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Miami Investment Fund Bets on Change in Cuba


With President Fidel Castro in declining health, a growing number of companies in the United States are making plans to do business in Cuba. They are doing so based on reports that Acting President Raul Castro is more pragmatic than his ailing older brother and could move Cuba towards the Chinese economic model. His seemingly conciliatory tone toward the United States recently also has led some firms to start considering future ventures on the island.

Shares in corporations set to do well -- if the U.S. embargo against Cuba is lifted -- have rallied over recent months. Steve Mort visited a Miami investment adviser who is banking on change in the communist country.

In Miami, business leaders and investors are closely watching developments in Cuba. Many view potential political change there as an opportunity.

Investment adviser Thomas Herzfeld has established a portfolio of American companies set to benefit if the U.S. embargo against Cuba is lifted. "From early on we decided that once the trade was resumed with Cuba -- Cuba being the most important of the island countries in size and population -- there would be a boom in that country, one that we believe would proliferate throughout the region, and we always focused on Cuba. But of course being a U.S. investor and a U.S. citizen we can't invest directly in that country so we have invested in companies that we believe will do well even if trade is not resumed with Cuba, but also in companies that would benefit once trade is resumed."

Herzfeld's Caribbean Basin Fund is a small one. Its assets are $14 million and trades on the Nasdaq with the ticker symbol CUBA. It is a closed-end fund so, unlike a mutual fund, its share price is determined by the demand on market rather than the value of the fund's assets. The value of the fund's stock has risen 120 percent in the past year, making it the top performing fund of its kind in America.

Herzfeld says Raul Castro's recent comments give business cause for optimism. "For those of us who've been listening to Raul since he took over power last August, he's taken a much more conciliatory posture towards the U.S. Now how far will he go towards free elections, releasing the political prisoners, compensation for confiscated property, return to capitalism, how far will he go and how soon will he do it? That would be the key, in my view, towards the U.S. resuming trade with Cuba and we'll just have to see."

In Cuba, infrastructure is crumbling and, Herzfeld says, the country needs 40,000 new homes. The Caribbean Basin Fund includes U.S. construction, railroad, water, telecommunications and tourism companies.

Traditional Cuban industries such as rum, sugar, tobacco, mining and fisheries also present foreign investment opportunities.

Camilla Gallardo is from the Cuban American National Foundation. "They're going to need a lot of investment into the country and a lot of help in reconstruction and certainly we encourage companies that are looking and dealing in a post-Castro Cuba to do just that, I mean as they would anywhere else. And certainly that would be of great assistance to helping create jobs and industry in Cuba that don't exist today".

But in Miami, some Cuban-Americans doubt that American business can flourish on the island.

Alvaro Fernandez is among them. He campaigns against the U.S. embargo, but he believes that American industry will be at a disadvantage once trade is resumed. "There is an opportunity and the United States of America will come in late. Anybody who follows what is going on in Cuba will realize that they are starting to do business with the rest of the world -- China, Europe, Italy, Spain, Mexico, you name it, they've got something going with them".

But others, like Thomas Herzfeld, are less concerned. He thinks non-U.S. companies already in Cuba will be shunned in the future for doing business with the Castro government. He also denies his efforts are helping to erode the U.S. embargo.

Herzfeld is now meeting with hundreds of businesses on joint ventures, and plans to invest directly in Cuba once the U.S. embargo is lifted.