Plagued by droughts and coastal flooding from hurricanes, Cuba is struggling to deliver drinkable water to its people—as well as to the tourists who drive the country’s economy.
The country’s aging water and sanitation systems desperately needed upgrades even before Hurricanes Irma and Maria battered the island in September, overloading faulty drainage systems and flooding entire towns with polluted water.
This year’s hurricane season came right on the heels of the most brutal drought Cuba has seen in over a century, which drained reservoirs in the east to below 30 percent capacity and left entire towns without drinking water.
This accumulation of problems has created a costly dilemma for public health and the economy. Cuba needs about $3.5 billion to repair and modernize its potable water systems, in addition to funds for maintenance and operation, according to an April report by the Association for the Study of the Cuban Economy.
“Vibrant economies are built upon high-performing water systems, and that is both the drinking water and the wastewater systems,” says David LaFrance, secretary and CEO of the American Water Works Association (AWWA), a 51,000-member educational organization focused on water quality and supply.
In 2016, LaFrance led a delegation of 17 members to Havana to introduce U.S. service providers to Cuba’s water situation, and to explore collaboration opportunities. LaFrance hoped officials would be interested in the educational and technical support AWWA offers through its volunteer arm. “It makes perfect sense for AWWA to extend its hand to Cuba, and help make their water safe to drink,” he said. “America ought to have a competitive advantage [versus foreign firms] based upon our geographical location.”
“You have a very big problem, and of course [Cuban officials] are aware of it,” said Joaquin Pujol, a former IMF official and member of the Association for the Study of the Cuban Economy. “The problem is, how do you finance that?”
The Struggle for International Assistance
International aid groups have helped Cuba address some short-term water accessibility issues, especially after Hurricanes Irma and Matthew. U.N.-affiliated organizations such as UNICEF and the World Health Organization recently announced plans to distribute water sanitation and storage products, prevent water-borne disease, and promote safe drinking practices in areas affected by Irma.
Aid groups are also watching provinces harmed by Cuba’s drought. In 2015, the International Federation of Red Cross and Red Crescent Societies provided emergency disaster relief to families in the parched eastern province of Santiago de Cuba.
But Cuba understands it needs long-term solutions to water accessibility. As with many countries, both communist and capitalist, Cuba’s water service is public, subsidized mostly by taxes. Cuba experienced a recession last year, and even with its heavy tax system, citizens don’t generate the funds needed to maintain water service—much less to fund an infrastructure overhaul.
Funding deficits are often covered by multinational grants and loans. Many emerging economies obtain large loans for infrastructure projects from international monetary institutions such as the World Bank, the International Monetary Fund (IMF), or the regionally specific Inter-American Development Bank (IDB). These institutions generally liaise between a borrowing country’s government and a private company with the expertise to get the job done.
Cuba, however, faces obstacles to joining these institutions, including transparency requirements, U.S. opposition, and a history of unpaid debts.
As for international loans, Cuba took a big step in 2016 with a debt-restructure agreement for some Paris Club members, an informal debt and repayment program made up of 21 wealthy creditor nations. Under that agreement, 14 member countries agreed to waive $8.5 billion of Cuba’s outstanding $11.1 billion debt. The rest would be repaid over an 18-year period, a move that could help Cuba make a return to global markets.
But to become a member of the World Bank, for example, a country first must join the IMF. The Helms-Burton Act prohibits U.S. officials from voting in favor of Cuban membership, and U.S. influence extends beyond its 17 percent vote. While Cuba’s 1962 suspension from the Organization of American States was lifted in 2009, making it possible for it to seek membership in the IDB, the U.S. holds 30 percent of the voting power in that institution.
During the U.S. detente with Cuba, some experts thought the U.S. might allow Cuba to join these organizations by abstaining from voting. But for any vote to be called, Cuban officials had to request membership, and there were no signs to suggest they would.
“The Cubans had to take a step forward, and they did not,” said Richard Feinberg, a Brookings Institution senior fellow and author of Open for Business: Building the New Cuban Economy. He says the biggest obstacle is that funding from these institutions requires an open-book policy, which the Cuban government opposes. Pujol agrees. “The Cubans don’t publish any statistics on the balance of payments, they don’t publish what the federal reserves are, [and] the central bank is not transparent,” he told Cuba Trade.
There are a few prospects that don’t pose so many challenges. In August, Cuba signed an agreement to join the Central American Bank for Economic Integration (CABEI), giving it access to foreign capital for development projects. Last fall, Cuba signed a cooperation agreement with the Caracas-based Andean Development Corporation (CAF), a development bank that funds infrastructure throughout Latin America. While the CAF partnership is off to a cautious start with technical assistance to the University of Havana, the institution has increasingly focused on funding water projects in the region.
Meanwhile, some assistance has trickled in. Over the past decade, the OPEC Fund for International Development (OFID) has granted $108.5 million in loans to Cuba for water and sanitation projects.
But while international aid to Cuba has increased over the last few years, very little has gone toward water infrastructure. According to the Organization for Economic Cooperation and Development (OECD), a think tank that tracks global economic data, Cuba received $552.9 million in economic aid in 2015, up from $99.5 million in 2013. But data on the mixed bag of grants and loans, mostly from Russia and Spain, suggests less than a quarter went to social and economic infrastructure, health, and humanitarian projects.
How much went to water infrastructure is unclear. What remains clear is that Cuba lacks the resources to overhaul its system.
Opportunities for Investment and Partnership
As geopolitical financing drama drags on, Cuba’s water system desperately needs repairs. “Half of the water that goes in one side doesn’t come out the other,” says Pedro Freyre, a Miami-based lawyer specializing in Cuba transactions.
Water consultants estimate that in recent years, up to 60 percent of water has been lost to faulty infrastructure. The government says it has reduced that number to 45 percent, but more must be done.
Cuba publishes an annual portfolio of economic investment opportunities, which includes proposals for public and private partnerships in sectors such as agriculture, tourism, mining, and energy. The country has been reluctant to collaborate with foreign investors on utilities, perhaps due to Cuba’s politically-sensitive history with foreign-owned companies. But water projects appeared for the first time in the 2016 edition of the investment portfolio, and in March, Cuba invited 60 water companies from 18 countries to its first international water forum, where water and sanitation investment opportunities were presented.
AWWA’s LaFrance said his visit to the island encouraged him to put Cuba in contact with financial and architectural consultants, as well as industrial manufacturing firms. He says the Cuban government’s response was “very measured.”
“I think there were equal portions of interest in sharing, along with a sort of concern, hesitancy, [and] skepticism,” LaFrance said. When asked about the one thing they could do to help, “most [Cuban officials] kept saying to us, ‘get the embargo lifted.’”
Cuba partnered with two large foreign companies in the 1990s to develop and provide water to its famous beach resort of Varadero: Aguas de Barcelona or Agbar, which was acquired by its mammoth French counterpart Suez in 2008, and the Canary Islands-based Grupo Martiñon.
Cuba later introduced this partnership directly into the public water system, forming the jointly owned Aguas de Habana, which serves eight Havana municipalities. In his book Water, Politics and Money: A Reality Check on Privatization, Manuel Schiffler says this public-private contract, the first of its kind under the Castro regime, was kept secret at the time. Today such partnerships are common.
Freyre says there’s plenty more of this type of work to go around. What remains to be seen is whether President Trump’s new Cuba policy limits U.S. companies offering long-term support.
In October 2016, OFAC added an authorization that allows U.S. citizens to “provide services to Cuba or Cuban nationals related to developing, repairing, maintaining, and enhancing certain Cuban infrastructure in order to directly benefit the Cuban people.” While these projects must go through licensing procedures with the Departments of Treasury and Commerce, OFAC’s wording was a sign the Obama administration looked favorably on infrastructure projects for the public welfare.
On the other hand, Trump’s new directive bars U.S. companies from engaging entities linked to the Cuban military. That complicates prospects since some of Cuba’s water projects are bound to have military involvement. The U.S. government could create exceptions for humanitarian work, and many American lobbyists are pushing for that exception while Treasury and Commerce prepare the new regulations.
Why Tourism is Key
Cuba needs improved infrastructure to propel its tourism and agricultural sectors, but water only represents 0.2 percent of the investment sought in Cuba’s $8.2 billion 2016 investment portfolio.
Tourism, energy, industry, and agriculture projects are among the most lucrative proposals, even though they all require access to water. A single plant to produce deluxe bathroom fixtures is seeking a $15 million investment, compared to $19 million total for all water infrastructure projects.
“If you look at that list, I think we’d have a hard time finding one of them that does not need water,” said LaFrance. “Even in the restaurants that they’re allowing people to open up—they’ve got to wash the dishes. They need water for cooking.”
“A lot of the projects advertised there are potentially foreign exchange earners and that foreign exchange can be used in part to make payments on loans and equity,” Feinberg said. “But many water projects, which will be for domestic consumption, will not generate much foreign exchange, and are hence less attractive to foreign investors.”
Theoretically, tourism projects can generate revenue the government uses to pay for public utilities. This is precisely how Aguas de Habana—now an isolated case of water privatization in Cuba—came into existence a few years after the collapse of the Soviet Union, Cuba’s main trading partner from the 1960s to the early 1990s. “The Soviet Union disappeared, and tourism was the way to quickly increase foreign exchange earnings,” Feinberg said.
To this day, tourism is still Cuba’s largest source of foreign exchange, and continues to play a vital role in generating funds for economic and infrastructural needs. “If the money is flowing through this one funnel,” said Eleanor Allen, CEO of Water for People, “what if that cost of providing services for the tourists also [included] the cost of providing the foundation for development, to have a real sustainable infrastructure?”
Cuba’s 2016 investment portfolio lists hotel development plans for Ciego de Ávila and Santiago de Cuba, two of the most drought-stricken regions of the country. Earlier this year, about 70,000 people in Santiago alone were reportedly without water service. It’s not clear whether these proposed hotels intend to build their own wells or provide much-needed revenue for improving access to water in surrounding communities.
Allen compared the potential benefits of tourism to how some mining, oil, and gas companies with corporate social responsibility commitments operate elsewhere. “When they do develop, they have to do community programs [as] part of their mitigation, and they have to develop thriving communities around where they work. The same could be done for the tourism industry in Cuba,” she said.
That could help everything from household usage to food production. Farms consume up 70 to 80 percent of Cuba’s freshwater supplies, making it even harder for Cuba to boost its agricultural exports without improving irrigation systems.
In the short term, the government has responded to water access issues by intermittently sending water tanker trucks to dry neighborhoods. The trucks are known to make deliveries anywhere from every few days to every several weeks. Cuba also uses public service campaigns to encourage residents not to waste water. Roadside billboards implore citizens that “even a drop is important.”
Until major infrastructure projects are completed, the small-scale approach keeps Cuba afloat. The idea is that even small investments, such as putting rain-catching water tanks on roofs and distributing household water filters, will make a difference.
Helena Solo-Gabriele, an environmental engineer at the University of Miami, can attest to the demand for such products. She worked with the UM Center for International Business Education and Research to survey 600 people arriving at Miami International Airport from Cuba this spring about their experiences with water quality and water-borne illnesses.
Because scarcity had reached crisis levels, the survey focused on “the need to clean the water that they do have,” Solo-Gabriele said. The survey also asked travelers about places they visited, the drinking water they consumed, and “their perceptions about its quality based on aesthetics and its potential for causing illness.” It also questioned people about the availability of tap water, and the use of catchments.
The preliminary analysis was disheartening, says Solo-Gabriele, and she has already received calls from humanitarian organizations that gather donations for buying and installing water filters.
Regardless, filters and catchment tanks are short-term solutions. “To really fix the problem, you need the larger-scale treatment systems,” she explained.
“There is no doubt there is a crying need, a demand for filters and all sorts of products to improve water quality in Cuba,” said attorney Freyre. But the larger question is how U.S. organizations can distribute filters on a massive scale in Cuba, or if they are allowed to participate in long-term projects.
“As a general rule, small items for humanitarian application are okay. It’s when you start scaling those up that questions will arise. What is the import mechanism?” says Freyre. “You can have the U.S. policy be that it benefits the Cuban people. However, if those projects require the participation of a forbidden military entity, then in all likelihood you could not carry out the project.”
While Cuba faces unique economic and political hurdles for revamping its water infrastructure, nearly every country must address water accessibility, notes LaFrance.
“To be perfectly fair, we have similar struggles here in the U.S.,” LaFrance said. “Transportation gets more money than water. Ag gets more money than water. So, water tends to globally fall behind those things, even though everybody agrees that it’s critically important.”