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Britain's Foreign Secretary Philip Hammond talks to Reuters during an interview in Havana, Cuba, April 29, 2016. REUTERS/Enrique de la Osa

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By Sarah Marsh

HAVANA (Reuters) - Britain's Foreign Secretary Philip Hammond on Friday praised Cuban President Raul Castro for embracing the realities of the modern world after a meeting with the Communist leader that marked a further step in Cuba's thaw with the West.

He is the first British Foreign Secretary to set foot on the Caribbean island since its 1959 revolution, and his visit follows one by U.S. President Barack Obama in March.

Hammond said he had a "long and interesting discussion" with Castro about the octogenarian leader's push to update one of the world's last Soviet-style command economies.

"He is espousing a programme of gradual change, embracing the realities of the world we live in," Hammond said in an interview at the British ambassador's residence in Havana.

"I was very struck by the fact that he described the Internet as the reality of our world, spoke positively about the benefits the Internet could bring."

Cuba still has one of the world's lowest Internet penetrations with access expensive and restricted.

The state says it wants to expand access and has been installing Wi-Fi hotspots throughout the country. But change is slow and critics suggest the government fears losing control of media and seeing new avenues of political opposition open up.

Castro has vowed to "update" Cuba's socialist model but market-style reforms have been implemented haltingly and even reversed in some areas. A Communist Party Congress this month proposed little new to tackle the country's economic woes.

"Castro is seeking to position himself in the middle between those who are resisting change and those who want much faster, more radical change," said Hammond, adding that Britain hoped to foster reforms through cooperation in certain sectors.

The Foreign Secretary said the government recognised its financial services sector was underdeveloped.

"Castro said to me directly 'we lack management expertise in banking services' and this is an area where the UK (United Kingdom) has something very clear to offer," he said.

The main sectors where Britain sees opportunities for its companies to do business in Cuba were financial services, tourism and renewable energy, Hammond said.

Challenges to doing business in Cuba remain however, he said, not least due to the U.S. trade embargo.

"We have also had discussions with the U.S. about the challenges for British and other European banks in doing business with countries that face U.S. sanctions," said Hammond.

"There are some problems here but we are working through them with the U.S. and hope to make progress in a way that will enable British businesses to do more business with Cuba."

Exports of British goods to Cuba rose 32 percent in 2015 compared with the previous year but the government deems there is scope for growth as other European countries export far more to the island.

(Editing by James Dalgleish)

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