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Why Cuba could be the next Silicon Valley (eventually)

The president of the United States is in Cuba!

President Obama's trip is a big deal. It's the first time a U.S. president has visited Cuba since 1928.

Here in Cuba (where I'm living for a month), Obama's trip is the biggest and most historic of events. Everywhere in Havana, workers are frantically painting and fixing and cleaning.

We lounged until midnight Wednesday on the veranda of the Hotel Nacional de Cuba slurping mojitos, smoking Cohibas and listening to amazing live Cuban music. All the while workers never stopped painting the walls and sprucing things up.

The president is hugely popular here. The Cubans I talked to about Obama said they credit him for the most important changes they've seen in the past few years. Cubans believe that the visit is something Obama is doing for the Cuban people because his decision to come here forced the Cuban government to make concessions and liberalize the economy faster. Many Cubans credit Obama for the lifting, in 2009, of most of the bans on money transfers from Cuban-Americans to relatives in Cuba, and for the easing of restrictions on Cuban-Americans visiting the island. Since then, money has flowed into Cuba, creating a dual economy of haves and have-nots (either you have generous relatives in Miami, or you have not).

Mike Elgan

To use the Internet in Cuba, you have to buy one of these cards, which has a time-limited numeric username and password.

The biggest shock for first-time visitors to Cuba is the dilapidated state of the buildings. Most neighborhoods in Havana look like war zones -- war zones where zombie apocalypses transpired after the bombing stopped. I had previously visited Cuba in 2008, and today the buildings are in a far more advanced state of decay than they were then. But a new industry is emerging, as private contractors start fixing up some of them. Although many buildings are in a state of near-total ruin, those ruins are punctuated by the occasional refurbished building, some of them beautifully renovated.

The tragedy of Cuba is the tragedy of the commons. Since the revolution in 1959, homes, apartments, stores, streets, parks and other places have theoretically been shared resources, so nobody takes care of them. In the neighborhood where our apartment is, many of the homes look condemned, and this is in the coveted Vedado district. But everywhere you see cars from the 1940s and 1950s that are privately owned and mostly well taken care of.

Cuban material goods and buildings exist on the extremes. Cuba has the worst-maintained homes and the best-maintained cars. Some residential streets (where tourists are not expected to go) are littered with trash, but Cuban beaches and waters are pristine. Cuban agriculture is primitive, but Cuba has the world's best honey because the country can't afford pesticides.

When I visited Cuba eight years ago, it was like traveling back in time. Today, I don't get that feeling. Part of this is material. Back then, nearly all the cars, maybe 90%, were those old pre-revolution U.S. tuna-boat size vehicles. Today, the percentage of ancient cars has dropped, according to my very unscientific estimate, to maybe 65%.

But mostly, the change is in the people. There's a sense of bustle and possibility in the air that didn't exist in 2008 -- at least among the minority participating in the liberalized parts of the economy.

There are two kinds of businesses in Cuba now. There are the old kind of government-owned enterprises, which account for roughly 90% of the businesses in the country. "Service" at these businesses is horrible, like the worst DMV in the United States. Incompetence and apathy is common if not total. This reality is stark in places like luxury hotels. Imagine a gum-popping, eye-rolling, slow-moving DMV clerk as your server in the restaurant at the Ritz-Carlton. That's what you find in hotel restaurants in Havana.

Then there are the privately owned businesses, where proprietors are eager to serve their customers. An astonishing 9% of the people in the Cuban labor force are now self-employed cuentapropistas. The people I encountered who own their own small business were friendly, helpful, enterprising and highly competent.

Cubans can own property now, too. In fact, they can own two homes, if they can afford them.

After the 1959 revolution, the government took possession of all the homes and apartments. Citizens were allowed to live in them with the Cuban government as their landlord. In some circumstances, Cubans could pass those homes on to relatives or friends or even trade houses. But they weren't allowed to buy, sell or own homes.

The housing shortage was brutal. One man I met in 2008 lived in a one-room house with his adult son and daughter-in-law, and even his ex-wife. Three "bedrooms" were arranged by hanging sheets between the beds in what before the revolution was a grand colonial mansion.

Foreigners are not allowed to buy property in Cuba, but I'm told by Cubans that they're doing so anyway by partnering illegally with locals who pretend to own it. This black market in real estate is both pumping money into the economy and exacerbating the housing shortage.

The housing market is weird, too, because real estate agents and advertising are both banned.

In fact, all marketing is banned. The only advertising in Cuba appears on giant billboards and walls; the messages promote the history, people and ideals of the revolution.

Things are surely changing in Cuba. The biggest agent of change is the Internet -- and that's amazing, because most Cubans can't use it.

Logging on to the Cuban Internet

Only about 5% of Cubans are able to connect to the Internet from their homes, and these connections are through slow dial-up services.

Around 20 government-owned public Wi-Fi hotspots went online last year in Havana, with 30 more promised for later this year. The government also set up another 65 or so across the island.

While walking around Havana, you know where the Wi-Fi hotspots are because you suddenly come upon a gathering of people standing on the sidewalk using smartphones, tablets and even laptops. Beyond the reach of hotspots, you almost never see Cubans using phones or any other consumer electronics gadget.

Mike Elgan

Cuban Internet access is expensive and requires the purchasing of a time-limited username and password from a kiosk, as the author's wife is doing here.

Here's the process for using the Internet in Cuba: You find a kiosk or store where the state-owned telco, Etecsa, sells Internet cards, then you buy one. The cost for Cubans is about $2.29 per hour -- that's more than two days' pay for an hour of access.

The username is an 11-digit number, and the password (revealed by scratching the card) is a 12-digit number. You look at the Wi-Fi settings on your phone and find the WIFI_ETECSA hotspot, then use the card's numbers to log in.

To use that Wi-Fi, you stand on a busy, noisy sidewalk or sit on a cement bench, often in direct sunlight, squinting at a smartphone screen.

Hotel Wi-Fi is even more expensive and slower. For example, at Havana's spectacular old Hotel Nacional de Cuba, we paid more than $8 for a very slow hour of Internet use. More than 50 Cuban hotels offer that kind of lousy Wi-Fi service.

All Cuban Internet connections are slow. Web pages with photos are problematic. Gmail can barely load. Audio Skype calls are out of the question.

Still, it's a vast improvement from 2008. Back then, there was no public Wi-Fi. For an astronomical fee, you could use the only Internet cybercafe, government-owned of course. That cafe had two rows of ancient PCs facing opposite directions. A uniformed police officer slowly paced between the rows, scrutinizing every screen.

In January, the government promised that it would "soon" allow residents in two Havana neighborhoods to have home broadband Internet connections. The government also said it would allow cafes, bars and restaurants to offer Wi-Fi service.

Entrepreneurs and developers outside the Cuban government are also working on the problem of expensive-and-slow access.

One startup, called Apretaste, created a platform that enables a kind of Internet surfing via email. You email your query in the subject line to apretaste@apretaste.com, and the results get emailed back. Only about 400,000 Cubans can access the Web, but more than 2.5 million have government-issued email accounts.

An organization called HeyCuba recently held a hackathon in Miami, where more than 100 developers competed to develop the best app for bringing better Internet access to Cuba. The winner was a Cuban developer competing under a pseudonym.

Some neighborhoods now have illegal "street nets" that connect people in the neighborhood to each other (but not to the Internet) via Ethernet cables.

Enrique de la Osa / Reuters
Katherine, 20, uses her cell phone in her house in Havana.

Cubans also pass around flash drives called el paquete semanal (the weekly package) filled with Netflix movies, episodes of House of Cards, YouTube videos, digital music, news reports, mobile apps and other content. This flash-drive network is actually a platform for digital entrepreneurship. For example, the drives contain a kind of Cuban Craigslist called Revolico, which features black-market products for sale. And a digital magazine called Vistar Magazine is distributed almost entirely on these thumb drives. The paquete costs between $1 and $2 per week.

Why Cuba's future is bright

From what I've seen here, Cubans make kick-ass entrepreneurs. They're educated, motivated and excited about the future.

Ironically, the Communist revolution has done a good job preparing Cuba for capitalism. Thanks to the nation's 99.8% literacy rate and its huge number of engineers, Cuba could become a tech hub if allowed.

The only thing Cuba needs now is much better Internet connectivity and the political freedom to really use it.

Now if you'll excuse me, I've got to file this story from the sidewalk, then go wave at the president's limo.

(If you'd like to follow my adventures in Cuba and beyond, check out my blog: "Becoming Nomad.")

IDG Insider

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