Study: Tourism would pump $47 million into private Cuban entrepreneurship

Privatizing US Financial Support for the Cuban People via Travel

An Economic Impact Analysis

Prepared by

Paul LeBon, MBA   Subject Matter Expert, Author, Nine Time Cuban Missionary

William Luker, Jr. Ph.D., Economist, Terranovum Solutions

June, 2014 – Copyright (c) 2014

 Introduction

             Since 1996 the United States Government has dedicated tens of millions of dollars to the ‘Democracy Movement’ in Cuba, with nothing to show but an American contractor Alan Gross in a Cuban prison. While there are no paper trails to support or disprove the belief, most Cuba experts believe that fewer than 10% of those funds actually make it to Cuba. The overwhelming majority of this money has gone into the pockets of unscrupulous, greedy, politically-connected individuals who operate Non-government Organizations (NGOs) tied to a small cabal of elected officials from South Florida.

There is a plethora of examples of waste, fraud, and mismanagement in these NGOs but we will just cite three:

 Center for a Free Cuba                    (2007 – 2009)

US Grant                                           $3,596,277

Executive Compensation                       $231,515

Accountant                                            $328,297

Supplies                                                  $469,461

Postage                                                   $190,867

Printing                                                  $284,749

Travel                                                     $340,456

Other                                                      $708,310

Funds stolen by employee:

Felipe Sixto went to prison                    $574,274

Claim by Exec Dir Frank Calzon           $600,000

that he shipped 30,000 radios

to Cuba – claim is highly suspect[i]

No record of any monies sent to Cuba

Source: Center for a Free Cuba IRS 990s

 Cuban Liberty Council                    (2008 – 2010)

U.S. Grant                                            $382,749

Executive Compensation                       $148,617

Salaries                                                   $190,149

No record of any monies sent to Cuba

Source: Cuban Liberty Council IRS 990s

 

Directorio Democratico Cubano, Inc.       (2008 – 2010)

U.S. Grant                                         $6,198,878

Executive Compensation                       $426,296

Salaries                                                $1,227,758

Rent                                                       $364,637

Travel                                                     $490,792

Other                                                   $1,191,694

Equipment                                              $543,939

Auto Loan                                                $41,225

Financial Aid to Cuba                           $43,592

These numbers reflect only partial financial statements of these entities and are meant simply to highlight the alleged fraud, waste, and corruption within these entities, including staggering compensation packages for people who barely have high school diplomas but who are political hangers-on.

            With over $10 million in grants these three organizations sent only $43,592 to Cuba over a four year period. These organizations are so politically inbred and beholden to the political cabal in South Florida, it would come as no surprise that some of these high payroll costs may be for ‘no-show jobs’, and that some individuals in these organizations may be participating in political activities for South Florida elected officials while being paid by these organizations.

 Debate over the US Travel Policy and ‘Propping Up the Castro Regime’

             The debate has raged for decades over lifting the Travel Embargo which limits travel to Cuba by Americans. The 11 Million people of Cuba live in the only country in the world cursed with such a restriction. In 1981 this writer traveled to his grandfather’s homeland of Belgium, visiting many small towns along the border with France. There were daily occurrences of encountering Belgian and French relatives along with their neighbors who had never in their life met an American.

A subsequent 34 year career with Eastern Airlines, American Airlines, and as a contract sales process consultant resulted in travel to over 30 countries. Except for some indigenous people in the Amazon Rain Forest in Ecuador – encountered on a five day canoe trip – never has there been another incident of meeting people who had never encountered an American.

That is until my first Cuban Mission trip. And my second Cuban Mission trip, my third, my fourth , . . all the way through my ninth. Having visited 52 Catholic parishes and participated in some community events I estimate having met 1500 people in Cuba. I can count on two hands the number of Cubans I have met who had previously encountered Americans.

Americans are warm, friendly, and engaging people. They love to meet people from different cultures and to share their experiences and stories of their own land, political system, and values. To deprive the Cuban people of this type of interaction is sinful. It is the feeling of this writer that the reason the Miami political cabal fights hard to keep the travel embargo in place is to keep everyday Americans from learning – as he has – the truth about some of the atrocities committed by former members of the Batista Dictatorship. These are the individuals who set up the Cuban government-in-exile in South Florida and whose offspring harbor dreams of running the Cuban country in the future.

The cover story that these individuals use for their opposition to lifting the travel embargo is that it would ‘prop up the Castro Regime.’ These Batistanis use their hatred of two Octogenarian brothers to punish 11 Million people. This is tantamount to running a food pantry, having a family as clients, and upon learning that the father engages in domestic violence, cutting the entire family off from food donations! There are multiple examples of the elected Cuban-American politicians who claim to be ‘freedom fighters’ for Cuba’s people actually engaging in behavior and supporting policies that are designed to hurt the Cuban people. (see http://wp.me/p4a6Mc-rF)

How much does the US invest in the Peace Corps annually? We send young Americans to far flung corners of the globe spreading the word of Democracy and helping our fellow man in need. Lifting the travel embargo to Cuba would trigger a flood of Peace Corp-like travel and activities by young, motivated individuals, all self-funded.

 Enter the Cuban ‘Casa Particular’ and ‘Paladares’

Image

            We hereby stipulate that 95% of the hotels in Cuba are state-owned, and revenues go to ‘the Regime’ as often repeated by the Cuban American politicians. There is still a means by which Americans could travel to Cuba and not only prevent their revenue from going to the Regime but ensure that it goes to private Cuban citizens and their families and associates.

On my first trip to Cuba I stayed in a state-owned hotel in Havana’s Vedado district. The room cost approximately $100 per night. The mattress was lumpy, the water pressure and temperature were spotty, and the air conditioner was temperamental. After two nights of listening to traffic that seemed to be in my room, I realized that a window panel had a hole in it about 2” square and I called maintenance.

The gentleman who came to my room had a luggage cart. I explained I didn’t need to move that I would be fine with a glazier coming and replacing the window pane. He told me it would probably take two months to get it repaired. So I moved to another room. Three times I got stuck in the elevator during power failures. Once I was with three members of the Romanian Women’s Handball Team. You don’t want to be in a dark elevator when they are swatting the air.

The biggest insult however came the night I was having my first Bible Study at Our Lady of Charity of Cobre Church. My assistant came by and we were going to go up to my room to get two cartons of Spanish Bibles. Hotel security stopped my assistant from going up even for a minute. No Cuban is allowed above the lobby of any hotel.

Since that time I have stayed exclusively in Casa Particulars (CP). You could call a CP a Bed & Breakfast. They are operated by private parties in their personal home. Most serve breakfast, some do not. Many are in buildings that have amazing architecture inside and out. The best feature of a CP? The nightly rates at a CP for one or two persons range from $25 – $45. They are all very clean, air-conditioned, have hot and cold running water and generally good water pressure. Two very important aspects: 1. you will get to meet a wonderful middle-aged couple or a younger couple with school age children to interact with, all of whom are thrilled to interact with Americans; 2. the money you pay to stay on their   premises goes right into the pocket of the owner – not “The Regime”!

This boosts the homeowner’s income beyond Cuban per capita monthly income of $20 and raises their standard of living. CP owners hire cooks and cleaning ladies and generally pay much better than state wages. A CP owner can arrange with a private friend to be your tour guide or for a private car owner to transport you, rather than the state-run Cuba Taxi. Hence you are supporting more small business entrepreneurs and providing personal income.

In addition to Casa Particulars, Paladares – privately owned restaurants – are growing in Cuba.  An alternative to state-owned restaurants with dour staff and mediocre food, Paladares are known for the quality of their food and personal service. Casa Particular owners know where most Paladares are in their city. In addition many private ‘cafeterias’ have opened, selling lunch items from private homes.

The following Economic Impact Study shows just how powerful an Economic Engine that Casa Particulars, Paladares, Cafeterias, and their allied services could be in Cuba.

Tourist Dollars Flowing Into the Private Sector in Cuba With Travel Ban Lifted and US Tourists Frequenting

Casa Particulars and Paladares

Assumptions

  • 1583 Casa Particulars in Cuba (fairly accurate count – see city breakdown in Appendix)
  • CPs have one, two, or three rooms; the most common is two
  • 1583 CPs times two rooms = 3166 room nights daily
  • Double occupancy per room would translate to 6332 (heads on beds) as well as an equal number of cafeteria lunches and Paladares dinners per day
  • Average room rate $35 – midpoint; Average Paladares meal $12 and average cafeteria $3 per person per day
    This chart projects how much private income would be generated at various occupancy levels. 100% and 90% may be too optimistic, but a flood of American tourists could easily push occupancy to 70% or even 80%.  As a conservative reference point, we use 61.4% which is the overall US hotel occupancy rate for 2013.
Total data 100% 90% 80% 70% 61.4%
Room nights 3166 2849 2533 2216 1931
3166 x $35 $110,810 $99,729 $88,648 $77,567 $67,594
 
Dinners 6332 5699 5066 4432 3862
6332 x $12 $75,984 $68,386 $60,787 $53,188 $46,350
Lunches 6332 5699 5066 4432 3862
6332 x $3 $18,996 $17,096 $15,197 $13,297 $11,588
Daily Cuban Revenue $215,288 $193,759 $172,230 $150,702 $131,326
AnnualizedRevenue $78,580,120 $70,722,108 $62,864,096 $55,006,084 $47,933,873

For discussion purposes let us use the 61.4% occupancy rate as reported for US hotels in 2013 by the American Hotel & Lodging Association.  This would yield 1931 room nights of occupancy daily which would generate $67,594 per night in private income countrywide. This occupancy rate would yield 3,862 potential diners purchasing lunch at a cafeteria and dinner at a Paladare.  This could potentially generate $46.350 in private income for dinners and $11,588 in private income for lunches, a gross total of $125,532 per day!

Annualized, that is $47,933,873 in private income to Cuban citizens who would welcome Americans with open arms. Forty seven million dollars! According to Tracey Eaton, Editor of Along the Malecon blog and former Dallas Morning News Havana Bureau Chief, since the mid 1990’s the US State Department and USAid have spent some $240 million in Cuba and have nothing to show for their efforts but a jailed contractor. Democracy aid ostensibly for Cuba is $17.5 million per year Eaton states.

Hence if you accept the notion that less than 10% of US Taxpayers funding makes its way to Cuba, in some 15+ years $24 Million has landed in Cuba to support a small cadre of self-proclaimed activists, many of whom are paid merely to maintain their loyalty to the South Florida political cabal and to voice opposition to easing sanctions against their fellow countrymen. With an opening of tourist travel to Cuba double that amount could make its way to Cuba in only one year, directly helping people who could use and would appreciate the help.

This revenue would be a direct infusion of hard dollars, not redistributed funds or taxpayer dollars. It is staggering to think how only 1583 Casa Particulars could make such a tremendous impact. To show how miniscule this is, the combined room count of the Washington Hilton and Capital Hilton hotels in Washington, DC is 1614, barely thirty one more rooms than the sum of CPs.

Casa Particulars & Paladares and the Halo Effect

      In my quarter century of work as a sales trainer I frequently used a term I coined – the ‘halo effect.’ Economics professors call it the multiplier effect. It represents how a sale can ‘grow’ in a transaction. As a simple example, a bicycle shop can sell an individual a bicycle. The halo effect manifests itself when the sales person sells a helmet, automobile rack, jerseys, bike pants, gloves, tool kit, etc.

So where does the halo effect come in with Casa Particulars and Paladares. Every one of these entrepreneurs hires people. Cleaning lady/crew, cooks, wait staff, bartenders, dishwashers who garner private wages. The owners can refer tourists to private individuals who could provide tour guide services to generate private income. There are many private automobile operators in Cuba who could transport tourists locally or intra-city, avoiding the state taxis. Private individuals sell souvenirs and religious artifacts. Private produce stands are opening across the country to supply Paladares. The income possibilities for private citizens in Cuba through the halo effect generated by CPs and Paladares are endless.

Success breeds success, the saying goes. The barriers to entry are minimal in becoming a Casa Particular operator. When Americans appear on the scene spending their money, socializing with the homeowner and family, more and more of their neighbors will want a piece of the pie. The number of CPs could explode after several years, hence allowing more Cubans to earn respectable income, free from the limits of state employment.

US Tourists and the Casa Particular

       There are many infrastructure problems in Cuba, especially in Havana. There are crumbling buildings, and potholes on streets and sidewalks that are large enough to lose a full sized tire which pockmark the Havana landscape. Hence it is likely that the early travelers to Cuba would likely be younger people, college students, etc.

These individuals do not want to pay $100+ to stay in a questionable hotel when they can stay in a beautiful private home for an average $35 while interacting with Cuban families. A guide to CP Travel in Cuba could be published for their information.

Another point about young American travelers – they could spread out across the country to locations where Cuban citizens are reportedly harassed by Secret Police and others. The presence of legions of young Americans armed with video and still cameras would quickly bring about an end to those alleged activities, as has been previously proven on numerous occasions.

 Loose Ends

      This study represents a conservative estimate of the economic impact of US dollars flowing into the privately owned tourism and hospitality sector of the Cuban economy. The ‘multiplier effect’ of dollars being spent by Cuban citizens to buy goods and services from other Cubans, in successive rounds of spending may be as high as two or three times that of the ‘first round’ estimate contained herein.

However, we do not have a reliable input/output table of the Cuban economy, with sufficient sectoral detail to accurately quantify the magnitude of the multiplier effect. We are certain, however, that such an impact does exist.

Appendix

 Casa Particulars by City (best estimate, though numbers are accurate based on booking agency data) “Onesies” refer to a sole CP in a location

Artemisa 7
Cameguey 34
Ciego Avila Cyt 7
Ciego de Avila 14
Cienfuegos 97
Cienfuegos City 18
Gitmo City 2
Granma 8
Guantanemo 58
Havana 484
Holguin 99
Juventad 14
Las Tunas 8
Matanzas 89
Mayabeque 2
Miramar 10
Old Havana 18
Pinar 105
Sanctu Spiritus 121
Santiago 50
Varadero 72
Vedado 46
Villa Clara 66
Onesies 154
Total casa particulars 1583

Numbers collected from booking services; actual number could be greater. Attempted to obtain data from CUBINT in Washington but received no response.

Endnote RE: Center for a Free Cuba

[i] Cuba has the most secure naval perimeters and air transportation systems in the Western Hemisphere. Its air and sea transports are more secure that the US. No one could have shipped 30,000 radios into Cuba undetected. In a 1997 debate Frank Calzon justified his gross overspending to ‘ship radios to Cuba’ stating that he could not have just sent money for people to buy their own radios “because Cubans are not allowed to own radios”. Virtually every Cuban family has a radio on which to listen to nightly baseball. And why ship 30,000 units of something that is illegal to own? Calzon was probably covering up a scam which resulted in no radios being sent to Cuba but taxpayer funds being looted, a scam that was emulated by his mentee Felipe Sixto who went to prison after his arrest in the Bush White House.

2 thoughts on “Study: Tourism would pump $47 million into private Cuban entrepreneurship

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