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Biden rapprochement with Cuba faces difficult hurdles

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Battered by their worst economic crisis in decades, ordinary Cubans are hoping that US president-elect Joe Biden will bring them better times, remembering his role in Barack Obama’s administration which eased sanctions and restored full diplomatic relations.

But last week move’s by the outgoing Trump administration to designate Cuba a state sponsor of terrorism has thrown another obstacle along what already promised to be a long and difficult path towards rapprochement.

Mike Pompeo, in his final few days as US secretary of state, accused Havana of aiding murderers, bombmakers and hijackers when announcing the designation, triggering a furious reaction from Cuba. The other countries labelled by the US as state sponsors of terrorism are Syria, North Korea and Iran.

The US decision was the result of an inter-agency process and typically takes several months, meaning it cannot be swiftly reversed. Other hurdles to better relations include unhelpful domestic politics in both countries, Cuba’s solid backing for Nicolás Maduro’s regime in Venezuela and a continuing row over the sickness of US diplomats stationed in Havana.

“It will be difficult for even a more modest Biden-led detente to advance meaningfully without greater reciprocity from Cuba,” Nicholas Watson of consultancy Teneo wrote in a note to clients.

Cuba’s long-suffering citizens, currently mired in their worst economic crisis since the fall of the Soviet Union, are nonetheless pinning their hopes on Mr Biden.

Speaking from her modest home in a small town in the foothills of the Sierra Maestra mountains of eastern Cuba, Kety Pulgar, 45, said Mr Biden would “do things Trump did not want to do”.

“Everyone is waiting to see how things develop, but we think they’ll be positive because of his links to Obama,” she told the Financial Times. “The people look favourably, not unfavourably on him.”

Rolando Matos, who runs a burger restaurant in Havana, said small businesses such as his enjoyed a boom during Mr Obama’s presidency as US tourists began visiting Cuba. This ended when Mr Trump blocked travel to the island. “Undoubtedly, having a Democratic president and follower of Obama will be very favourable for Cuba and businesses are hoping to recover,” Mr Matos said.

Such optimism may be premature. In the first months of the Biden administration, incremental steps to improve relations are more likely than a major thaw, say experts.

Joe Garcia, a former Democratic congressman from Miami who recently made an exploratory trip to the island, said of the Cuban government: “They think happy days are here again. I tried to disabuse them of the idea that it all goes back now to Obama 2.0.”

Mr Garcia said he expected the Biden administration to first focus on scrapping limits imposed by the Trump administration of $1,000 per quarter on remittances, dismantling a few travel restrictions and lifting a ban on US flights to Cuban airports outside Havana.

John Kavulich, president of the US-Cuba Trade and Economic Council, said resolving the crisis in Venezuela was far more important to Mr Biden. “As for adding unfettered visits to help the Cuban tourism industry . . . why would Biden choose to remove that leverage?”

Officials in Mr Biden’s transition team declined to comment on Cuba policies, saying they could only speak after the January 20 presidential inauguration.

The Havana government has so far been cautious. Miguel Díaz-Canel, Cuban president, did not congratulate Mr Biden or mention his name in public after the US election. Cuba is in the throes of a delicate political transition to a younger generation, with Raúl Castro, the former president who leads the Communist party, due to step down in April.

In his year-end address to the nation, Mr Diaz-Canel said it was possible to build a “respectful and lasting relationship” with the US but added: “What we are not willing to negotiate and what we will not give in one iota is the revolution, socialism and our sovereignty.”

Carlos Alzugaray, a retired Cuban diplomat, said Havana was ready to return to the detente blown up by Mr Trump but added: “They expect reason to prevail on the other side.”

This, US experts say, is a problem: Cuban officials see their country as a victim of unfair measures and do not believe they need to take steps themselves to improve relations.

Further complicating matters is the unresolved issue of sickness among US and Canadian diplomats in Havana in 2016-17, leading to reductions in staff and the US closing most consular services. A US government report found the most likely cause was directed microwave radiation.

But perhaps the biggest obstacle is US electoral politics. Mr Trump’s hard line against Cuba and Venezuela proved popular among Latino voters in Florida, helping the Republicans win the state by a bigger margin than in 2016.

Influential Florida Republican Marco Rubio, one of three Cuban-Americans in the US Senate, has already warned against relaxing US sanctions on Cuba, citing a recent crackdown by Havana on dissidents. 

“We can already see how the Cuban regime responds when it thinks relief may be on the way,” Mr Rubio wrote in the Miami Herald last month. “More innocent Cubans will pay the price if we return to a one-sided Cuba policy — and throw a lifeline to Raúl Castro’s dictatorial regime.” 

 



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Analysis

‘Their hair is on fire’: Trump fans await return to political stage

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On his final day in the White House last month, Donald Trump told a small crowd of supporters at Joint Base Andrews, the military airport, that he had no intention of leaving the stage quietly.

“I will always fight for you, I will be watching,” the outgoing president said before boarding Air Force One for the last time. “We will be back in some form . . . we will see you soon.”

Now the 45th US president is set to make a splashy return to the fray on Sunday with a keynote speech at the Conservative Political Action Conference (CPAC), an annual gathering of Republican politicians and media personalities that has become a kind of rock festival for rightwing activists, especially college students.

Ford O’Connell, a Trump supporter and former Republican congressional candidate, said attendees were “dying” to hear from Trump, whom he described as the “leader of the Republican party, even if he is not in office in the traditional sense”.

“These folks are unhappy about how the 2020 elections turned out, but their hair is on fire after a month-and-a-half of the Biden administration,” O’Connell said.

“What they want to hear from Trump is: how do you move forward in 2022 and 2024,” he added, referring to the midterm elections in two years and the next presidential contest.

Trump’s speech will end an unprecedented stretch of near silence for the former reality TV star, who built his political career on regular cable television appearances and constant tweeting. After leaving Washington, he took off for Mar-a-Lago, his resort in Palm Beach, Florida, and has stayed there since, playing golf and shunning the spotlight.

Shorn of his ability to communicate with to his millions of supporters on Twitter and Facebook — which banned him for his role in the deadly January 6 siege on the US Capitol — Trump has made just two notable interventions: he called in to Fox News to eulogise the late rightwing radio host Rush Limbaugh, and released a blistering statement attacking Mitch McConnell, the top Republican in the Senate.

Advisers had encouraged Trump to keep a low profile during his impeachment trial, which ended this month with his acquittal.

Trump will be the final speaker at the four-day conference, which is being held in Orlando, Florida — a city that is just two-and-a-half hours drive from his home and that has looser Covid-19 restrictions than CPAC’s usual location of Washington, DC. The former president is expected to speak in person, although event organisers have not confirmed the details of his speech.

Ted Cruz, Republican Senator from Texas © Getty Images
Ron DeSantis, Governor of Florida © AP

The list of the other CPAC speakers reads like a who’s who of his fiercest defenders, including Florida’s governor, Ron DeSantis, and Republican senators Josh Hawley and Ted Cruz — all of whom have been suggested as possible 2024 contenders that could carry Trump’s torch if he does not run again for president.

Trump has not ruled out another bid for the White House, despite mounting legal troubles, including criminal investigations in New York and Georgia.

His appearance at CPAC — an event dating back to a speech by Ronald Reagan in 1974 that has become increasing populist and Trump-centric in recent years — has also drawn attention to Republican party infighting.

Mike Pence, the former vice-president, who fell out of favour with Trump supporters after he certified Biden’s election win, is not attending the event. Nor is Nikki Haley, the former South Carolina governor who told Politico in an interview that ran earlier this month that Trump could not run for office again because “he’s fallen so far”.

The party’s divisions were laid bare in an awkward encounter on Capitol Hill this week, when reporters asked House Republican leader Kevin McCarthy whether Trump should be speaking at CPAC.

McCarthy replied, “Yes, he should,” before Liz Cheney, one of his deputies, interjected: “I’ve been clear in my views about President Trump . . . following January 6, I don’t believe he should be playing a role in the future of the party or the country.”

After Cheney contradicted him, McCarthy abruptly ended the press conference, saying: “On that high note, thank you very much.”

Cheney was one of 10 House Republicans who joined all House Democrats in voting to impeach Trump last month, and is among a handful of critics on Capitol Hill who have openly castigated the former president despite knowing they run the risk of losing the support of party voters.

While a few elected Republicans, like McConnell, have joined Cheney in rebuking the former president, CPAC will serve as a stark reminder of how popular he remains among party activists.

A Suffolk University poll out this week found 46 per cent of people who voted for Trump last November said they would abandon the GOP if the former president broke away and formed his party. Half of those polled said the Republican party should be “more loyal to Trump”, compared to one in five said the party should be less loyal.

Matt Schlapp, a Trump ally and chairman of the American Conservative Union, the group that organises CPAC, told Fox News this week the Republican establishment should recognise that it must now cater to a much broader church; one made up by the old party faithful and the supporters that Trump brought into the fold with his “Make America Great Again” movement.

“It’s Republicans, it’s conservatives — who are this big, big minority in this country — and then it is these new MAGA supporters,” Schlapp said. “This is now a coalition.”

But more moderate Republicans warn that by sticking with Trump, the party will never be able to win back the centrist conservative and independent voters who abandoned the party at the ballot box in November.

“It is important to remember there is a whole other wing of the party, and virtually no one from that . . . wing is being represented at CPAC,” said Whit Ayres, a veteran GOP pollster. “It is a gathering of the most conservative and some of the most active members of the Republican party, but it represents only a portion of the party.”



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McKinsey partners sacrifice leader in ‘ritual cleansing’

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The news this week that Kevin Sneader would be McKinsey’s first global managing partner since 1976 not to win a second three-year term stunned many of the consultancy’s partners and influential alumni. 

Few could point to any one mis-step that had felled the 54-year-old Scot. “It added up,” one veteran said simply of the litany of reputational crises he had tried to resolve. 

But nor did many think that Sven Smit or Bob Sternfels, who beat Sneader to the last round of voting, would represent a cleaner break with the past — or that whoever won the final vote in the next few weeks would face an easier task than he had. 

Within days of taking over in 2018, Sneader flew to South Africa to apologise for failures that had embroiled the firm in a corruption scandal. “We came across as arrogant or unaccountable,” he admitted in a speech that began with the word “sorry”.

That set the tone for a tenure defined by the need to make up for other crises that largely predated his promotion, from damaging headlines about McKinsey’s contracts in authoritarian countries to US states’ lawsuits over its work to boost sales of highly addictive opioids

Speaking to the Financial Times less than two weeks before senior partners voted him out, Sneader said he had focused on making the private firm more transparent, more selective about which clients it took on and better structured to avoid surprises in a global group whose rapid growth had made it more complicated. 

According to people who witnessed those efforts, though, pushing them through consumed much of the political capital Sneader needed to win re-election. For some, particularly younger staff, his reforms did not go far enough. For an older group more prominent among the 650 senior partners who vote on their leadership every three years, they went too far.

Kevin Sneader’s failure to win a second three-year term as McKinsey’s global managing partner has stunned many at the consultancy © Charlie Bibby/FT

Sneader’s downfall looked like a case of “the partners not wanting to take the medicine”, one former partner said. Another argued that Sneader’s push for more oversight over partners who prized their freedom had made the firm “too corporate”, while some Sneader allies saw the “protest vote” as a rejection of his reforms rather than a clear mandate for Smit or Sternfels. 

Sneader was not helped by the timing of this month’s $574m opioid settlement with 49 US states, added Yale School of Management professor Jeffrey Sonnenfeld, who said that consultants outside the US did not understand why he agreed to the payout.

Sneader might have been able to reassure them in person, but with McKinsey’s frequent-flyers grounded by a pandemic, “there are limits to what you can do with Zoom”.

‘In business, as in poker, there is uncertainty’

Laura Empson, author of Leading Professionals, said one question now was whether the vote against Sneader was “a ritual sacrifice to appease the bad PR” or a sign that McKinsey’s partners were willing to take more radical action. 

The run-off between Sternfels and Smit may not resolve that issue, say people who know them both, who note that they are of a similar age to Sneader and members of the leadership council that signed off on his reforms. 

Sternfels, a California-born Rhodes scholar who joined McKinsey in 1994, was the runner-up to Sneader in 2018. As head of “client capabilities”, he has a role akin to that of a chief operating officer and is closely associated with the rapid expansion of the firm under Dominic Barton, Sneader’s predecessor. 

Based in San Francisco after six years in Johannesburg, the former college water polo player is known as an effective operator and, the second former partner says, “the guy who built the new business models”. 

But some of McKinsey’s newer activities have dragged him into controversies: last year, he was called to testify in litigation brought by the restructuring specialist Jay Alix — the founder of rival consultancy AlixPartners — over McKinsey’s disclosures while advising clients in bankruptcy. 

When a frustrated judge asked whether he was dealing with “a group of people who are so educated, so arrogant, that they just can’t admit that they’re wrong”, Sternfels apologised, insisting that “we try and not foster arrogance”. 

Smit, who joined in 1992 and is based in Amsterdam, is known inside McKinsey as a more cerebral figure. Now co-chairman of the McKinsey Global Institute, the consultancy’s research arm, “there’s not a university campus he couldn’t parachute into and be received as one of the smartest people in the room,” Sonnenfeld said. 

The Dutch mechanical engineer earlier ran McKinsey’s western European operations and may attract less support from US peers, but the first former partner describes him as “the conscience of the firm”, who will say no to ideas with which he disagrees. The second thinks he may “take the firm back to more of an old-school McKinsey”.

Smit’s writing on topics from urbanisation to the future of work made him popular with clients and provided a glimpse into his thinking on strategy, which he likened in one report to poker. “In business, as in poker, there is uncertainty, and strategy is about how to deal with it. Accordingly, your goal is to give yourself the best possible odds,” he wrote.

Discontent runs deep

Whether the cards fall for Smit or Sternfels, colleagues past and present question whether either will reverse the reforms that seem to have triggered unrest about Sneader. 

“I don’t think Kevin had any choice but to centralise,” said one Sneader ally.

One of the former partners added: “What were the alternatives? It’s a large firm to govern and you do need structures.”

What the election result has already revealed, however, is that discontent with the state McKinsey finds itself in runs deeper than had been obvious outside the firm. 

Whichever candidate triumphs, they will need to listen seriously to the concerns of alumni, clients and policymakers and make clear that he plans meaningful cultural reforms, Empson says.

Sneader’s successor will also have to defy the odds in professional services firms, she adds. “Often with partnerships, when something goes wrong, they appoint someone else in reaction to the problem and that isn’t the solution either and they cycle through another round of leaders quickly,” she says: “It’s almost as though they have to go through this ritual cleansing.” 

McKinsey, which does not disclose its financial performance, earned annual revenues of $10.5bn in 2019 by Forbes’ estimate. Sonnenfeld points to the irony that the firm, which charges a premium for its services, has stumbled in this way.

“It’s odd that McKinsey doesn’t create the kind of leadership that would thrive in a crisis,” he reflected. Before the succession process starts again in 2024, “they need to go into overdrive on leadership development”.



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Investors look to Sunak for clarity on new UK infrastructure bank

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Ever since chancellor Rishi Sunak announced the setting up of a UK government infrastructure bank last autumn, investors have wondered what its role will be. Next week, in the Budget, they will get the answer.

The Treasury has only said it will focus on supporting new technologies that are too risky for private finance and would contribute to meeting the government’s target of net zero carbon emissions by 2050. As examples, it gave carbon capture technology and the rollout of a nationwide network of electrical vehicle charging points. 

The selection process has just begun for a part-time chair, working two to three days a week, and it is scheduled to open on an interim basis on April 1.

The bank’s creation has prompted a debate about how infrastructure should be funded in the UK, at a time when the government’s finances are stretched and customers are likely to resist tax or bill increases, the means by which many sectors — such as ports, airports, energy, telecoms, water, and electricity — are funded. 

Many of these assets in England are owned by sovereign wealth, pension and private equity funds, and regulated by arm’s length bodies, under one of the most privatised infrastructure systems in the world.

The government’s finances have been stretched by the coronavirus pandemic, limiting funds for infrastructure projects such as rail © Niklas Halle’n/AFP

Dieter Helm, a utilities specialist at Oxford university, said the bank was “a good idea but it needs scale — a balance sheet and capital funding from the state, in which case you’ve essentially created a new arm of the Treasury”.

“The question is whether this is going to be the primary vehicle through which the government implements infrastructure,” he said. 

John Armitt, chair of the National Infrastructure Commission, a government advisory body, suggested it needed an initial £20bn over five years to make an impact and reach projects the market might be unwilling to support.

The institution, which Sunak has said will be based in the north of England as part of the government’s levelling up agenda, will partly replace the low-cost finance provided by the European Investment Bank, which is no longer available since Brexit. But it is unclear if it will be able to match the €118bn the EIB has lent to the UK since 1973.

Sunak has promised that the government, which spends much less than most European states on infrastructure, will spend £600bn over the next five years. But ministers hope that more than half their national infrastructure plan will be paid for by the private sector. However, private finance is generally more expensive than government borrowing and requires taxpayers to underwrite the construction and financial risks.

Infrastructure spending (as a % of total government expenditure) for Netherlands, UK and Germany. Also a band showing the min and max for all 31 European countries

“The government wants the public to believe that the country can have this wall of private sector investment without higher bills and taxes now but investors will only come if the government will guarantee they will receive a return and it acts as a backstop,” Helm said.

Dissatisfaction with UK infrastructure has been widespread for years: a CBI/Aecom survey in 2017 found that nearly three quarters of businesses were unhappy with facilities in their region.

The lockdowns have taken a heavy toll, for example forcing the renationalisation of rail services. At the same time the Eurostar train service, airports and airlines have called for taxpayer bailouts, while the government is also paying for some households’ broadband.

Although the prime minister has in the past year given the go-ahead to some rail and road schemes, including a tunnel under Stonehenge, other projects — including £1bn of rail improvements — have been axed. 

A road tunnel under Stonehenge is one of the infrastructure projects given the go-ahead © Matt Cardy/Getty Images

Meanwhile, local authorities — which are responsible for urban roads and other key infrastructure — have been forced to shift their limited financial resources to care for the elderly and vulnerable during the pandemic and so want more central government help.

Despite this growing demand, some investors have questioned the need for the new bank, even though they are popular elsewhere — such as Canada, which established one in 2017. 

“Given there is at least $200bn of international capital looking for projects in which they can invest, the government has to be careful it doesn’t just crowd out existing finance,” said Lawrence Slade, chief executive of the Global infrastructure Investor Association, which represents private sector investors.

He argued the new bank, which will take over the government’s guarantee scheme, should only take on projects that are “too risky” for institutional investors, pointing out that the Canada Infrastructure Bank was mandated to lose up to C$15bn (£8.45bn) over 10 years. “It’s not yet clear what question the new infrastructure bank is trying to answer,” he said.

Ted Frith, chief operating officer of GLIL Infrastructure, a £2.3bn fund backed by UK pension funds, said the EIB loaned money at competitive rates to projects that also borrowed from capital markets. “This is a global market and there are plenty of alternative sources of finance to replace the EIB,” he said. However, he added that the infrastructure bank could play a role in addressing the shortage of available projects.

While investors will put equity into existing or smaller infrastructure projects — such as an airport extension or a wind farm — they are wary of new projects, according to Richard Abadie, head of infrastructure at consultancy PwC, because the latter carry long term construction risks and do not provide an income stream for several years.

“The NIB can play a role de-risking projects but the main challenge is how we can afford and manage the cost of energy transition, not whether finance is available to bridge the cost,” he said.



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