Cuba, ranked along with North Korea as the least free economy in the world and one that is described as a “basket case.”
The potential market is relatively small in some aspects, but monumental in others. Cuba's GDP was about $68 billion in 2011, compared with $335 billion for Colombia and more than $1 trillion for Mexico, according to the World Bank, and the island nation has just 12 million inhabitants. But Cuba's infrastructure is in dire need of updating—lacking, for instance, dependable Internet connectivity—and the country has some desirable natural resources, such as nickel and largely untapped oil fields. With its close proximity to the U.S. and its dazzling beaches and countryside, Cuba is a potential magnet for tourism businesses, such as hotels, gaming and real estate. Cuba has a vibrant health and biotechnology sector, an educated population and a hunger for U.S. goods.
The majority of islanders still depend on government salaries that average around $25 a month; no Cuban can live on that —along with the universal subsidies for food, housing, utilities and transportation. Many people continue to hustle to survive, working a second job, or living "por la izquierda," literally "off to the left," supplementing their meager income by selling goods stolen from government workplaces, or hawking products from their monthly food ration. Those who can travel make trips to Mexico, Panama and Ecuador to purchase goods, only to resell them in the undergroung parallel Cuban economy which appears to be strong.
The ideal thing would to have an economy that combines capitalism and communism like in China. But, China had a lot of capital and resources before its reforms started in 1978. In contrast, Cuba is a small country whose economy has been based on massive subsidy, first from the old Soviet Union and then the Venezuelan government. Cuban economy knows nothing about productivity, infrastructure and low economic growth. So, the conditions are not really ripe for a socialist market economy as in China, yet.
In order for the country to really get back its feet the following must happen: the removal of the decades old embargo by the U.S.; more direct foreign investment; the guarantee of more human rights on the island; more direct involvement of the Cuba people in the decision making process; and the creation of thousands of small and medium size businesses. These improvements will foster internal productivity changes, innovation, political transformation and lead to real development on the island. Only when the tight political control over the Cuba people is relaxed and more private enterprise is permitted will we see real growth.
How can the plurality of a market economy exist with weakening the strict military control over the country? Will the military give up its tight control for the economy to improve?
The most probable scenario is that Cuba will reluctantly follow the China model. Cuba isn’t embracing freewheeling capitalism—Cubans are still allowed only one business each and are hemmed in on all sides by monopoly controls—about half of today’s licensed businesspeople are real entrepreneurs, concentrated heavily in tourism and restaurants but including taxi drivers, transport companies, clothing shops, cooperatives producing baby clothes, and lots of construction.
The author encountered many Cubans who said they want changes to come to Cuba in the form of economic opportunities. The embargo has taken its economic toll and limited the prospects for Cuban people on the island. Some Cubans mention that the main reason people try to leave the island is for economic opportunities, but they still look forward to returning to the island.
“Either we change course or we sink,”said Raúl Castro who succeeded his brother as president. With its economy crumbling after support from Russia and Venezuela evaporated, Cuba began in 2011 to liberalize very gradually, allowing private enterprise to flourish in certain sectors, particularly those related to tourism, like restaurants.
A few cracks have begun to appear and there has been some incipient economic change. Homes can now be sold a process that did not exist before 2011. Now home sales were legalized in order to inject a little capitalistic life into a rickety socialist economy. Now it is common to see Se Vende (for sale) signs.
Additionally, another sign of the times is the growth of private restaurants called, paladares. Theses were first private businesses the government allowed in the 1990s. Before 2010 some these eateries basically operated illegally underground. Tucked inside people's homes, they were restricted to just 12 chairs. Sales of hard liquor, and "luxury" foods like shrimp, lobster and beef were prohibited. Today, hundreds of private restaurants operate in Havana and can serve whatever food or drink they want, as long as they can prove it was purchased legally. They can also serve as many patrons as they want, and can advertise.
Cubans now talk about how much Cuba has changed since a sick Fidel stepped aside and Raúl assumed the presidency and began gradual economic reforms.
The economic changes came from reforms that Raul Castro initiated after taking over from ailing brother Fidel in early 2008. The first thing he did was eliminate the "tourism apartheid" that prevented Cubans from staying in hotels reserved for foreigners. Later, prohibitions on the sale of private homes and cars were lifted, and permission was granted for private taxis. The government lifted the despised "white card" required for decades of Cubans who wished to leave their own country, even on vacation.
In the fall of 2010 Raúl did spell out reforms that expanded self-employment, removed limits on hiring by small businesses, and protected foreign investors from expropriation. However, government has allowed private enterprise only by self-employed workers in several hundred established categories. Joint-venture hotels are routine now, with 60,000 rooms available. A new container port at the port of Mariel, built by the Brazilian government, has created export capacity for a country that exports very little. This project includes a free zone and a dock large enough for enormous post-Panamax ships.
Economic change is in the air and Cubans are now talking about money and business. According to the government the average salary was $20 per month in 2013 that was consumed by monthly expenses like phone and electric bills and food; no Cuban can live on that. Although, other expenses as education and medical care are covered by the state. So, many depended on undergroung bartering, informal family networks and work or money sent by relatives from abroad. An estimated $1 billion to nearly $3 billion a year in remitences are sent to the country from the more than a million relatives who have fled to America, 400,000 of whom visited Cuba last year.
In 2016 a category of small, mid-sized and "micro" private business has been being added to the party's master plan for social and economic development. New categories of small and mid-sized businesses create the potential for many more jobs in the private sector, although Castro's reforms have been slow and marked by periodic reversals of many reforms.
As the United States starts to ease the restrictions on travel and commerce with Cuba, a swell of American tourists is expected to arrive withlots of money to spend.
Obama announced the he will let small Cuban businesses sell some products to the United States which which is a positive step in ending the 50 year-old embargo by the U.S. Any product can be imported with the exception of foods, agricultural products, chemical substances, textiles, machinery, cars weapons and munitions. There are also products authorized by the Cuban government for export. But, producers of the products will not be able to sell directly to U.S.
One should not expect Cuban products to flood the U.S. market in the short term., Cuban cigars have alwaysbeen considered among the best in the world. However, it wil take time for Cuban cigars to to be readily available for the U.S. market until the embargo disappears.
Cuba has European and Asian markets for its cigars but the U.S is nearby. With relations between the U.S. and the island nation thawing, the industry is lookingto the north, to the $13 billion U.S. cigar market. They can’t be imported because of the trade embargo President John F. Kennedy imposed on Cuba in 1962 — only after he stocked up with 1,200 of his favorite H. Upmann Petit Coronas. Cuba could capture as much as 30 percent of the U.S. market for premium cigars. Cigars, along with goods like rum and various services, could eventually help lift annual trade between the U.S. and Cuba to $12.6 billion, according to a study for the Peterson Institute for International Economics in Washington.
Agriculture’s been exempt from the trade embargo thanks to the Trade Sanctions and Reform Act under President Clinton Among the strongest supporters for ending the embargo are American farmers, who see Cuba as a relatively new market for exports. The businessmen are representatives of the U.S. Agricultural Coalition for Cuba, some 30 agricultural and food production organizations who recently came together to promote lifting the embargo and being able to freely sell their products on the communist island. The group does not just want to sell corn and soybeans to Cuba but rather wants to help Cuban farmers develop the agricultural sector there.
Economy — the Bottom Line
Cuba is again one of those countries that has made enormous progress over the last few years but still has some way to go before it can be comparable to other expats havens. However, this has not stopped nor will it stop the influx of expats to Cuba and the opening up of the economy, encouragement of foreign investment and a generally less restrictive environment are all helping to improve the attractions of this beautiful area of the world. While there are still traces of the old communist influences in and around Cuba there is no doubt that the authorities have decided to move with the times and now appreciate the importance of overseas investors. The recent reduction in restrictions regarding foreign ownership of Cuban property has been welcomed in the short to medium term and will likely have a massive impact in the longer-term. However, some investors may be sceptical until the government demonstrates it has learned from problems in the past where similar incentives were reversed once the economy was back on its feet. Foreign investors have very long memories although there are many who are willing to take the extra risk for the potential extra rewards in the medium to longer term. The country has been forced to change to support its economy which had struggled to survive. However, while these changes may have occurred over an extended period they are very much welcomed and certain to benefit the Cuban people and economy
International Monetary Fund and Cuba
Helms-Burton Law of 1996, approved by the U.S. Congress, is a commercial embargo that prohibits commerce with the island. Hopefully it will be revoked soon. On the other hand returning to the International Monetary Fund is a real possibility in the meantime.
Cuba was one of the 40 original members of the IMF in 1946. In fact, Cuba played an important role for 12 years. In 1956 Cuba obtained a loan from the IMF and paid it off the next year. In 1958 Fulgencio Buatista, who was the virtual dictator of Cuba, obtained a $12 million dollar loan from the IMF but the government was about to collapse. After Castro took over in 1959 the Cuban government repeatedly tried to delay paying off the debt. Cuba was forced to pay off the debt during the next five years but the country withdrew from the IMF as a result.
Because the U.S. imposed an economic embargo on the country, Cuba depended almost exclusively on the Soviet Union for support until the later's economically collapsed in 1991. The result sunk the country into an economic recession. Consequently, the government began to allow some private businesses. In 1993 Cuba attempted to get support form the IMF, but due to the opposition by the U.S. nothing ever happened. The controls about 17 percent of the vote of the IMF and therefore exercises a lot of influence. But the other members could approve Cuba's request to become part of the IMF again despite the objection of the U.S. because the later does not have the power to veto.
By becoming a member of the IMF once again, Cuba would be eligible to receive advice and loans but would be required to reveal data about the country's economy as a condition.
