June 1, 2010: Cuba, Si? Investment, Si?

Recently, the New-York based Americas Society, in conjunction with the Council of the Americas, issued an assessment of the climate for U.S. investment in Cuba.

"Cuba has persistently ranked as one of the worst business environments in the world", stated Maria Werlau, a consultant specializing in Cuban affairs."The economy is in shambles, suffers from a high external debt and has investment rules that stifle international investments in and about the country."

Anna Szterenfeld, Latin American Editor for The Economist Intelligence Unit ranks Cuba 79th of 82 countries as a place to do business - the worst in Latin America.

Dismal indeed. And just the place where investors should be sniffing about for investment opportunities for the long term.

Cuba has an estimated 4.8 billion barrels of oil off their northern coast. Their economy has dictated that favorable exploration and drilling opportunities are now present. Investment in this area is better than in any other Latin American country, according to Juan Belt of the consulting firm Chemonics International. Environmental concerns? Betcha there is practically none, unless an oil spill comes from the "gringos". Drill where you want using the methods that are most economically favorable. With the recent BP rig blowout, US drilling is likely curtailed, or at least made cost prohibitive with litigation and environmental impact roadblocks . The northern Caribbean is now Cuba's oil patch to exploit. Investment is coming from China and Venezuela as well as publicly traded companies such as Canada-based Sherrit International, Norway's Norsk-Hydro, Spain's Repsol and Brazil's Petrobas.

Also interesting are the abundant mineral reserves Cuba possesses. Reliable studies indicate that the Castro brother's island produces over 70,000 metric tonnes of nickel annually, making this commodity Cubas's most important export. Cuba may seek partners to make their production more efficient. Holgiun province alone holds 34 per cent of the world's known reserves. Cuba supplies 10 per cent of the world's cobalt, a critical component of making super alloys. The U.S. considers cobalt to be a strategic metal. Cuba has a large supply of manganese and the U.S. has practically none, importing from countries such as Gabon and Brazil.

Cuba has a developing telecommunications infrastructure. President Obama has opened this sector to bids from U.S. companies. With one of the the lowest cell phone penetrations in the Western Hemisphere, opportunities abound.

Tourism is huge in Cuba. Private homes are for sale to non-U.S. foreigners for the first time in fifty years. British companies such as Esencia are constructing Florida-style golf course communities along the coasts. Cruise lines are poised to include the island as an important part of travel packages.

Sugar, tobacco and other agricultural commodity investments are problematic due to climate vagaries such as hurricanes and the belief that these will remain under strict government control.

Companies to look at according to Market Oracle, include: Repsol (REP),Petrobas (PBR), Freeport-McMoRan (FCX), Royal Carribbean (RCL), Carnival (CCL), Vodaphone (VOD) and a favorite amongst early and optimistic investors, Sherrit International (SHERF). Your research will no doubt produce more ideas than the above.

Investing in Cuba is challenging and speculative. Companies that have a manageable portion, not all, of their capital tied up in the island nation will be a starting point to begin your quest. Don't sell either Cuba or it's people short. Who knows? Investing there may be easier and more rewarding than in the U.S. down the road. It is not too early to think about the possibilities.

No position in the above securities.