How Does Entrepreneurship Work in Cuba?

Cuba is experiencing its worst inflationary crisis in 30 years. Prices are through the roof, no one can guess how or when they will once again be on par with the purchasing power of most Cubans, and demand for all kinds of products continues to grow despite very little supply.

But in the midst of so much hopelessness for this Caribbean Island, there remains an encouraging fact: as of January 2023 there were 6,704 new Non-Agricultural Cooperatives (CNA) and micro, small and medium-sized enterprises (MSMEs), and 1,088 Local Development Projects (PDL), approved as part of the government’s strategy to shore up the Cuban economy.

A recent publication by the Ministry of Economy and Planning (MEP)–produced by Dr. Victoria Pérez Izquierdo and a research team that studies workforce culture at the Cuban Institute of Anthropology–sheds some light on the growth of these new forms of enterprise since their legalization in September 2021.

Every Cuban province has seen these new economic entities sprout in just about all of its municipalities, with the exception of Ciego de Ávila, which only has them in 9 of its 10 municipalities.

When comparing these figures with the same period in 2022 (1,286 new economic actors, only about 4 months had elapsed since their approval), the growth is significant.

There is, however, some worrisome data: of the more than 6,000 economic entities approved as of January 2023, only 42 export their goods and services abroad (ten more than on the same date the previous year).

According to Ian Pedro Carbonell, Director of the Directorate for Macroeconomic Policies at the Central Bank of Cuba, the slow growth of exports could be due to the high degree of specialization that is needed to carry out activities of this type worldwide.

“The international market is very competitive, with mechanisms to protect the national productions of each country, therefore, it is difficult to introduce products into it. For Cuba, this is a still new situation, where new economic entities are still learning to deal with everything that implies having legal recognition as a company.”

However, he recognizes there is great potential in the country and that exports must experience gradual growth within the new sectors of the economy.

In the case of approved MSMEs, the most represented sectors are food production, gastronomy, manufacturing, and activities related to construction materials.

Although 34% of MSMEs and CNAs are linked to food production or marketing, only 15% prepare or produce it, while 21% state they have other outputs as their corporate purpose and 45% provide services.

Other data offered by the MEP study point out that not only are there few new economic actors dedicated to food, but that there are 11 municipalities throughout the country that neither produce food nor sell it from MSMEs or CNAs, 21 municipalities that do not produce food, and 35 that do not sell. In the case of PDLs, 54 municipalities have no projects dedicated to food.

They also reveal, according to specialists, the need for “better integrating” MSMEs, as well as increasing their access to the foreign exchange market, reducing bureaucracy, and designing public policies for their internationalization, among other steps.

But it is worth noting that as part of these new possibilities, almost 180,000 new jobs have been created throughout the country.

Inflation Crisis vs New Players: Opportunity or Challenge?

“The inflationary crisis in Cuba of the past two years is unprecedented in the last three decades,” comments Antonio Romero, economist and tenured professor at the University of Havana. It is a crisis with multiple causes and is an expression of the enormous macroeconomic imbalance in the country.

“There is a problem of relative excess demand, of a considerable supply deficit, cost increases, and finally, inflation, which reflects the expectations of the population, of the economic agents that expect that prices tomorrow will be higher than today because there is no certainty. There is no certainty that the problem is being dealt with decisively and that there will be a tendency to reduce inflation”.

As reported by the Minister of Economy Alejandro Gil in the last session of the National Assembly of Popular Power at the end of October 2022, inflation on the island had risen to 40%.

Its effects are felt in all sectors of society. There is no Cuban who escapes its negative consequences. Inflation does not discriminate between the state or private sector.

Yulieta Hernández is an engineer who knows its consequences well. She is the owner of πlares Construcciones, a medium-sized private construction company with around 100 workers and the capacity to execute large projects. “This situation impacts us not just in the construction sector, but the entire Cuban business sector. The prices when importing and accessing resources and logistics rise a lot, impacting the final cost to the customer, and of course, a decrease in people contracting our services”, Yulieta explains to Negolution.

To survive in this environment, they have had to adopt strategies looking at potential business in the state sector, which allows them to continue working and paying their workers’ salaries.

“We have designed several projects to lower at least main costs. We focus on the circular economy to produce most of the materials ourselves or link up with other local producers so that imports decrease a bit, and we prioritize training in trades in order to lower a bit the cost of human resources and labor”.

But not all business owners who have been forged under these harsh conditions can tell a more or less happy story like Yulieta. Many barely generate a profit in Cuba’s highly import-dependent economy.

Antonio Romero comments that it is a very complex phenomenon, not only from an economic point of view, but also from a social and political point of view, because ultimately “it is a disproportionate tax on the lowest-income sectors.”

Although shock therapy cannot be the basis for solutions, a macroeconomic stabilization program must be implemented, as announced by the government.

“Another central issue, which is behind the enormous distortion that exists between import costs and how these are transferred to production prices, has to do with establishing an effective exchange market, with a degree of certainty and transparency, to which all sectors have access, without restrictions.”

“You have to eliminate subsidies, rationalize prices, eliminate gratuities, and decisively confront the issue of reforming the system of state enterprises,” advises the economist.

He also points out that non-state forms of management are essential in this process of macroeconomic stabilization, because “they absorb the part of the labor force that a radical reform of the state business system stands to produce.”

Looking inward, exploring the potential that exists on the island, buckling down, and “awakening” local production: these are all recommendations by experts, especially with current inflation, where despite present adversities, the list of new forms of enterprise continues to grow month after month.

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