Tech sector draws US interest, but hampered by current Cuban restrictions.
Growing up in Cuba, Jose
Pimienta didn’t see the Internet until 2006. He and his friends taught
themselves computer programming with a Russian textbook on the Pascal
programming language that had been translated into Spanish. Even in university,
when he finally had access to the Internet, Pimienta, now 27, was limited to 20
megabytes per month of data — a small fraction of what fits on a thumb drive
today. Yet, in 2013 when PayPal hosted its first-ever global hackathon
competition in San Jose, Calif., with a $100,000 purse, Pimienta and two
partners placed third for developing a peer-to-peer lending app called LoanPal.
“In Cuba, you have a lot of people who have done things
with limited resources and no real access to knowledge,” Pimienta, who
emigrated to Miami in 2009, says. “You have a lot of talent there.” Pimienta is
proof of the level of talent Cuban universities are producing. He and his Cuban
partner won the regional PayPal hackathon in Miami two years running, and he’s
now working with clients in the United States, Europe and Cuba, building
websites and brands from the ground up, while employing former Cuban
Presidents Barack Obama and Raul Castro on December 17
made an historic announcement that the adversaries, separated only by 90 miles,
would work to reopen diplomatic channels, ease travel and trade restrictions,
and allow for U.S. banks to start processing transactions on the island. But
even before the announced thawing of relations, Cuba was developing
sought-after computer programmers and a tech start-up community that has drawn
interest from entrepreneurs and industry giants like Google.
“You have a highly educated workforce, excellent programming talent and a huge amount of opportunity for companies that want to invest in the knowledge economy,” notes Faquiry Diaz Cala, CEO of Tres Mares Group, a private equity investment
firm in Miami that has partnered with Pimienta. “There’s already demand for
these programmers. There are full-blown projects that are being done in Cuba by
guys who are working underground because they haven’t really opened up the
There is no official number for the size of the
information technology sector in Cuba or the number of trained professionals.
But Diaz says Cuban universities are churning out large numbers of graduates
who have learned to program with limited resources
“These guys are sought after because their programming is
so tight,” Diaz notes. “And their programming is so tight because they have
learned with limited access to time on computers and limited access to the
That could change. New
regulations announced by the U.S. Treasury Department allow for the export of
technologies to Cuba that were previously banned under economic restrictions
against the island. That, coupled with economic reforms slowly rolled out by
the Castro government, has positioned the Cuban technology and start-up sector
as one of few areas of the Cuban economy truly poised for growth. Before the
island can transition into a tech hub, however, it has to overcome serious
hurdles including a lack of critical infrastructure, laws that limit foreign
investment and government control of access to the Internet.
NOT AN OVERNIGHT PROCESS
While the joint announcements made by Obama and Castro
were met with much enthusiasm, analysts warn that the outcome of the thaw
between the two countries will largely rely on a long, arduous process of
negotiations, which began in January when assistant secretary of state for
western hemisphere affairs Roberta Jacobson traveled to Havana for two days of
discussions with the Cuban government. “The fact that they were meeting at all
is hugely significant,” says Cynthia Arnson, director of the Latin America
program at the Washington-based Wilson Center, a think tank. “But this is going
to be a process, and it’s not going to happen overnight.”
Even if the negotiations are successful, fully opening
the Cuban economy will take time, notes Wharton management professor Mauro
Guillen, who is also director of The Lauder Institute. “That process of
transition from all points of view — the legal, the economic, the financial,
the monetary, the regulatory — is going to be very complicated. It cannot
happen all at once. It cannot happen overnight,” he says. “We know from
previous transitions that a gradual transition — such as the ones staged in
China or Vietnam — were better than those that followed the so-called
Standing in the way of fully normalized economic
relations between the U.S. and Cuba is the economic embargo first instituted by
John F. Kennedy in 1962 and then later strengthened by Congress. There is a
near-zero chance of it being lifted. The U.S.Treasury has exercised its limited
ability to make exceptions to the embargo, but removing the embargo completely
needs Congressional approval. Republican lawmakers are mostly opposed to
loosening restrictions against Cuba. The Republican-controlled Senate may even
block Obama’s nominee for the ambassadorship.
“All of the economic bottlenecks that existed before
still exist, despite [the] much-lauded FDI [foreign direct investment] law,”
says Christopher Sabatini, former senior director of policy at the Americas
Society and Council of the Americas (AS/COA). “It’s not going to be a windfall
that will save and shore up [the] economy.”
To be sure, full normalization of the economy has the
potential to bring an enormous windfall. The Peterson Institute for
International Economics estimated in a 2014 paper that Cuba, which
currently attracts about $500 million in FDI, could lure as much as its
Caribbean neighbor the Dominican Republic, which has $17 billion in FDI,
including $2 billion from the U.S.
A nd the Cuban government has identified information
technology as one of the sectors it is seeking to develop under the reforms to
its economy that President Raul Castro began to roll out in 2008. “Today’s
situation does not allow computer activity to address many of the needs
required by the population,” deputy minister of communications Wilfredo
Gonzalez Vidal said in an interview with Granma,
the official newspaper of the Cuban Communist Party. The government sees
technology as “an industry of strategic development for the nation,
strengthening the economy and providing broad access to contents of digital
services,” he said.
The government has a multi-part plan to develop the
industry that includes promoting training, focusing on government and
electronic commerce, allowing for new business models, and cooperating with
international actors to improve content and infrastructure and the availability
Perhaps the most significant sign of both the Cuban
government’s approach and the international interest in the island came on
February 9, when Netflix said it would
immediately begin offering streaming service to the island.
Netflix’s announcement drew headlines, but also exposed
the severe limitations that pose a threat to the development of the information
technology sector. Penetration rates for cellular telephone usage and Internet
connectivity remain uncommonly low: Only 5,360 home and business broadband
Internet connections exist in Cuba, according to the International Telecommunications Union.
Roughly one in 10 Cubans regularly use mobile phones, according to Freedom House, citing 2011
Among the country’s largest investments in
telecommunications infrastructure came in 2013 when it activated a $70 million
undersea cable laid by the
Venezuelan government, giving the country a dependable link to the Internet.
Still, most Cubans won’t be able to afford to access the
Internet or buy a cell phone in the short term. An hour of access to the web
eats up roughly almost one fourth of the average Cuban’s monthly salary. And
most Cubans can only check e-mail or visit government-approved sites through a
Pimienta knows the government-imposed obstacles well. He
is currently partnering with Cuba-based designers on jobs from international
clients. Due to restrictions on file sizes, his partner has to send large files
broken up into as many as 30 e-mails, which are then pieced back together.
Beyond that, he is not legally permitted to pay his Cuba-based employees. “I supply
them with equipment and technology instead,” he says.
Pimienta hopes new regulations will make it easier to
work with Cuba-based designers. To that end, he and several partners have
launched a website that highlights the work of Cuban designers and programmers.
He hopes to bring together dozens of professionals from across the island,
showcasing their work. “We want people to know about the talent that exists in
Cuba,” he says. “With these regulations changing, we want to be able to provide
companies with access to Cuba. You’re an American firm and you want to go to
Cuba? We know the market both in the U.S. and in Cuba. And we can help you
build a brand.”
CHANGING THE IMAGE
The popular image of Cuba, at least in the United States,
is that of a closed-off, tightly controlled island where the Castro regime has
a hand in nearly every facet of life. Miami-based entrepreneur Hugo Cancio sees
the potential of the Caribbean island, where he was born, beyond its appeal as
a tourist destination full of the robust cigars, vintage cars and aged rum for
which it has become associated. “Cuba is more than that. You’re talking about a
country of 11.2 million highly educated people. It’s about more than just the
Castros,” he says.
An understanding of Cuba is the message Cancio tries to
relay to readers of his magazines and websites, including the flagship OnCuba
publication. The magazine informs readers about Cuba’s cultural uniqueness, its
history and current events. “There was a Cuba here before 1959, and it’s a Cuba
that is still here today,” he says. Yet, perhaps more revealing than Cancio’s
message is how he built the magazine and website with homegrown Cuban talent.
Cancio plucked some of the island’s best and brightest,
trained them to produce a bilingual publication, and hired a handful of
programmers to maintain the website. “The talent here is extremely highly
trained,” he notes.
Cancio says he has worked with U.S. companies that have
expressed willingness to get into the Cuban market when it opens. “It’s amazing
to see how interested American businesses are in Cuba,” he notes. “We believe
there is going to be hundreds of millions of dollars flowing from the U.S. to
Cuba and Cuba back to the United States, eventually.”
The potential is so large that it could attract major
U.S. companies, such as AT&T, Verizon and Google, the latter of which has
already said it is interested in
expanding its reach on the island.
How quickly investments proceed likely depends less on
U.S. regulators and more on the rules that Cuba sets for investment. The
state-controlled ETECSA (Empresa de Telecomunicaciones de Cuba S.A.) and its
subsidiary Cubacel (Telefonos Celulares de Cuba S.A.) currently have a monopoly
on the telephony sector.
However, the early signs in the negotiations between the
U.S. and Cuba are welcomed news for entrepreneurs. “I think that you’ll see a
lot more direct assistance to the private sector … in the form of technical
assistance so that they can grow and prosper and perform at a high level.
That’s what’s happening on the black market already anyway,” notes Ted Piccone,
a senior fellow at the Brookings Institution who follows Cuba. “Creating
institutions that respect property rights — this kind of thing is a whole new
concept in Cuba. A major transformation is underway.”
Regardless of how quickly reforms take place, Pimienta
says there is already buzz around the potential for change in Cuba. Greater
access to knowledge from U.S. companies and the ability to import needed
technology and equipment can only benefit the start-up industry in Cuba, he
“The reality is that there are people hungry to work.
They’re creative and they are just waiting to show what they can do,” he says.
“If this happens, it would be wonderful for the people of Cuba.”
Republished with permission from http://www.knowledge.wharton.upenn.edu --
the online research and business analysis journal of
the Wharton School of
the University of Pennsylvania.