Summary

 

The Cuban regime has clearly decided to prioritize economic recovery over ideological purity and recognizes that structural reforms and foreign investment are essential to ensure regime survival. Three factors will determine whether Cuba can reach even its minimal economic goals—and most of those are beyond Havana’s control: the future of US policy toward Cuba; the willingness of the Cuban diaspora community to return to the island with investment and intellectual capital; and the willingness of investors to deal with a politically dominant military with a long track record of human rights abuses. For firms willing to enter the Cuban market, the primary tradeoff would be between the short-term pain of corruption and state inefficiency and the potential long-term gain of securing unrivaled dominance in key sectors and industries.

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Cuba’s Economic Crisis and Compromise

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The Cuban side of the equation is surprisingly straightforward. The economy is collapsing at an increasing rate. However, no one—even regime officials—knows the extent of the crisis. Government statistics are not credible; the regime in recent years has reported annual inflation in the range of 14 to 25 percent; private sector analysts place it between 70 and 140 percent. GDP continues to contract. Cuba has become one of only a handful of countries worldwide with a declining population, primarily because of outward migration and soaring infant mortality rates. Western press reports routinely describe day-long brownouts, shortages of food and water, and farm animals dying because of a lack of feed.

The regime is trying—more so than ever before—to attract enough investment to stave off collapse. The pace and scope of outreach to the private sector are unprecedented. The mindset is broadly similar to that of Mikhail Gorbachev in the 1980s: enough economic restructuring and tightly managed foreign investment to satisfy public demands and avoid any broader political change.

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• The regime has begun trying to normalize the idea of an economic opening, replacing references to “the socialist model” with “the social model” and easing from “non-state sector” to “private sector.” In a country where the nuance of ideological doctrine has been central for 70 years, the rhetorical shift is subtle but significant. 

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• Havana has been moving in that direction—haltingly—for more than a decade but the half-way measures have not been enough. Its move in 2021 allowing Cubans to own small businesses generated international headlines and hope—more than 10,000 businesses created—but was less than meets the eye: more than half are food stands, maid services, taxi drivers, and other low-skill jobs.

 

• In March 2026, the government announced it would welcome investment from Cuban exiles, including those in the United States. The Ministry of Foreign Trade said it would even allow exiles to manage banks and the energy sector—previously off limits as a national security sector. Such a move would have been unthinkable a decade ago.

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Three Key Uncertainties

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Whether the regime can attract enough foreign investment to stave off political collapse will depend on three factors, all of which Cuban officials can influence but not control: US policy toward Cuba; the willingness of the Cuban diaspora community to help drive economic change; and the willingness of investors to work with a military stained by a decades long track record of repression.

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1. Uncertainty in Washington’s Cuba Policy. President Trump’s talk of “taking” Cuba while engaging in back-channel bilateral talks, coupled with the successful U.S. military operation in Venezuela, are creating a sense that regime change is inevitable—a question of when, not if. Still, there are reasons to doubt some of the President’s more provocative statements. In the past 15 months, he has also threatened unilateral military action in Colombia, Mexico, and Panama but backed away, for example. Oddly enough, in the near term, the Trump Administration and the Cuban regime share the same goal: enough economic reform to stabilize the economy, stave off a collapse, and avoid a mass migration crisis, with discussions of political reforms shelved for the foreseeable future.
    

   • Among the most important indicators investors should watch as they ponder future opportunities in Cuba: the Administration’s stance on strengthening or easing enforcement of Title III of the 1996 Helms-Burton Act, which allows U.S. citizens to sue foreign firms in U.S. courts for trafficking in confiscated property in Cuba. The Administration’s position has been coy. It has filed an amicus brief with the Supreme Court looking to stiffen sanctions on foreign firms that do business in Cuba—while simultaneously engaging in discreet talks with Cuban officials about facilitating commercial engagement. In May, Washington sanctioned several Cuban officials linked with the military’s powerful economic conglomerate—even as it includes other regime officials from the same conglomerate in back-channel discussions.
      

2. The Cuban Diaspora as an Agent of Change. The Administration’s statements suggest it views the exile community as a driver of economic reform. Havana’s recent actions—offering to allow exiles to invest in multiple economic sectors, for example—have increased this line of thinking. The sentiment is widespread—and probably wrong.             

   
   Exile communities rarely return to their home country and are rarely greeted as liberators. This pattern has been global, whether in post-Sandinista Nicaragua, post-Noriega Panama, post-Saddam Iraq, or post-Qadhafi Libya. In the case of Cuba more than half of the diaspora community in the United States has never even lived in Cuba.
    

   • Many of those who have left recently and have connections to the island have been low-income or low-skill Cubans sponsored by relatives in the United States. Their return could provide low-cost labor in the agricultural or hospitality sectors, but generally they would not bring with them capital, intellectual property, and white-collar skills.
      

   • Many exiles precondition their return on receiving compensation for property they claim was confiscated in the early 1960s, hence their support for tightening Helms-Burton restrictions limiting engagement with Cuba; the Trump administration expressed support for this view in May. The expectation is unrealistic. The lack of property registration records from the 1950s and overlapping familial claims make it impossible even if a future regime were willing.
      

   • Divisions between the exile community and the Trump Administration will widen as the broad calls for change become more specific. Some of the most influential voices in the exile community want nothing less than regime collapse and would see U.S.-backed engagement—prioritizing economic over political reform—as throwing the regime a lifeline.
      

3. Working with a Dominant Military. Future investors would have to be comfortable working with a repressive military. The military is more powerful than at any point in modern Cuban history: it controls about 35 percent of the economy, either directly or through joint ventures. It owns hotels, banks, currency exchange agencies, mining, agriculture, farms, refineries, gas stations, and firms in the construction, petrochemical, and machine tool industries. It has a minority stake in the telecommunications sector, which probably enables intelligence collection. Potential investors should expect that all personal and corporate data would be surveilled in real time. 
   
   This power, coupled with the country’s poor economy, oddly makes the military politically rigid but economically pragmatic. That is, a political opening threatens the military’s near-monopoly on power, but an economic opening generates revenue to help sustain the regime. As economic conditions have worsened, the military has shown flexibility when working with foreign investors, such as those from Australia, Canada, and Spain.
    

   • The military’s administrative capabilities are weak. It has been cumbersome and slow and tended to clarify vague regulations with new vaguely-worded regulations. Commercial deals have been slowly and unevenly implemented and usually entail majority ownership for Cuban entities.
      

   • Still, it has shown a degree of capability in building infrastructure; negotiating and managing joint ventures; ensuring the tourism sector gets the roads, electricity, and water to keep the industry afloat; administering ports; and negotiating deals in pesos versus dollars versus euros versus yuan.
      

   • If an investor were willing to establish a joint venture in the agricultural sector, for example, the military almost certainly would welcome it, in part because it could help ease some of the food shortages on the island.
      

Looking Toward the Future

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Cuba’s trajectory depends primarily on U.S. policy, which is and will remain a moving target. Washington’s Cuba policy will probably include a mix of pressure and persuasion. As with Venezuela, Washington will demand symbolic changes—such as the departure of President Diaz-Canel—and could even hold provocative military exercises in the Caribbean with the goal of unnerving Havana. Still, Washington will focus primarily on economic stabilization. For Havana, some degree of economic opening is inevitable, if only because of necessity. Like Washington, it wants economic engagement on the front-burner.

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• Generational change also will push Cuba toward greater pragmatism. Much of the Cuban leadership—in the executive and legislative branches and the Communist Party—is in their 90s, 80s, and 70s and came of political age in the revolutionary fervor of the 1960s and 1970s. Behind them is a cadre of younger officials. They have little exposure to Western education systems or government postings abroad, but their formative experiences were not revolution but privation, scarcity, and engagement with the private sector. Many are administrators and bureaucrats rather than ideologues.
   

• The exile community in the United States has a similar but narrower demographic split, with younger members preferring engagement over isolation and opposing the U.S. embargo.

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For potential investors, the tradeoff of a managed opening would be the certainty of near-term pain and the potential for long-term gain. Cuba does not need to modernize an outdated state bureaucracy; it needs to create a modern bureaucracy for the first time. It has few structured or transparent processes for property registration and land titling; weak regulatory agencies; and rapidly deteriorating infrastructure. An independent civil court system to resolve commercial disputes is not plausible, which would require firms to find creative but complex workarounds—such as investing through a country that has a bilateral investment treaty with Cuba.     

Firms first to enter Cuba’s byzantine market would be most exposed to corruption, inefficiency, and lack of basic state capacity. Over the longer term, though, the benefits would be potentially significant.

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• Those firms would have an outsized role working with Havana to define issues such as the regulatory frameworks, property rights, tax rates, environmental standards, sectors eligible for tariff exemptions, and so on. Such access would be especially lucrative for mining firms—a sector that has been largely neglected and where frontier investors would enjoy nearly unrivaled access. Cuba has significant nickel-cobalt reserves, for example, that could help it become a valuable niche source.

   

• Cuban officials also are eager to partner with foreign firms to commercialize their surprisingly innovative pharmaceutical and medical sectors, particularly in biotechnology. Cuban entities own more than 2,400 medical-related patents worldwide, including in novel cancer treatment and vaccines, and have another 2,000 pending for medicines and medical equipment. Cuban medical firms have a presence in 40 countries worldwide, including in China, Singapore, Spain, and Thailand.

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In a less-likely scenario—an attempted managed opening unravels and threatens the regime’s hold on power—we would expect a harsh crackdown and greater reliance on Russia and China, regardless of the U.S. reaction and even at the cost of a mass migration crisis. A total collapse—the breakdown of central authority, widespread violence and looting, or a grassroots uprising—is the least-likely scenario because the regime has ample tools for control and repression, the armed forces show no signs of inter-service rivalries, and Cuba has virtually no civil society capable of fomenting a popular uprising that drives elites into exile. 

In the event of a harsh crackdown, the number and range of international actors looking to play a diplomatic role would quickly become unwieldy.
 

• Brazil, Mexico, and Spain consider themselves historic interlocutors for Cuba and would seek to play a leading role engaging Havana. Canada is one of the largest trade partners and would also expect to play a key role. The European Parliament and the UN would seek a seat at the table. So too would the Vatican. If Western press reports are accurate, Pope Leo in May told Secretary of State Rubio that Washington’s embargo and sanctions were increasing suffering on the island.
   

• The OAS would want to play a role but would be divided between institutionalists who want the organization to be relevant and multiple center-right governments unwilling to strike any compromises that extend Communist rule.
   

• Plans and speed are inversely related. Most of these actors would have plans—whether overly vague or overly detailed—that all would take time. Washington would have the opposite approach: eager to act quickly, but without the benefit of a plan.

 

Beijing and Moscow would complicate either of these scenarios. China is one of Cuba’s three largest trade partners and a key source of investment and finance in the energy and infrastructure sectors such as ports, energy grids, and mining. Russia’s trade is smaller but concentrated in key sectors such as oil. Both governments have a large intelligence presence in Cuba that targets U.S. interests and would be hard for either to replace.

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• Russia demonstrated its ability to complicate U.S. policy in March when a Russian tanker was slated to deliver oil to Cuba. Initially the ship diverted to Trinidad and Tobago amid weeks-long tensions with Washington, which ultimately announced it would allow oil shipments on a case-by-case basis. Moscow will test that commitment when a second tanker arrives in coming months.