The Obama administration has approved the first U.S. factory in Cuba in more than half a century, allowing a company to build a plant assembling as many as 1,000 tractors a year.
HAVANA — The Obama administration has approved the first U.S. factory in Cuba in more than half a century, allowing a two-man company from Alabama to build a plant assembling as many as 1,000 small tractors a year for sale to private farmers in Cuba.
The Treasury Department last week notified partners Horace Clemmons and Saul Berenthal that they can legally build tractors and other heavy equipment in a special economic zone the Cuban government started to attract foreign investment.
Cuban officials haveendorsed the project. The partners said they expect to be building tractors in Cuba by the first quarter of 2017.
“Everybody wants to go to Cuba to sell something, and that’s not what we’re trying to do. We’re looking at the problem and how do we help Cuba solve the problems that they consider are the most important problems for them to solve,” Clemmons said. “It’s our belief that in the long run we both win if we do things that are beneficial to both countries.”
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The plant, costing $5 million to $10 million, would be the first significant U.S. business investment since Fidel Castro took power in 1959 and nationalized billions of dollars of U.S. corporate and private property. That confiscation provoked a U.S. embargo on Cuba that prohibited virtually all forms of commerce with the island.
Letting an American tractor company operate inside a Cuban government facility would have been unimaginable before President Obama and Cuban President Raul Castro declared Dec. 17, 2014, that they would restore diplomatic relations and move to normalize the long-broken bilateral relationship.
Since then, Obama has been carving exceptions into the embargo through executive actions, and his administration now says U.S. manufacturing is allowed at the Mariel port and special economic zone 30 miles west of Havana. One exception allows U.S. companies to export products that benefit private and cooperative farmers in Cuba. Berenthal and Clemmons say they will sell only to the private sector.
The Obama administration says it is eager to make the opening with Cuba irreversible by any future administration. Since the start of the year, U.S. and Cuba have made a series of announcements that appear designed partly to create a sense of unstoppable momentum in their new relationship.
The Oggun tractor plant will assemble commercially available components into a durable and easy-to-maintain 25-horsepower tractor selling for less than $10,000, Clemmons and Berenthal said. The men believe they can sell hundreds a year to Cuban farmers with financing from relatives outside the country, and to nongovernment organizations seeking to help improve Cuban agriculture, which suffers from low productivity due mostly to excessive control of both basic supplies and prices by an inefficient, centrally planned state bureaucracy.
“I have two countries that for 60 years have been in the worst of terms; anything I can do to bring to the two countries and the two people together is tremendously satisfying,” said Berenthal, a Cuban-born semiretired software engineer who left the country at 16.
He met Clemmons when they worked at IBM in the 1970s. They left to form a cash-register software company that grew to earn $30 million a year before they sold it in 1995 for a sum Clemmons says was “enough that I don’t have to work.”
Between their own capital and commitments from private investors, they say they have enough cash in hand to build the Oggun factory as soon as Cuba lets them proceed.
Berenthal said they are optimistic that they will also be able to export Oggun tractors to other Latin American countries, which have low or no tariffs on Cuba products, making them competitive on price. The men expect a 10 to 20 percent profit on each tractor.
For the project’s first three years, Clemmons and Berenthal say they will export components from the United States for assembly in Cuba. They hope to eventually begin manufacturing many of the parts themselves on the island.
They said they expect to start with 30 Cuban employees and, if things go as planned, grow within five years to as many as 300.
Clemmons and Berenthal will publish all the schematics of their tractors online to allow Cubans and other clients to more easily repair their equipment and come up with designs for other heavy equipment based on the same frame and motor that can then be produced at a Mariel factory.
The men have plans to produce excavators, backhoes, trench-diggers and forklifts, equipment that’s badly needed across Cuba, where virtually all the infrastructure is crumbling after years of neglect and mismanagement and a lack of cash that the government blames on the embargo.
“I think it’ll have a tremendous impact on their ability not only to help their economy but to set an example across the Caribbean and Latin America,” Berenthal said.