The Case for Cuban Engagement

After six decades of communist rule in Cuba, the island is now governed by someone outside of the Castro family for the first time since the 1959 revolution. The new leader, Miguel Diaz-Canel, was vice president and a provincial party chief.

Many believe that the political and economic status quo of the Caribbean nation is unlikely to change. However, lessons from the business world indicate that any change in an organization’s key leaders ushers in a new era for a company.

Whether it’s an acquisition, merger or the appointment of a new CEO, these transformations usually carry enormous repercussions for key functions.

New priorities are typically manifested by new promotions, new players, new rules and new aims. In turn, this results in shifting financial conditions, new private developments and new service assortments.

When applying such transition effects onto countries, one could argue that there is an opportunity for President Trump to act decisively in formalizing and normalizing trade relations with Cuba if conciliatory and meaningful changes are made.

For example, changes could be made so that there are no longer higher hotel rates for Americans than for Europeans, as well as no more ongoing accusations or regurgitation of historic events that have long passed.

Curative International Marketing, a theory developed at Georgetown University’s McDonough School of Business, directly addresses past errors and focuses on long-term restitution and improvements.

Such a move would advance U.S. businesses and their strategic interests while allowing Cuban citizens to operate in the private sector independent of the communist regime.

So far in the Trump administration, the opposite tactic has been taken by restricting American travel and trade with Cuba, which is a reversal of President Barack Obama’s policies.

A pro-business posture allows for increased commercial relations (beyond cigars) that would be more effective in countering the interests of the Cuban military’s monopoly in business.

This policy would empower private Cuban entrepreneurs by eliminating their dependence on the Cuban state apparatus and open them up to U.S. leadership and influence in the region. Private success over public ventures would speak volumes in favor of new economic and social thinking.

As a first measure, restoring the capacity for U.S. citizens to schedule individual visits to Cuba, which was eliminated in 2017, should be considered.

The potential economic boon for Cuba’s tourist industry could eventually stimulate growth in both the U.S. and Cuban economies. Also, this measure would promote democratization and bolster innovation and an entrepreneurial spirit in Cuba.

The recent promising developments in the Korean Peninsula indicate that diplomacy rather than deterrence can advance American interests in places where ideological and strategic divisions run deep. As the White House approaches a deal in East Asia, it could apply the lessons learned from the North Korean negotiations closer to home in Cuba.

President Trump’s acumen for dealmaking can face an ultimate test in Cuba. Opening conversations — and trade — with the island could mark a vast improvement in the bilateral relationship. Hopefully, the American people can look forward to the use of politics that shapes a future good for all of us.

Michael Czinkota teaches international business and trade at Georgetown University’s McDonough School of Business and the University of Kent.

Lisa Burgoa of the School of Foreign Service contributed to this commentary.

A Philanthropic Awakening in Latin America

A Philanthropic Awakening in Latin America

Jerry Haar

For a long time standing now, “Latin American philanthropy” has been considered an oxymoron. Traditionally, wealthy Latins and corporations have had deep pockets but short hands, believing it the role of the public sector to fund charitable and philanthropic endeavors while keeping their own wealth in the family, shipping it offshore or giving it to the Church.

The times they-are-a- changing, however; for without much fanfare we are witnessing a growing awareness among the wealthy and corporations–principally through corporate foundations in the region–that philanthropic giving and social engagement are critically important and highly beneficial for their nations, to society, their companies and themselves. (It should be noted that most countries in Latin America use the term “private social investment” rather than philanthropy.)

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Beyond Commodities: Argentina’s dynamic biotech industry

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Source: feelgrafix

By Jerry Haar and Krystal Rodriguez

The dictionary definition of crucible is “an extremely difficult experience or situation; a severe test or trial”. This is precisely where most of Latin America finds itself with its excessive dependence on commodities as the linchpin of its economy. In good times governments spend commodity windfalls on projects or programs to garner support for the political party in power. In bad times, politicians engage in handwringing and scapegoating, and the governing party borrows excessively to make up the shortfall in revenue from commodity sales.

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Creating an Ecosystem of Innovation in Latin America

The last few years have not been kind to Latin America, economically speaking. And that is an understatement. The region has experienced two consecutive years of negative growth (-0.1% and -0.5%). 2017 will bring a slight improvement only.

Recognizably, the main culprits in the projected contraction are Argentina, Brazil, Ecuador and Venezuela–accounting for 50% of the region’s GDP. As for foreign direct investment (FDI), inflows reached $171.84 billion in 2015, down almost 12 percent from the $195 billion in 2014. This contrasts with a 36% increase in FDI around the world. Add to the mix a continuing depression in commodity prices (slowdown in China), corruption scandals, high interest rates, and urban crime and violence, and the forecast is gloomy overall.

However, among the storm clouds that will continue to hover over the economies of the region, there are indeed a number of pockets of sunshine—the brightest being the rapid proliferation of start-ups, both tech- and non-tech based, and the pace of innovation throughout the Hemisphere. Last year, start-ups in Latin American ballooned to 1,333 and accelerators to 62, with investment approaching $32 million. Chile leads the way, with 3 times the investment of Brazil. In terms of numbers of start-ups, Chile had 442, Mexico, and Brazil 297.

While start-ups pop up serendipitously, it takes the formation of an “ecosystem” to fuel the growth, interaction, and dynamism necessary to foster and expand innovation. Ecosystems of innovation, as referred to here, are communities of interacting parties–business, government, academe and non-profit organizations. They can be national and subnational (Chile, Uruguay, Costa Rica) or can be found in clusters (aerospace in Querétero, Mexico; IT in Campinas, Brazil; sugar cane, Valle de Cauca, Colombia). As Ricardo Ernst and I point out in our new book Innovation in Emerging Markets, an ecosystem’s drivers are innovation are national policies, facilitating institutions (such as Colombia’s Colciencias), and firm-level innovation. We find also that facilitating institutions, themselves, can have far greater impact than government or individual firms. Examples include Techstars, 500 Startups, Endeavor, Wayra, and NXTP Labs.

Just what are the key ingredients that comprise a successful ecosystem of innovation? Any research-based assessment and extensive conversations with entrepreneurs, other business professionals, and government officials would most likely agree that the list encompasses:

  1. Large pool of skilled talent
  2. Installed and diffuse technological base (e.g., broadband networks)
  3. Dedicated infrastructure of research universities, labs and entrepreneurship instruction
  4. Ample funding (angel investment, venture capital, convertible debt, microfinance, crowdfunding)
  5. Networks and collaboration among financiers, entrepreneurs, scientists, technologists, and designers
  6. An environment that nurtures, supports and sustains creativity
  7. Mechanisms for the fast transfer of knowledge
  8. Strong intellectual property laws and surety of enforcement
  9. Pro-market economic, tax and regulatory policies
  10. Well-functioning administrative, legal and judicial systems
  11. Federal, state and local industrial policies—especially those targeted at “clusters”

Although Latin American ranks low on the 2015 Global Innovation Index–Chile is #1 in Latin American but #42 overall–it is the second most entrepreneurial region in the world, according to the World Bank. Its Internet and mobile density is higher than the world average.

Although covered only minimally in the North American and European media, every nation in Latin America–and the Caribbeaan–is home to start-up activities. To illustrate, Dev.F (Mexico) brings software development techniques to that nation; Platzi (Colombia) provides an online learning platform for IT and programming courses; HubUnitec (Honduras), Impact Hub (Guatemala), and Atom House (Colombia) provide co-working and meeting spaces for young techies; and initiatives like Laboratoria (Peru), Epic Queen, and WomenWhoCode assist female start-up entrepreneurs to achieve success.

As for financing start-ups, here, too a myriad of resources such as Venture Club (Panama), Kaszek Ventures, Guadalajara Angel Investors, and Ideame, a crowdsourcing financing platform.

Successful ecosystems of innovation result from the synergy created by universities, R&D centers, talented human capital, investors (venture capitalists and angel investors), professional associations, and the private sector and government working to achieve sustainable competitiveness.

While 2017 will usher in another lackluster year for the region in terms of economic performance, with only a few countries achieving notable success, the rapidly emerging ecosystem of innovation will continue unabated and provide limitless opportunities for both technology- and non-technology entrepreneurs across the region.

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Jerry Haar is a business professor at Florida International University and a global fellow of the Woodrow Wilson International Center for Scholars in Washington, D.C. He also holds non-resident appointments at Georgetown and Harvard. His latest book is Innovation in Emerging Markets.

To devalue or not to devalue?

To devalue or not to devalue? That is the question. During the last decade, Latin American central banks have effectively steered the rudder of monetary policy, avoiding major devaluations of their currencies–with the exceptions of Argentina and Venezuela.

Recognizably, there have been incremental devaluations in the region as a country may devalue its currency to combat trade imbalances. Chile and Peru are examples. Resultingly, a nation’s exports become less expensive and, therefore, more competitive in global markets; imports become more expensive, making domestic consumers less likely to purchase them. 

While currency devaluation may appear to be a wise economic policy choice, it can surely have negative consequences. The result of imports becoming more expensive has the effect of protecting inefficient domestic producers. Higher exports relative to imports can also increase consumer demand and fuel inflation. In the case of industrial buyers from emerging markets that need imported machinery and other capital goods to produce for either the domestic or export market, currency devaluations imports more drive up the prices for their customers, squeeze their profit margins and, in the aggregate, contribute to inflation.

The “perfect storm” of a drop in oil prices, a slowdown in the Chinese economy, and sluggish consumer and industrial demand in industrialized nations is whipsawing Latin American economies, especially large commodity producers such as Argentina, Brazil, Chile, Colombia, Mexico and Peru. Not surprisingly, Latin American GDP is expected to grow less than 1% in 2016 with Brazil and Venezuela continuing to post negative growth rates. There is nothing on the horizon to seriously challenge this doom-and-gloom scenario.

Rather than address the real causes of economic conditions that trigger currency devaluations and respond with viable remedies, political leaders often turn to scapegoating–usually casting the blame on other nations. For example, in September 2010, Brazil’s Finance Minister, Guido Mantega, used the term “currency war” with reference to monetary policies implemented mainly by China, Japan, Thailand, South Korea, Colombia and other countries to generate an artificial devaluation of their currency in order to achieve a cheaper, more competitive domestic economy that may be attractive to foreign investors, as well as to be able to withstand the 2008 economic crisis.

More recently the term “currency manipulation” has been bandied about, most prominently among a number of U.S. presidential candidates. These contenders assert that China, specifically, undervalues its currency to gain an unfair advantage in global trade. However, devaluation and revaluation are the prerogative of sovereign monetary authorities. The U.S., in fact, manipulates its own currency through interest rate manipulation. As economist Matthew J. Slaughter points out, in today’s globally networked economy trade competitiveness tends to vary little with the movement of any one currency.

Admittedly, however, the decline in China’s yuan is fueling turbulence in financial markets across the world and could well unleash a cycle of competitive devaluations of currencies. How would a series of currency devaluations impact Latin America’s private sector? Large corporations such as JBS, Cemex, Argos, Techint, and Cencosud have the wherewithal to weather economic recession and financial volatility, while small companies, especially microenterprises, that struggle for survival in even good times will find the business environment even more challenging. But what about new businesses? Given the explosive growth of new business formation (NBF) in emerging markets, particularly Latin America, and the emergence on technology-based entrepreneurial ecosystems in major metropolitan areas throughout the Hemisphere, this question is of special importance.

In a recent study, colleagues at Colombia’s EAFIT University and I examined 30 emerging markets, including a number from Latin America, during a seven-year period to determine the impact of devaluation on NBF. We found that while devaluation clearly boosts NBF, the effect is not lasting over time and loses significance after two years–even sooner if a country’s competitiveness is not strong to begin with.

Luis Videgaray, Mexico’s finance minister opined about competitive devaluations in a recent speech at the Foreign Ministry in Mexico City: “It’s frankly a perverse process, because at the end of the day if all countries engage in a competitive devaluation, no one becomes more competitive, and you generate financial dislocations.”

Should the next twelve months witness a resurgence of growth in China, a reversal in commodity prices, and faster economic growth in Europe and the U.S., currency devaluation as a monetary prescription will be relegated to the back burner of economic policy.

That will surely make 2016 a happy new year for Latin America.

Jerry Haar is a business professor at Florida International University and a Global Fellow at the Woodrow Wilson International Center for Scholars in Washington. He is also a research affiliate of the David Rockefeller Center of Latin American Studies at Harvard University.