Gowling WLG does not have a formal office in Cuba. What I offer is strategic advice, on-the-ground problem-solving and accompaniment to Gowling WLG clients who decide to explore or enter the Cuban market.

CT: What kind of clients do you work with?

It’s very diverse, from clients who want to get involved in tourism, hotel development, rum production, manufacturing, health tourism, airlines, pharmaceuticals, biotech, airports, construction, infrastructure, and selling Cuba food and beverages.

CT: Are your clients diverse in size, from multinationals to small entrepreneurs?

Unless small entrepreneurs have a really unique product or service to offer, I’d say they’re going to have great difficulty entering the Cuban market. The Cuban government is more interested in medium and especially large companies. The business you’re doing is invariably with the Cuban state. So if you do cut a deal, it’s going to be a very large project or large purchase order, and often small entrepreneurs can’t handle those volumes.

CT: What mistakes do foreign companies tend to make in Cuba?

One is to think that Cuba is launching itself head over heels into some sort of capitalism. It’s not. Is Cuba making economic reforms that try to be more market-oriented, to give a greater level of autonomy to state enterprises, to raise productivity and efficiency? Yes. But this is still going to be, at least for the foreseeable future, a state-driven economy. Related to that, clients may think that with Cuba “opening up,” they have to go in quick, make money quickly, and cut quick deals. There’s no such thing as a quick deal in Cuba. The mistake is clients having high short-term expectations. I try to lower my clients’ short-term expectations and raise their medium- to long-term expectations.

Another mistake is to think that because Cuba might have economic difficulties it will be easy to negotiate one-sided deals, because the Cubans need the investor’s capital, know-how, market or technology. The reality is it doesn’t matter how difficult things are, Cubans are very nationalistic and proud. They don’t act desperately. They’re willing to close the door on a lot of money if it doesn’t fit with the state’s political and social priorities, or if the investor has not earned their trust.

And that comes to another mistake: to think “business is business,” and you don’t need to understand the Cuban government’s priorities and the political context in which the economy operates. I say to those people: “Maybe Cuba is not the right market for you, because this is a country in which politics and social priorities are inextricably linked with business.” Sometimes, my challenge is assisting the client to embed their business proposal within what I see as the Cuban government’s priorities. If you’re sensitive to those priorities, you have a greater chance of actually being successful.

CT: How do you align client projects with Cuban priorities?

It’s understanding that 1) the Cuban government needs hard currency coming into the country; you have to show that. And 2) the Cuban government is very cautious about giving up control. They feel threatened, I think, for justifiable reasons. So, for most ventures, they want 51 percent control, so they can make sure the business is managed in a way that meets whatever their priorities are—whether it’s buying inputs for that business from one country over another or when payments are made.

For instance, take hotels and where Cuba wants them. Right now, they’re really saying to foreigners with equity, “No, it’s not Havana. It’s not Varadero. We’re going to start building hotels in Las Tunas or these outlying provinces that are not benefitting as much from the influx of tourism.” So, their social priority is to start spreading around the wealth, and where a hotel is being built is more important than the size.

Where politics also trumps business is in decision-making. Foreign executives sometimes expect that the government official sitting across the table in Cuba is the actual person who makes the decision, and they’re not. These big decisions are made higher up, so it makes the negotiating process more complex. Why? Because the Cuban government wants to vet, control, approve and analyze all ventures signed.

CT: What time horizon do you tell clients to expect on Cuban projects?

For a simple trade agreement, to sell the Cubans something, it’s shorter—maybe several months, not days or weeks.

But if you’re looking at a project where there is an investment or a long-term contract for some kind of service, you’re looking at a year at least. It’s slow partly because the Cubans are cautious, and partly because the bureaucracy is slow, a bit overwhelmed, and doesn’t have a lot of the resources it would like.

My advice is, be patient and take the time to understand the Cuban government’s priorities. Read some of the key documents that encapsulate those priorities, like the Lineamientos and the Portfolio of Opportunities for Foreign Investment, to get an idea of where their heads are at.

CT: What other recommendations do you have for negotiating business in Cuba?

I suggest five Ps. First, be polite. Don’t come in here with the arrogance and hubris of a cowboy, saying “I know what the Cubans need, and I’m going to tell them what they need.” I tell my clients, “Your first meeting with the Cubans, shut up and listen. Don’t go right into your sales pitch. Listen. Ask questions. Then, when you finally make your pitch, you say something like, “On the basis of what I understand to be Cuba’s priorities—social, political and economic—I think this business idea might find alignment with your government’s long-term development strategy.”

So, come in with humility. Understand that these guys have stood up to the United States for 50 years, and they don’t take kindly to the arrogant businessman, who often is the American. What makes U.S. business culture so successful in the world is your aggressiveness and in-your-face self-confidence. That may work in a lot of countries. But it doesn’t work in Cuba. So, be polite. Be humble. Hire a Canadian with Cuba experience to do your negotiating. [Laughs out loud.]

Second, be prudent. Understand this is not a Third World country where you can go through backdoors, have “friends,” slide envelopes across tables. That doesn’t happen in Cuba, and if it does, it’s taken seriously and punished quite severely. This is a rules-based country with a lot of surveillance. There are no secrets on the island. This is a sophisticated country. They have an intelligence service that has been protecting them from the United States and can easily be applied to companies that think they might pull the wool over the Cubans’ eyes.

Third, you have to be persistent. I’ve had clients who stuck to a business idea, and when the Cubans didn’t respond, they politely and tenaciously kept knocking on the Cubans’ door, until finally the Cubans said, “Let’s talk about this.”

The next P is patience. You have to sometimes sit tight and wait. And the fifth P? Patience, again.

CT: Where do you see Cuba going medium- and long-term?

Within five years, I think Cuba will be a booming place. Will it be where the Cubans or foreign investors want it to be in five years? No. But it will have an economy rising up from the ground floor.

Some cynical people say, “I’ve been waiting 25 years since the Wall came down.” But there is a difference: The last 25 years for business are not the next five years.

I believe two fundamental things are going to happen: The Cuban government is going to accelerate and deepen its economic reforms … so that it’s easier to invest and the economy becomes more efficient. They’re reforming partly because they don’t have a large benefactor outside and also because they’ve come to realize it’s needed for the good of the country.

The second change is that the U.S. embargo is going to be lifted. We don’t have to wait for a Democratic-controlled Congress or administration. I’ve spoken to enough U.S. companies and visitors who in increasing numbers say, “This embargo doesn’t make sense.”

When you hear voices like that, and when you hear Cuban-American voices like Carlos Gutiérrez and some Fanjuls endorsing economic engagement with Cuba, you realize there’s a growing political mass within Republican and conservative sectors saying, “This is just stupid.” So, I can’t imagine the embargo lasting more than five years.

CT: With openness growing, where do you see the biggest opportunities for business in Cuba?

The lowest-hanging fruit is anything directly or indirectly related to the expanding tourist sector. Cuba is maxed out now at four million visitors per year, and projections are that once the travel ban is lifted, visitor arrivals can easily double in a short period. So, that means opportunity in hotel construction, infrastructure, importing cars for rentals, selling food (Cuba imports 80 percent of its food, so most food at hotels comes from abroad); investing to produce food, because the Cuban policy is import substitution to produce locally instead of importing; selling them pillows and sheets for hotels; airport expansion; roadway improvement. The list is long and attractive.

Next is anything based on Cuba’s greatest resource: its people. This is arguably the best-educated country in Latin America, with a huge number of university-trained professionals. I can see Cuba becoming a center for hubs tied into pharmaceuticals and biotech, health sciences, health tourism, information sciences, engineering, agronomy—any sector where you would have high value-added human resources involved.

CT: What about this notion that European, Canadian and Chinese companies have an edge over U.S. companies because they’re in Cuba first?

For sure, if you’re not an American company, you have an advantage, because you don’t have an embargo on you. When the process of normalization was initiated by President Obama, I had a huge upswing in contacts by non-American companies saying, “I’ve got to get in now. It’s the beginning of the end of the embargo. We need to move.” I try to dampen people’s expectations in terms of cutting the quick deal before the Americans come, because there’s no quick deal with the Cubans. But yes, start now. I even had some non-Americans tell me when Donald Trump got elected, “Great, another four years of opportunity for us to cut deals before the Americans really come on the scene as competitors.”

CT: Any other specific suggestions for U.S. business executives?

To do business in Cuba, you need face time. You need to meet the Cubans. You don’t do business through emails and phone calls. It’s relationship-building. So, Americans have to get down here.

I once had a U.S. executive tell me, “Gregory, I was here. I was impressed. I had all these meetings on a political protocol level, but I would have liked to sit down across the table from the director of the state enterprise with which I would do business. I would have liked to get a better sense of how they see things and how a relationship would work. Could I have initiated a moot negotiation without violating the embargo?”

So, I phoned up some lawyer friends in Miami who know the embargo well, and the consensus was that as long as it’s non-binding and there’s no transaction of services, an American company can sit down across the table from any Cuban state enterprise and talk as if the embargo didn’t exist. And that is an important process, because both sides put down on the table their conditions and their priorities, and they get to know and trust each other.

But would the Cuban side entertain the idea? I initially thought the Cubans would say, “Lift the embargo first.” But when I went to a senior Cuban official, he said, “I think we would be open to talking about a concrete project in a hypothetical context,” which shows pragmatism on their side.

So, after consulting your attorney, you have the opportunity to talk with the Cubans without violating the embargo. Start now, because it takes two years to negotiate a joint venture anyway. So, when the embargo is lifted, you’re hitting the ground running. Relationships in Cuba are not built over six months. It takes longer. Trust-building is so important. It’s not done over a couple of visits or couple of mojitos. Start now.

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  1. Canada avoids punishing Cuba for bizarre incidents harming diplomats - Cuba Trade Magazine - November 8, 2017

    […] Gregory Biniowsky, a consultant who represents Canada’s Gowling WLG from Havana, said it’s unfortunate U.S.-Cuba relations are deteriorating, but that the fallout extends the window of opportunity for global competition. […]

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