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T-Mobile Expansion in Cuba

The Company is T-Mobile and we are expanding our services into Cuba after Castro dies.

1) Political/legal/regulatory risks ------ > Barry
2) Exchange and repatriation of funds risks
3) Competitive risk assessment
4) Taxation and double taxation risks
5) Market (4 Ps) risks
6) Distribution/supply chain risks
7) Social/cultural risks
8) Cyber/technology
9) Physical environment

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1) Political/legal/regulatory risks:

Cuba is a totalitarian state controlled by Fidel Castro, who is chief of state, head of government, First Secretary of the PCC, and commander in chief of the armed forces. Castro seeks to control most aspects of Cuban life through the Communist Party and its affiliated mass organizations, the government bureaucracy, and the state security apparatus. In March 2003, Castro announced his intention to remain in power for life. The Ministry of Interior is the principal organ of state security and control. Recently, Fidel Castro temporarily handed power over to his brother, Raul, while he underwent surgery and recuperation from intestinal problems.

According to the Soviet-style Cuban constitution of 1976, the National Assembly of People's Power, and its Council of State when the body is not in session, has supreme authority in the Cuban system. Since the National Assembly meets only twice a year for a few days each time, the 31-member Council of State wields power. The Council of Ministers, through its 9-member executive committee, handles the administration of the economy, which is state-controlled except for a tiny and shriveling open-market sector. Fidel Castro is President of the Council of State and Council of Ministers and his brother Raul serves as First Vice President of both bodies as well as Minister of Defense.

The Communist Party is constitutionally recognized as Cuba's only legal political party. The party monopolizes all government positions, including judicial offices. Though not a formal requirement, party membership is a de facto prerequisite for high-level official positions and professional advancement in most areas, although a tiny number of non-party members have on extremely rare occasions been permitted by the controlling Communist authorities to serve in the National Assembly. The Communist Party or one of its front organizations approves candidates for any elected office. Citizens do not have the right to change their government.


Post Castro Political situation:

Fidel Castro will leave Cuba in a terrible political and economic mess, just as Mao Zedong left China when he died in 1976, and Castro's successors will be sorely taxed just to retain power. If post-Fidel governments are to remain authoritarian for some years, their political or military leaders, or both, will need to understand that although the Cuban people put up with abject poverty under Fidel, they will not long tolerate such conditions under any other leader. This poses a daunting challenge to future leaders because on the one hand they will have to undertake substantive reforms to simply retain power; on the other hand, the opening process itself may create so many demands that the new leadership will be overwhelmed. Still, in one form or another, authoritarianism has the edge over democracy for the immediate post-Fidel period.


To help keep the economy afloat, Cuba has actively courted foreign investment, which often takes the form of joint ventures with the Cuban Government holding half of the equity, management contracts for tourism facilities, or financing for the sugar harvest. A new legal framework laid out in 1995 allowed for majority foreign ownership in joint ventures with the Cuban Government. In practice, majority ownership by the foreign partner is nonexistent. Of the 540 joint ventures formed since the Cuban Government issued the first legislation on foreign investment in 1982, 397 remained at the end of 2002, and 287 at the close of 2005.

Investors are also constrained by the U.S.-Cuban Liberty and Democratic Solidarity (Libertad) Act that provides sanctions for those who "traffic" in property expropriated from U.S. citizens. More than a dozen companies have pulled out of Cuba or altered their plans to invest there due to the threat of action under the Libertad Act.

Castro's regime has pulled back on earlier market reforms and is seeking tighter state control over the economy. The Cuban Government is aggressively pursuing a policy of recentralization, making it increasingly difficult for foreigners to conduct business on the island. Likewise, Cuban citizens are adversely affected by reversion to a peso economy.


Political risk assessment

There are three main political risk factors: the long-running hostility between Cuba and the US; uncertainty about political developments after the succession; and the current government's ideological hostility to the private sector. Poor relations between Cuba and the US limit Cuba's economic possibilities, as US sanctions not only bar economic relations between the two countries (other than US food exports to Cuba), but also deter investment and trade with third countries. However, military confrontation remains unlikely. Although the formal rules for succession are clear and have effectively been rehearsed in the recent weeks since Fidel Castro's illness in late July (with his brother, Raúl, stepping into his shoes initially, and procedures for indirect elections for the presidency set out in the constitution) no successor will enjoy Mr Castro's unchallenged authority. The one-party government's ideological hostility to private enterprise, and particularly to foreign business, means that policy shifts can cause a sudden deterioration in operating conditions and curtails the scope for foreign business, but it also means that those who manage to establish operations in Cuba can enjoy a privileged position in the market.

Positive factors include the absence of corruption at high levels of government or business, or of any significant threats from organised crime or domestic insurgency. However, the suppression of private enterprise, low disposable incomes and undervalued Cuban peso all contribute to widespread illegality at the lower levels, despite government campaigns against it. The strong internal security apparatus deters organised crime, as well as suppressing dissent.


2) Exchange and ...

Solution Summary

The Company is T-Mobile and we are expanding our services into Cuba.