Tuesday, May 15, 2007

$50,000 nickel

According to the U.S. Geological Survey, Cuba has the world’s third-largest nickel reserves.

Cuba produces about 75,000 tons of nickel per year.

In 2002, the average price of nickel was 2.70 per pound, or $5,400 per ton. Earlier this month (May 4), nickel traded at a record $51,625 per ton, and in recent days has traded around $49,000.

That’s a five-year price increase of more than 800 percent.

With prices in this range and with Cuba producing at current levels, Cuba can expect annual nickel revenues to be more than $3 billion higher than five years ago. Even accounting for production costs, that means a substantial increase in profits translating into Cuban government revenues.

What does this mean?

First, much is made of Cuba’s claim of double-digit gdp growth, which is calculated in a unique way. (Cuba’s gdp figures now include the value of free and subsidized services, such as health care, as if they were provided in a market economy and transacted at market prices.) But the CIA estimates that Cuba’s economy grew 7.5 percent in 2006 – and if one takes into account nickel revenues, energy developments, and aid, trade, and credits from Venezuela and China, one can see how 7.5 percent can be a realistic estimate.

Second, it puts U.S. sanctions into perspective. Certainly the U.S. embargo has an impact on Cuba, and Cuba pays close attention to the United States. But notwithstanding Cuba’s railing against the embargo, the United States is not at the center of Cuba’s worldview. Cuba is engaged with the rest of the world, active in world markets for commodities such as nickel and services such as tourism, and is finding ways to advance regardless of U.S. sanctions. Sometimes it is easy to lose sight of this substance amid Cuba’s constant trumpeting of seemingly insignificant visits of foreign officials.

Third, it puts the Administration’s “transition” policy into perspective. The tightening of U.S. sanctions in 2004 was sold as part of a policy, combined with beefed-up broadcasts and aid to dissidents, that would “hasten” political change in Cuba. A frequent fallback argument is that the sanctions at least deny Cuba resources for its police and intelligence budgets. A 2004 Administration estimate held that the tightened sanctions deny Cuba $500 million per year, which would be one sixth of the increment in gross nickel revenues alone. Hence the Bush sanctions are trimming a little from Cuba’s growth rate, nothing more.

The idea that U.S. sanctions are pinching the budget of Cuba’s interior ministry, much less forcing political change, is laughable in the current economic context.

Embargo proponents are naturally irritated at those who oppose a policy they view as set in stone. I sometimes wonder why they don’t focus their irritation at the Bush Administration for insulting their intelligence, especially in presidential election years.


leftside said...

I know it is not the intent, but the piece has the effect of minimizing the embargo. $500 million a year ($74 billion total) could do a hell of a lot in Cuba. Embargo proponents support it, despite 48 years of failure, because they know this fact. It bleeds the country in a thousand different ways - every day.

Phil Peters said...

$500m/year in hard currency is what they say the 2004 family sanctions deny to the Cuban governmment. And this is sold as part of a policy that will change the political order. No chance of that, not even close, if indeed financial pressure of any kind could. Politically ineffectual; economic impact of the embargo is another matter altogether.

leftside said...

Fair enough, but the Cuban Government's future legitimacy is going to be based more and more on material concerns, now that the social benefits are well established. The embargo will continue to be a central barrier to the island realizing its potential. If it were dropped, Cuba would have one of the world's highest growth rates overnight. The political impact of that is too much for those in Miami to contemplate.