Cuba: relations with United States deteriorate

04 April 2018

Miguel Díaz-Canel is likely to replace Raúl Castro as president of Cuba in a peaceful transition in April 2018. Cuba's relations with the United States (US) have deteriorated since Donald Trump became president, particularly following a series of unexplained health issues experienced by US diplomatic personnel in Havana. However, overall security risks for businesses and their employees in Cuba remain low.

Security Environment

Vice-president Miguel Díaz-Canel appears set to succeed Raúl Castro in April 2018. The impact on political stability and policy is likely to be limited, as Castro is due to retain an influential role. Anti-government protests may occur in the one-year outlook, particularly as Díaz-Canel lacks the revolutionary credentials of his predecessor, but the majority of demonstrations are peaceful. Security forces are likely to detain individuals participating in protests.

In March 2016, over 50 people were arrested during an anti-government demonstration in Havana ahead of former president Barack Obama’s visit to Cuba. However, political opposition is limited. Protests are most likely to occur in central Havana, but the risk of property damage as well as employee death and injury risks are low, and US citizens are not likely to be disproportionately affected. Since a series of hotel bombings in the 1990s, there have been no significant anti-Communist armed attacks in Cuba.

US-Cuba relations have deteriorated since Donald Trump became president, as he has reversed the Obama administration’s détente with the Cuban government. Following alleged sonic attacks that caused its members of staff to experience health problems during 2016 and 2017, there have been major personnel cuts at the US embassy in Havana. In October 2017, the Trump administration expelled 15 Cuban diplomats over the issue.

The US Department of State has advised that US nationals in Cuba may be at risk of a similar attack. However, there have been no other confirmed attacks of this nature against US citizens. The risk of war between Cuba and the US remains very low. While there is a risk of petty crime and low-level corruption is common, US personnel operating in Cuba are unlikely to be threatened by serious criminal activity.

Trading Environment

The downturn in political relations with the US has undermined the economic outlook. Tourism is a key source of hard currency, but the sector’s growth potential is likely to be constrained by new travel restrictions imposed by the US in November 2017.

In the same month, Moody’s Investor Service cut its Caa2 rating outlook for Cuba from positive to stable due to a lack of domestic economic reform and weaker US relations. Weak productivity weighs on the economic outlook, while Hurricane Irma damaged a quarter of the country’s 4- and 5-star hotels in August-September 2017. In 2018, real GDP growth is forecasted to rise slightly to 1.4% from 1.2% in 2017.

Currency inconvertibility and transfer risks facing companies operating in Cuba are high. The country’s dual exchange rate creates price distortions and a lack of transparency. Since 2013, Cuba has pledged to unify its dual exchange rate regime, but its implementation has been continuously delayed since then. However, the unification is likely to take place by the end of 2018. While this process would improve the investment environment in the long-term, businesses operating in Cuba may be exposed to price shifts during the unification.

Cuba’s debt burden is relatively low, at a forecasted 27.9% of GDP in 2018. However, the volume of subsidised oil imported from Venezuela, which is struggling with an economic crisis and declining oil production, has declined significantly since 2014, increasing external liquidity pressure.

Investment Environment

A series of on-going reforms, likely to be continued by Castro’s successor, should give a greater role to the private sector in Cuba’s economy. However, businesses must be granted approval by the Cuban government in order to operate. The risk of expropriation is high, while the regulatory burden is heavy.

The US government strengthened its embargo on Cuba in November 2017, banning Americans from financial transactions with 180 entities Cuban entities and firms. The judiciary in Cuba is not independent, complicating contract enforcement. There are also few avenues for companies in Cuba to challenge adverse legal decisions.

Cuba: relations with United States deteriorate
†The market rarely writes these risks.
** The location of the asset and information regarding its security are particularly important in pricing.

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Ukraine, DRC, Bahrain and Guyana all of which have been the subject of recent enquiries from JLT's client base.

CPS April 2018

The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data. 

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For further information, please contact Eleanor Smith, Political Risk Analyst on +44 (0)121 626 7837 or email