• STRATFOR ANALYSIS

    US investment in Cuba will reinforce the military

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    THE FAR has had a role in the Cuban economy since the 1960s, primarily in providing labor to agriculture and rural development projects through organizations such as the Youth Labor Army and the Territorial Troop Militia. In the 1980s, military manufacturing grew and the Castro regime established the Enterprise Improvement System to manage military factories and other businesses. Losing economic support from its Soviet patron in the early 1990s severely hurt the Cuban economy, and GDP fell by more than 10 percent annually between 1991 and 1993. The economic crisis of this period led the Castro government to increase the military’s role in managing the economy.

    The growth of military economic control created new, potentially lucrative positions for the officers involved. The Cuban Import-Export Corporation (CIMEX), a $1 billion commercial conglomerate under the control of Col. Hector Oroza Busutin, is responsible for processing remittances, an area that is expected to grow from US changes in economic regulations. But the most profitable of the military’s tourism companies is Gaviota S.A., led by Gen. Luis Perez Rospide.

    Through Gaviota S.A. and other companies such as Cubanacan, Aerogaviota, and Habaneros, the military operates businesses such as hotels, tour companies, retail stores and even an airline. Tourism eclipsed the sugar industry as the largest sector of the economy in the late 1990s, and the potential influx of new American travelers to the island will only increase military profits. As of 2013, the tourism sector represented 10 percent of Cuba’s GDP. Tourism is the leading source of foreign exchange and is important in ensuring imports of food and consumer goods to the island, both of which are vital to maintaining social stability.

    Under Raul Castro, Cuba has introduced limited reforms in the labor sector and has opened the country to some foreign investment. Cuba has allowed for a non-state economic sector by permitting the growth of small businesses and economic cooperatives in addition to letting individuals register as entrepreneurs among 178 approved jobs. Entrepreneurship, tourism and joint ventures with foreign enterprises represent the future of the Cuban economy, and the military has outright control — or a at least a high degree of control — over much of the latter two areas.

    The military has also successfully partnered with foreign companies. Facing tough competition and following years of decline, Cuba shut down the Ministry of Sugar in 2011 and replaced it with Azcuba, a state-owned company run by the military. Azcuba partnered with Brazilian company Odebrecht in 2012 to manage the 5th of September sugar mill in Cienfuegos. Odebrecht made further inroads in Cuba with the $1 billion Mariel port project.

    In addition to allowing the institution to support itself financially, making the military a central part of the economy enabled limited economic reform while maintaining centralized control over the economy. Giving the military lucrative revenue streams allowed the Castro brothers to secure their authority over economic activity, even while implementing more capitalist economic practices. The leadership positions of these companies are highly coveted, and the leaders tend to be Raulistas (followers of Raul Castro) who have been rewarded for their loyalty.

    For example, after revolution-era Gen. Julio Casas Regueiro passed away in 2011, Raul Castro’s son-in-law, Gen. Luis Alberto Rodriguez Lopez-Callejas, succeeded him as executive director of the military holding corporation Enterprise Administration Group, which oversees all of the military’s state-run companies. Lopez-Callejas has also been put in charge of the Mariel port project.

    The military’s integration into Cuba’s political realm and economy ensures that it will be a key player in a post-Castro regime. As the US-Cuba diplomatic and economic relationship evolves, the likely increase in money flowing into the military-dominated economy in Cuba will expand the military’s influence as its profits increase. The military and the Cuban Communist Party will have an ongoing presence in the government, and though economic integration with the United States is slowly developing, the regime will endure for some time after the Castros disappear from the scene.

    Publishing of this analysis by The Manila Times is with the express permission of STRATFOR.

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