The conspicuous absence of Cuban dictator Fidel Castro from Cuba?s annual military parade, celebrating the 50th anniversary of the Granm landing and the subsequent creation of the Revolutionary Armed Forces (FAR) that marked the eventual demise of the Fulgenico Batista regime and the formation of communist Cuba, has led to speculation that Castro?s 47-year reign has come to an end. US officials continue to speculate as to the current state of the Cuban dictator and to any near-term US economic implications his demise will have on the status of the Cuban political and economic environment .

TRC anticipates two possible scenarios concerning the future of the Cuban state and economy:

1. The death of Fidel Castro will require Raul Castro to remain in power, continuing the legacy of his brother, to implement economic reforms similar to the Chinese model of free-enterprise socialism, or

2. Castro survives but is unable to return to the presidency. Raul is named President of Cuba, governing with outside assistance and counsel from his brother. Fidel?s influence will limit Raul?s economic reforms in the near-term.

Post-Castro Economic Future

Business owners and US investment firms are anticipating limitless investment opportunities following the death of Castro and the opening of the Cuban market. Cuban economic sectors likely to experience the greatest foreign investment and provide the greatest reward in the near-term are: Cuba?s tourism, construction, railroad, trucking, and marine freight industries. Cuba?s oil sector is another possible investment opportunity since the recent discovery of millions of barrels of oil off Cuba?s northern coast. Moreover, US agricultural producers view Cuba?s 12 million inhabitants as a potential consumer base.

Cautionary Tales

However, predicting geopolitics has proven difficult for investors and has led to devastating economic losses, particularly as it relates to the former Soviet Union and the rapid privatization and foreign investment opportunities associated with the formation of the Russian Federation.

Moreover, any liberalization of the Cuban economy will likely be a gradual process. According to Bill Rocco, an analyst at Morningstar, should Cuba open its markets to foreign investment, expectations that Cuba will develop as quickly or extensively as China has are unfounded. Cuba?s close proximity to the US creates a powerful economic combination but may be too little to overcome a host of economic, social, and structural problems that await foreign investors in a post-Castro Cuba.

?Institutional Legacy of a Centralized Economy?

A 2004 RAND study, entitled ?Institutional Legacy of a Centralized Economy?, outlined the difficulties facing any government that succeeds Castro and gradually opens the Cuban economy to international foreign investors. RAND stated: ?After four-and-a-half decades, the Cuban economic model has left a profound and dysfunctional legacy for the economy that will need to be dealt with by Castro?s successors if they are to revitalize the economy.? RAND outlined three principle areas that could hinder foreign investment in the country:

? Cuba?s highly educated but low-productivity labor force

? A small and deformed private sector

? Corruption

Low Productivity Labor Force

Despite high education levels among the Cuban citizenry, the level of productivity within the Cuban workforce is very low. Castro?s policy of full employment has translated into mass underemployment whereby industries are forced to provide salaries to employees who are providing very little service to the industry, often working a mere four hours a day. According to a 2001 report released by the Economic Commission for Latin America and the Caribbean:

Cuba?s open unemployment rate hovered in the 6 to 7 percent range between 1960 and 1996 while equivalent unemployment?an estimate of underemployment?climbed as high as 35.2 percent in 1993; taking open unemployment and underemployment together, over 40 percent of the labor force was not fully employed.

Small and Deformed Private Sector

Antonio Gayoso emphasizes the importance of small and medium-sized private enterprises (SMEs) and their role in facilitating the transition between centrally planned and market economies. As Gayoso notes, ?the expansion of the SME sector typically requires major changes in the institutions, practices, and behaviors that have developed during the decades of centralized control, and that the more dominant the state sector is, the more difficult changing these practices can be.? In evaluating the ability of Cuba to transition to a market economy using the aforementioned criteria indicates Cuba will face considerable problems. Moreover, the lack of market-oriented skills and entrepreneurial spirits are virtually non-existent in Cuba?s centrally-planned economy.

Corruption

Corrupt practices in Cuba generally revolve around the formation of a black market economy; influence peddling and corruption in the form of bribes as it relates to Cuban government personnel; and reliance on insider contacts to secure favorable government decisions. Corruption is recognized as a major impediment to economic development.

Risk verses Reward

Foreign investors should be aware that any Cuban transition to an open market economy could be extremely bumpy and a risky investment. However, Cuba?s untapped market and unprecedented growth potential for investors willing to assume the risk associated with emerging markets could be too great for investors to ignore. Determining the future course of the Cuban economy and political system poses significant challenges for international investors, particularly those based in the US. Anticipating robust growth potential in the near-term is likely impractical. The evolution of Cuba?s Centrally Planned Economy to one dependent on free market principles, free from government influence and corruption, will take an indefinite period of time.

The involvement of Cuban-American exiled communities in Miami could expedite the process, as these communities will seek to reinvest in the Cuban economy and political system, accelerating the emergence of Cuba as a quasi-free market state.