The Unlikely Entrepreneurs Behind Cuba's First U.S. Factory Since The Revolution

The Unlikely Entrepreneurs Behind Cuba's First U.S. Factory Since The
Revolution
Susan Adams, FORBES STAFF

Horace Clemmons and Saul Berenthal, both 72-year-old retired software
engineers, are slated to become the first Americans since 1959 to set up
a manufacturing plant in Cuba. Their plan: produce small, easily
maintained tractors for use by family farmers. Under new regulations
issued by the Obama administration, the U.S. Treasury Department's
Office of Foreign Assets Control gave the Paint Rock, AL-based partners
the go-ahead last week. Once they get final approval from the Cubans,
they anticipate that in early 2017, they'll start building a factory in
a special economic zone set up by the Cuban government in the port city
of Mariel. In this condensed and edited interview, Berenthal describes
his transition from software entrepreneur to Cuban manufacturing pioneer.

Susan Adams: Tell me about your personal connection to Cuba.

Saul Berenthal: I was born and raised in Cuba. I came to the U.S. in
1960 right after the revolution. First I came and then my parents. My
family in Cuba is in the cemetery. But I have lots of friends there and
I've been traveling back and forth since 2007.

Adams: How did you get the idea to build tractors?

Berenthal: I understood the needs of the Cuban economy. Cuba has to
import more than 70% of what people eat. They're still using oxen to
farm the land. Our motivation really is to help the Cuban farmer be more
productive.

Adams: But you and Mr. Clemmons are software engineers. How did you know
the first thing about farm equipment?

Berenthal: Horace was born and raised on a farm in Alabama. He's the
farming expert and I'm the Cuba expert.

Adams: Just because he was raised on a farm wouldn't mean he would know
how to make tractors.

Berenthal: We hired an engineering company in Alabama that helped us
pick up an existing design that was appropriate for what we wanted to
do. We brought in state-of-the-art technology and produced the tractors.
We have a tractor in Cuba already that's going to be shown at an
agricultural fair in March.

Adams: It sounds like you were motivated less by profit than by a desire
to help the Cuban economy and Cuban-American relations.

Berenthal: Yes, our motivation is really to help Cuban farmers be more
productive. Through commerce and trade, we can bring Cuban and American
people closer together.

Adams: What about making money?

Berenthal: Our business model says we are investing in Cuba and
reinvesting any profits we make. We'll do what we did with our other
businesses. We'll create value and then sell the company.

Adams: What profit margins do you project for your tractors?

Berenthal: We're aiming for 20%.

Adams: How many tractors do you need to sell before you're profitable?

Berenthal: We believe we'll sell 300 tractors in the first year and then
we'll ramp up to 5,000. That includes other light equipment we'll sell
for construction as well. The facility will have the capacity to produce
up to 1,000 tractors a year. I think the profitability will come after
the first or second year when we start to do production and not just
assembly in Cuba.

Adams: But Cuba is plagued by shortages of the most basic products. How
will you get tractor parts?

Berenthal: They're all going to be sourced and shipped from the U.S. The
current state of the embargo makes it so we can't buy parts there. But
we think that within the next three years the embargo will be lifted and
we'll be able to source from Cuba, if not sooner.

Adams: Your factory will be in a special economic zone?

Berenthal: It's called ZED, for Zona Especial de Mariel. It's built
around one of Cuba's biggest ports and it has a whole bunch of sections
dedicated to foreign investment. They provide for a bunch of tax and
investment incentives. We're also taking advantage of Cuba's commercial
treaties with the rest of Latin America, where we'll be able to ship and
provide better pricing than for tractors built in the U.S.

Adams: What kind of tax incentive is Cuba offering?

Berenthal: For the first 10 years we don't pay any taxes.

Adams: How many local people will you employ?

Berenthal: We'll start with five and ramp up to 30 within the first year
and then probably go up to 300.

Adams: You want to sell the tractors for $8,000-$10,000. How can a Cuban
farmer with an ox possibly afford that?

Berenthal: There are a couple of ways. There is financing by the Cuban
government and by third countries like Spain, France and the
Netherlands. We also count on Cuban-Americans who live in the U.S. who
have relatives and friends that run farms. We think they would be happy
to contribute to Cubans owning a tractor. We're also counting on NGOs
that help Cuban farmers, like religious groups.

Adams: How much is your initial investment?

Berenthal: We project a $5 million investment and then it will go up to
$10 million.

Adams: Where are you getting the money?

Berenthal: It's private money. We have a couple of investors but we have
also sold a couple of companies.

Adams: What was your first company?

Berenthal: We left IBM IBM +1.40% in 1982 and started our own company to
compete with it. It was called PSI, for Post Software International, in
Raleigh, NC, which developed software for cash registers. We had
revenues of $30 million, offices in South America, Europe, Australia.
The company was bought by Fujitsu in 1995. The purchase price wasn't
public. We had 300 employees in the states and 400 throughout the rest
of the world. It was a significant enterprise.

Adams: Then you started a second company?

Berenthal: Csoft. It was a company that supported the credit card
readers at gas pumps. We integrated those with the inside point-of-sale
devices. In 2005 we sold that to the gas pump manufacturer we'd
developed the software for. That company had $12 million in revenue and
60-some-odd employees.

Adams: What did you do after that sale?

Berenthal: We enjoyed life and then I started traveling to Cuba to find
out what was going on there. We had other businesses that had to do with
real estate and office buildings.

Adams: What did you find when you went to Cuba?

Berenthal: I started meeting with people and I had a lot of contacts in
the economics department at the University of Havana. I learned what the
Cuban government was proposing to do about readjusting the economy. In
2014, when the opportunity for trade arose, we decided to pursue farming
and tractors.

Adams: How difficult was it to get U.S. government approval?

Berenthal: In all honesty it was tedious rather than difficult. We had
to wait for the regulations to change so that the proposal we made was
covered by the regulations implemented over the last nine months.

Adams: Were you competing with other U.S. companies?

Berenthal: We certainly believe we're going to compete with the Chinese
and Byelorussians, who are the current suppliers of tractors to the
Cuban government.

Adams: Where did you get the names for your company, Cleber, and
product, Oggun.

Berenthal: Cleber is from our names, Clemmons and Berenthal. It's
clever! Oggun is the name of the deity for iron in the Santeria
religion. Santeria is the most popular religion in Cuba. It's a mixture
of Catholic and African religions.

Adams: Do you practice Santeria?

Berenthal: No ma'am. I'm Jewish. We're called Jewbans.

Source: The Unlikely Entrepreneurs Behind Cuba's First U.S. Factory
Since The Revolution - Forbes -
http://www.forbes.com/sites/forbestreptalks/2016/02/16/the-unlikely-entrepreneurs-behind-cubas-first-u-s-factory-since-the-revolution/#1e28b80a5f18