A new revolution is happening unnoticed in one of the world's last communist strongholds. In the land of salsa, rum, and Fidel Castro, a significant shift in economic ideology is transforming the future of the island: Cuba is rapidly diversifying its economy and giving priority to developing a world-class information technology (IT) sector. Considering the island's competitive advantages--proximity to the United States, a highly literate population, and the lowest wages for skilled labor in the Western Hemisphere--Cuba could become the digital hub between North and South America.


With 11 million people and more land area than any other Caribbean island, Cuba has been economically and politically isolated from its giant neighbor just 90 miles to the north for the past half-century. However, under the leadership of one of the staunchest communists of the 20th century, Fidel Castro, Cuba is beginning to subtly reorient its economy for the 21st century. The 74-year-old leader and his still officially communist government have adopted a program called "Entrepreneurial Upgrading" that aims to center the country's economic regeneration on technology, markets, and new capital.


Within the past few years, Castro has quietly retired the old revolutionaries who followed Moscow's defunct economic model, replacing them with a new generation of cabinet ministers and senior government officials who seem to have swapped Karl Marx for Adam Smith. The average age of the members of the Cuban National Assembly is 40; the Foreign Minister is 35 years old, and the Minister of Foreign Investment and Economic Cooperation is a 50-year-old woman. These leaders of a new generation read The Wall Street Journal and The Economist and roll their eyes at stilted Marxist dialectic.


"Entrepreneurial Upgrading is the most in-depth, extensive, and transcendent change that has taken place in the Cuban economy," says Cuban Vice President Carlos Lace, architect of the economic reforms. The program requires State-Owned Enterprises (SOEs) to be self-supporting, capable of creating their own production plans and administering their own financial, material, and human resources. These policies represent a truly revolutionary departure from the old socialist command economy, where decisions always came from above. Granting autonomy to SOEs may be the first step toward privatization, a move that is still considered heresy by the old guard. Yet all indications are that the Cuban government has begun to privatize the telecommunications industry.


In January 2000, the Cuban government established a Ministry of Information Technology and Communications (MINIT) with a mandate to make Cuba an "information society" and to quickly develop trade and e-business using IT. MINIT has various subordinate enterprises functioning like corporate subsidiaries, each run by different presidents and focusing on separate IT industries such as telecommunications, software, hardware, wireless internet, business training, and e-commerce.


The Paradoxical Island

More than the average developing country, much of Cuba makes little sense to the Western observer. It has been described as a Third World country with First World people. Although the country is a one-party communist dictatorship, small-scale private enterprise is encouraged. Cubans watch CNN and listen to Miami radio stations, and every type of US and European publication is easily found on newsstands and in bookstores. Che Guevara's passionate visage is ubiquitous, but what would this revolutionary icon think if he saw how the regime he helped to create is commercializing his image? Posters, calendars, books, pins, T-shirts, caps, and even comic books featuring Guevara are sold in every state-owned tourist gift shop--for US dollars, the de facto currency of 21st-century Cuba.


Yet outside of Havana, even in major cities like Cienfuegos, horse-drawn vehicles outnumber gasoline-powered ones. The few automobiles on the roads are likely to be 1950s Oldsmobiles or Chevrolets. Cubans without televisions tend to watch programs through the windows of those who do; a surreal but common Cuban experience is to walk down darkened Havana streets lined with vintage cars while congregations of sidewalk viewers watch a Miami broadcast rerun of I Love Lucy.


As products of Cuba's impressive educational system, children who live in primitive thatched-roof huts are likely to greet you in English, French, or German in addition to their native tongue, Spanish. And they may excitedly tell you about plans for JCC (Cuban Communist Youth) summer camp on the Isle of Youth, where they are no longer indoctrinated in Marxism-Leninism like previous generations of young Cubans but, instead, attend the government's massive Computer Youth Club, which was inaugurated by Fidel Castro in summer 2001.


These Computer Youth Clubs are pervasive, existing in all 14 Cuban provinces. In one club in central Havana, now named "Joven Club--Palacio Central de Computacion" (Youth Club--Central Computer Palace) workstations with modern Pentium processors are situated on the ground floor, occupied by young, goateed, longhaired web designers who look like "dot.commies" from a start-up in San Francisco. The walls are emblazoned with slogans and posters, but not quite of the type one might expect in a club owned and operated by the Cuban Communist Party. The predominant slogan is "Creemos en el Futuro" ("We Believe in the Future") and numerous posters advertise courses in software programming, multimedia, hardware repair, and e-commerce. Classes are in progress upstairs, packed with serious young people avidly learning HTML and the fundamentals of Microsoft Office.



During breaks, students discuss articles in Giga, the slick Cuban computer magazine published by Internet Service Provider (ISP) Colombus Conectividad. Recent topics included internet security, an overview of new hotel reservation software developed by the Cuban firm Softur, and "Programming Orientation for Metaobjects." Despite the embargo, Giga is replete with advertisements for US technology brands such as Microsoft, IBM, Compaq, Macintosh, Sun, and Oracle. And such advertisements make their mark: US-owned Hewlett-Packard has a near-monopoly on printers throughout Cuba. However, because of the US trade embargo such products can not legally be exported directly to Cuba, so they are acquired from resellers in Mexico and Peru.


An Information Society

Fidel Castro seems to have an affinity for the creation of an "Information Society" in Cuba. The septuagenarian president reportedly spends a couple of hours each day surfing the web and sending emails. Nonetheless, access to computers in Cuba is low, and e-mails sent from Cuba are often monitored by state security agencies, taking several days to reach their destination.


Eight Cuban universities now offer degrees in IT, and the Lenin Institute for Science operates 40 branches around the island that provide adult education in computer science. Four ISPs are available, all of which are owned by government entities but function like independent "dot.coms."


While there were no Cuban software companies only three years ago, today Cuba has 30 enterprises developing software, two of which are joint ventures with foreign investors. Total exports for 2000 may seem paltry at USS 14 million until one realizes that this is a 650 percent growth since 1999. So far, software has been developed to serve areas ranging from medicine, education, and multimedia, to accounting, hotel management, and Intra/Internet development. As Cuba's tourism industry grows, products such as Softur's Rodas hotel-reservation system will begin to find external markets; Rodas has already been sold to several Peruvian hotel chains.


Cuba's joint IT ventures have interesting links to the international market. One such joint venture, Primeras Inversiones Internacionales (PII), is a product of a collaboration between the Cuban firm Softel and Cydonia Investments, a partially-British-funded enterprise based in the British Virgin Islands and registered on the Canadian stock market. This joint venture is developing largely tourism-related Internet services within Cuba, such as online sales of airline tickets, photos, and travel insurance; gift-ordering from abroad; and automobile and hotel-room reservations. The company also offers server hosting, domain name reservations, electronic trade, and online payment accounts. It currently has 300 web domain names registered and 20 functioning sites with a target of 256 sites online within three years.


"Cuba is interested in developing through commercial associations the promotion of its software," says MINIT Vice Minister Boris Moreno. "Cuba has no shortage of finance or the technical skills to develop product, but [it] has not yet found the killer application to commercialize what it is doing."


Telecommunications

Although only two percent of Cubans now have home telephones, general telecommunications access is quickly being improved, and the Wireless Application Protocol (WAP) is being implemented to leapfrog the archaic analog telephone.


"Telecommunications are a cause rather than a consequence of development," says Maimir Mesa Ramos, technical vice president of Cuba's national telecommunications company La Empresa de Telecomunicaciones de Cuba SA (ETECSA). By the end of 2001, Havana will reach 65 percent digitalization, and the rest of the country will reach 40 percent, with plans to bring the national level to 78 percent by 2004. ETECSA is also investing in the installation and widening of the public network for data transmission, as well as a national digital microwave system to support television services and network and Internet connections for the provincial capitals.


The government aims to have Internet terminals at all post offices so that average citizens can have full Internet access on the basis of one post office for every 200 persons. Cellular telephone service, digitized with the Global Mobile System (GMS) employed in Europe and other parts of the world, was launched in January 2000 by Empresa de Telecomunicaciones Celulares del Caribe (C-Com). Visitors can rent cell phones upon arrival at Jose Marti airport.


Government offices, universities, and businesses have wireless Internet access. PII has developed a wireless system for the Cuban market that has a range of up to 25 miles with antennae 1.5 feet in diameter. The system can receive and transmit vocal signals, images, and data at 11 megabytes per second, compared to the maximum of two megabytes by Cuba's existing telephone infrastructure.


In January 1999, the Cuban Trade and Management Corporation (CUTISA) took charge of marketing telecommunication products and services for all of Cuba. CUTISA serves as the agency for Alcatel and DHL, offering their products of radio and telephone communications and of world package and messenger service, respectively. The company also operates a customs agency, a post-sale technical-services center, and the firm Caribbean Com, which offers communications solutions by radio, cable, or satellite. CUTISA also imports a wide range of top telecommunications equipment.



Satellite-earth stations are being built across the island--14 Very Small Aperture Terminal (VSAT) stations operate in the main tourist areas alone. Fiber-optic cable is being laid throughout Havana, connecting to a "fiber ring" around the capital city. (Although a new fiber-optic cable has been laid between Cuba and Florida, it has not been connected to a US terminal due to the embargo.) The ARCOS 1 trans-Caribbean submarine fiber optic cables--a "fat pipe" developed by a consortium that includes major US Telecom companies--is currently being laid down; ARGOS 2 (an offshoot to connect Cuba) will be completed within three years, linking Cuba to the telecommunications infrastructure being built in the United States and the rest of Latin America.


Last year, Cydonia Investments partnered with the Canadian firm Corinex Global to carry out a six-month study of the Cuban telecommunications system, with a focus on wireless technology. The results showed that the majority of wireless technology manufacturers use a number of US components despite the difficulties created by the embargo in terms of maintenance, supplies, and spare parts. The study confirmed the existence of a Cuban market for a wide range of hardware and software products, as well as for services with a broad variety of possible applications in public and private networks. Cydonia is developing a series of products adapted to the Cuban market that provide solutions not requiring US-made parts. Components are sourced from commercial partners such as Alcatel, Ericsson, Samsung, Nortel of Canada, Corinex Global, and Alpha Stream.


How could a one-party socialist state that still monitors e-mails, curtails freedom of the press, and limits private enterprise create a digital society, which is premised on the open exchange of information and trade? The Cuban government knows that normalized relations with the United States are inevitable, and it is actively preparing for integration into the US marketplace--and perhaps into the North American Free Trade Agreement. By developing a pragmatic economic development strategy now, Cuba believes that it can maintain control over its political and economic destiny.


Cuba also needs to provide good jobs for its young people. More than three-quarters of all Cubans are under age 40, and this group has a 98 percent literacy rate. The country has the highest percentage of university graduates per capita in Latin America (higher, in fact, than most European countries), and an increasing number are being trained in technical fields like IT. The state envisions technology as an economic boon that will create employment; it seems willing to give young entrepreneurs a chance to nurture dreams of Silicon Valley-style fortunes.


Strategic Location

In the 16th century, Spanish King Phillip II called Cuba "the key to the New World." Any map of the Western Hemisphere will demonstrate why conquistadors, pirates, and a host of great powers--most recently the United States and Russia--established strategic bases in Cuba. In the past, Cuba was the key to dominating vital sea lanes; it also had a starring role in the Cold War because of its proximity to the United States. Over the next decade, the country's geographic position will surely make it a prime location for IT industries.


Cuba is ideally positioned to be a global hub for conventional trade as well as for e-commerce. Both Mexico and the United States are less than 100 miles from the island, and Havana is closer to Charleston, Atlanta, and Houston than any of these major US ports are to Washington, DC, or New York. Cuba has an established electronics manufacturing industry where semiconductors, radios, television, and Cuban-designed computers are assembled with foreign parts. The industry could expand rapidly to provide a low-cost base for the export of electronic products.


A plan is being implemented for the country to become an alternative for air-cargo traffic between Europe and Latin America, an activity currently held in an almost absolute monopoly by Miami. The air-cargo handling capacity at Havana's Jose Marti international airport is currently being doubled to three thousand tons per month, at the same time that the Wajay Free Zone is being developed in areas adjacent to the airport. The Free Zone, located less than a mile from the air-terminal warehouses and 12 miles from downtown Havana, covers a total area of nine acres and has a basic infrastructure serving 72,000 square feet of warehouses and offices linked to the development of commercial, industrial, and service activities.


Havana and Santiago de Cuba are destined to become premiere sites for Internet data centers, providing web-hosting services for thousands of businesses throughout the Western Hemisphere. Global data-center companies are already spending billions of dollars building infrastructure in Latin America to support the growth of e-business; for instance, OptiGlobe, an Internet infrastructure company based in Bethesda, Maryland, plans to construct 15 data centers in Latin America by 2002 at a cost of US$1.5 billion.



What Cuba Needs

Cuba's government has extended an invitation to foreign businesses interested in helping develop its IT industry. Although Cuba would prefer to obtain US expertise and products directly, other nations are currently providing US technology. "Trading with the United States is an American problem, not a Cuban one," says Daniel Fernandez Lopez, Vice President of Grupo de la Electronica, a division of MINIT responsible for telecommunications. "We welcome American business, but we can't wait."


Some US executives are also not waiting for the embargo to be lifted. High-level commercial delegations from a range of industries regularly visit Cuba, and hundreds of deals are being quietly negotiated. Another way for US technology companies to build business bridges to Cuba is by providing charitable IT training, computer hardware and software, and exchanges between US and Cuban IT executives, a legal practice under the current embargo. By doing so, businesses can generate cultural goodwill while laying the foundations for future business.


Like it or not, Cuba is an emerging economy with which the world market, including the United States, will be forced to reckon. Cuba's intellectual capital, combined with a growing technological infrastructure, gives the island an incredible comparative advantage over its northern and southern neighbors. With increased support from the international community, Cuba could finally realize its full potential as an international economic force.