US-Cuba diplomatic thaw puts Mariel port in the spotlight

The deepwater port of Mariel, once the site of a massive exodus of refugees to the United States, may soon be the stage for a new chapter in Cuba’s history, one that flirts gently with global trade and free markets.

A $1 billion project to modernize the port and create a special economic zone will add Mariel as a stop on a global maritime highway that stretches from Asia to Europe.

And the outlook for Mariel’s natural harbor might grow brighter, if the United States and Cuba mend a diplomatic rupture that started more than half a century ago. That’s why the talks that began Wednesday in Havana have sent ripples as far away as Brazil, which is financing most of the Mariel port project, as well as China and Vietnam, whose similar experiments in free-trade zones four decades ago led to a trade boom.

The US trade embargo remains the major stumbling block to the Mariel project. As long as the embargo, imposed in 1962, remains in effect, any ship that docks in Cuba cannot enter the United States for six months unless it has a US waiver.

But there are several factors that befog the outlook for the deepwater port and free-trade zone. Cuba faces competition as a maritime transshipment hub. Moreover, Cuba faces new risks. For the second time in a generation, Cubans are watching with trepidation as a major patron stumbles. Before, it was the Soviet Union, whose collapse sent the socialist island into a tailspin in the early 1990s. Now it’s Venezuela, which totters as the price of oil, its major source of income, plummets.

Still, experts hail the Port of Mariel expansion and free-trade zone as an important step toward open markets, if not a break from the country’s one-party socialist system.

“It’s an intermediate step,” says Omar Everleny Perez, a researcher at the Center for the Study of the Cuban Economy at the University of Havana.

Mr. Perez notes the range of benefits for investors in the 180-square-mile special economic zone abutting the port, such as 50-year contracts, 100 percent ownership of assets, and tax reductions, largely unprecedented in Cuba.

“There are a lot of incentives for the foreign investor, such as operating tax-free for 10 years and paying no tariffs on machinery,” Perez says.

Advocates say the Mariel special economic zone, 30 miles west of Havana, will be like the Colon Free Zone operated by Panama and has the potential to be a cheap alternative for companies looking to manufacture and ship products into the United States from an offshore location, in this case only 120 miles from Florida.

Cuba is finishing up the dredging of Mariel Bay to a depth of 58 feet, allowing new mega-ships to dock with an eye toward events in Panama and Nicaragua. In early 2016, Panama will complete a third set of locks on its canal, permitting much larger vessels to transit the isthmus, carrying up to 13,000 containers each. Nicaragua, for its part, has granted a 50-year concession to a Hong Kong-based company to dig a massive canal across Central America that would allow still larger ships, including supertankers, a shortcut passage.

“When these two canals are done, the one in Panama and Nicaragua, the Port of Mariel will be on the axis between Asia and Europe,” Perez says.

Mariel will largely replace the port of Havana, which couldn’t be deepened. A vehicle tunnel under the mouth of Havana Bay bars dredging there, and the port will eventually be left for cruise ships and tourists.

Brazil financed $682 million of the $1 billion price tag on the Mariel port, container terminal, and free-trade zone, and President Dilma Rousseff faced criticism during her re-election campaign last fall for helping Cuba improve Mariel while leaving some Brazilian ports in disrepair.

President Rousseff sounded triumphant with news of the US-Cuban diplomatic thaw. “It clearly shows that Brazil was right to finance the Port of Mariel,” she said.

Cuban officials voice optimism that even if the US embargo stays in place, the special economic zone will attract Chinese, Vietnamese, Japanese, Brazilian and European companies in food products, biotech, photovoltaic panels, logistics, packaging and glass manufacture, and telecommunications.

Four huge gantry cranes tower over the container terminal, which can handle 1 million containers a year. Huge refrigerated chambers, necessary for meat shipments, were installed in the economic zone this month. Last summer, Cuba completed its first new rail line in two decades, connecting the port with Havana, the capital.

Hundreds of projects are under consideration, Perez says, and the first will be approved in the first half of this year.

When completed, the special economic zone is expected to generate some 3,000 direct jobs and 5,000 indirect ones.

The 'C' word: Capitalism

In some ways, the project smells and looks like an experiment in capitalism, but Cuban officials blanch at any description tainted with the “C” word.

“It’s difficult for a government official to talk about market reforms,” says Cuban economist Arturo Lopez-Levy, who resides in the New York City area. “They talk about ‘actualization’ or ‘updating’ the idea of a socialist economy.”

“They want to make absolutely sure that this won’t get out of hand,” added Diego Moya-Ocampos, a London-based senior Latin America analyst for IHS Country Risk, a consultancy, noting that party leaders resist demands for political reform.

Yet to be seen is how many multinational companies will come into the special economic zone. Mr. Moya-Ocampos notes that investors won’t be able to hire workers directly. Instead, they must pay the Cuban government in hard currency to provide workers, who’d earn salaries in nonconvertible Cuban pesos.

“There is no international investment arbitration process in place,” Moya-Ocampos adds. 

It’s still unclear how much cash the Port of Mariel project will inject into the feeble Cuban economy or whether it can surpass Kingston, Jamaica, and Freeport in the Bahamas as the largest industrial port in the Caribbean in terms of size and volume of activity.

“The dynamics of the shipping industry are such that when you come out of the (Panama) Canal, you don’t want to stop in Cuba. You want to get to the East Coast of the United States,” says Rafael Romeu, former president of the nonprofit Association for the Study of the Cuban Economy in Washington and a onetime economist at the International Monetary Fund.

Mr. Romeu says Cuba offered little to multinational corporations that wasn’t available elsewhere along the edges of the huge US market.

“Unless you want to create a plastic surgery hospital for visiting Americans, I don’t see how they really compete against what you have along the Mexican border or in the Dominican Republic,” Romeu says.

Point of departure

In another era, Cubans desperate to leave the island made Mariel famous.

For six months in 1980, Mariel harbor drew world attention as Cuban-Americans in Miami dispatched boats to the harbor to pick up Cubans who suddenly found their government was letting them go. Before the two governments agreed to stop the boatlift, more than 120,000 people had left for the United States, including several hundred who’d been released from Cuban jails and mental hospitals.

Yoan Ulloa, a driver idling on a bench in Mariel, is too young to remember the boatlift. But he hopes that Mariel will become famous for a different reason now.

“It’s the highest-priority project in the whole country,” Ulloa said. “There are people from all over working here.”