Amid deepening economic crisis, Cuba tightens rules on fledgling private sector
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STATEMENT BY THE CUBA STUDY GROUP ON NEW RESTRICTIONS ON THE CUBAN PRIVATE SECTOR
August 27, 2024
Instead, under the rubric of correcting “distortions” and “tax evasion” in a “wartime economy,” last week the Cuban government published a revised legal framework poised to severely hinder private sector growth. It comes at the heels of a months’ long campaign to scapegoat private enterprise for problems like inflation that are primarily the result of the state’s own economic mismanagement. If broadly interpreted and enforced, the new framework could constitute a dramatic step backwards for the Cuban economy.
Its decrees impose myriad new obstacles for creating and operating private businesses in Cuba. New constraints on wholesale imports raise steep barriers of entry for small players, favoring bigger operators already in the market. The delegation of authority over new enterprise approval to municipal governments comes saddled with burdensome restrictions. Meanwhile, new banking requirements ignore that foreign accounts and informal currency exchanges have been necessary workarounds to the state’s refusal to provide a legal means for private businesses to purchase the hard currency they need to pay foreign suppliers.
For years, the Cuba Study Group has argued that the path to sustainable relations between the United States and Cuba runs, in no small part, through greater economic integration, particularly with the Cuban diaspora. While too limited in our judgment, the Biden administration took an important step in this direction when it recently issued a general license allowing private Cuban entrepreneurs to open U.S. bank accounts. Far from leveraging such possibilities, the new Cuban decrees spurn them. Moreover, the new requirement that any partner of a private enterprise in Cuba be an “effective resident” (a still undefined term expected to raise the criteria for establishing residency from one day in the country every two years to 183 days per year) stands to inhibit foreign and diaspora investment in the sector.
All told, these measures disregard the consensus opinion of Cuban economists at home and abroad and send precisely the wrong signal to the world at a critical economic juncture for the island. They generate even greater mistrust in the Cuban market. Worse, they appear primarily driven to increase the monopolistic power of Cuba’s heavily sanctioned, military-run holding company, along with other state-owned enterprises that have amply demonstrated their economic inefficiencies and productive failures. While economists have called for liberalizing policies that would incentivize private sector investment and growth, authorities have opted again for domineering regulations that constrain it.
The Cuban government assures this framework represents the start of a multi-pronged strategy of economic “stabilization” that it has yet to articulate. Already the new decrees have sparked overwhelming anxiety in the Cuban market, freezing import orders and threatening to aggravate food and resource shortages for at least the short term. After decades of disastrous reform and counter-reform cycles, and a migratory exodus and brain drain with no end in sight, to say these decrees fail to inspire confidence in the government’s next steps is an understatement.
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The Cuba Study Group is a non-profit, non-partisan
organization, comprised of business and professional individuals with a deeply
rooted love for Cuba and the Cuban people. We aim to put our collective
experience in leadership skills, problem solving, and wealth creation at the
service of the Cuban people. We aim to facilitate change, help empower
individuals and promote civil society development.
Our mission
is to help facilitate peaceful change in Cuba leading to a free and open
society, respect for human rights and the rule of law, a productive,
market-based economy and the reunification of the Cuban nation.
Omar Everleny:
"The solution, already repeated by everyone, is to
implement the postponed comprehensive reform of the economy and give the market
the role it should occupy in a society with so much economic inefficiency and
which, for the misunderstandings, is not to move to neoliberal capitalism, but a
social model with a market, as applied by China and Vietnam. "
https://www.ipscuba.net/author/omar-everleny-perez-villanueva-economista-e-investigador-cubano/
Cuba:
A Brief analysis of the economy in the first half of 2024
The Cuban economy is going through its worst moments and specialists consider it urgent to implement a comprehensive reform to stop stagnation and promote change.
A group of distortions that affect economic performance persist, and the Cuban population longs for a solution.
Photo: Jorge Luis Baños_IPS
In recent years, talking about the Cuban economy has become increasingly monotonous. Suddenly interesting news or announcements emerge, but nothing changes in a positive sense; on the contrary, the tendency towards structural deformation of the economy is strengthened.
For example, the Cuban economy decreased 1.9% at constant prices in 2023 compared to 2022, and in previous years, it also decreased or experienced insignificant growth.
It happens that a group of distortions that affect economic performance are still present today, the solution of which is longed for by the Cuban population. At the end of December 2023, the following problems persisted, among others:
- The fiscal deficit in that year was estimated to be one of the highest in recent times and one of the highest in the world.
- The presence of high inflation, which, although growth rates are slowing, remains at very high levels.
- Material production has barely grown, and production in areas related to the population's diet has decreased, such as meat, rice, beans, and eggs.
- The trade deficit in goods and services continues, although in the latter case, exports are recovering compared to previous years.
- Tourism is growing, but it is not complying with agreed plans.
- The fuel shortage has led to long power outages in homes.
- The basic basket has been fulfilled intermittently outside the agreed deadlines.
- Transport is in a crisis throughout the country, especially in rural areas.
These elements show us that the situation in the first half of 2024 has not changed in concrete terms. It leads us to believe that these factors or distortions continue to be repeated.
- High fiscal deficit
- Excess monetary issuance that cannot be recovered through income to the state budget, due to the low state supply of goods.
- Low production
- Fuel limitations.
- Little credit, insufficient foreign exchange balance.
- Lowest sugar harvest in the last 100 years.
- The purchasing power of wages and pensions continues to deteriorate.
- Basic basket with great difficulty to complete for Cuban families.
- Non-compliance with the income from exportable items such as nickel, sugar, honey, rum and sea shrimp.
- Imports were fulfilled at 58%, prioritizing only food, fuel, medicines and medical supplies.
These indicators allow us to affirm that the Cuban economy is bankrupt, that is, in its worst economic moment, and the authorities are taking measures that do not favor the change of these trends. Instead of trying to stop the advance of a part of that economy (non-state sector) that they want to call complementary, despite the fact that they sold 44% of the goods and services that the country consumed in 2023, what they should do is compete by importing goods and selling at better prices.
We will analyze some general indicators of the Cuban economy in this first semester.
Inflation
Although a downward trend has continued since 2023, there is resistance to the reduction in inflation, which is around 30%. This does not mean that prices will fall, as they continue to grow, but at a slower pace.
Thus, in June 2024 the Consumer Price Index (CPI) stood at 417.79 compared to the base year of 2010, with an interannual variation of 30.79% according to the graph.
That is to say, inflation continues to grow with a strong impact on the purchasing power of Cuban families.
Although the Cuban government has mentioned that the cost of the basic food basket (the basic food ration that the State distributes to each person through the ration booklet) will be updated, an element that does not require much analysis, it is more than proven that the initial calculations were made with an exchange rate of 1 to 25, but today the population buys at prices that include the informal exchange rate, always higher than 300 pesos per dollar.
It should be noted that wages have increased, but not enough for the current price levels. Thus, the average wage in the country rose in the first half of 2024 to 5,750 CUP per month, and in the business system the monthly average was 5,955 CUP.
In the context of the resizing of the foreign exchange market, Prime Minister Manuel Marrero mentioned the illegal foreign exchange market in the parliamentary sessions that concluded on July 20. He recalled that, in the last session of Parliament, at the end of 2023, “we referred to the fact that we have to put an end to it, to the fact that from a country abroad and from a computer, the exchange rate that should govern the country (Cuba) is projected.”
The resizing requires a gradual implementation, he explained, “reducing the exchange rate gap in the economy, managing the imbalances.” “Going directly to a new exchange rate would bring a devaluation of the peso and an undesirable effect on inflation, prices and low wages. The analyses carried out indicate that, in order to create conditions, several measures must be implemented,” he added.
These measures include collecting excess pesos in circulation, advancing partial dollarization of the economy and the banking process, and increasing tax and fiscal collection.
What the authorities think is logical, but the first thing that must be clarified for them is the term illegal to refer to the sale or purchase of foreign currency, because that suggests that there is a legal market. The question is: what is that market that an MSME (micro, small and medium-sized enterprise) could access to buy the foreign currency needed for its imports?
That is, the state buys foreign currency at CADECA at a rate of 1 dollar for 120 Cuban pesos, but does not sell to MSMEs at that rate.
Prices
Inflation in the Cuban economy is evident in the high prices of food, goods and services and their relationship with the population's income.
There is clearly a decrease in sales offered by the state compared to previous periods, and that space has been occupied by non-state forms, especially SMEs.
There are frequent comments that attribute significant responsibility to SMEs in the current crisis, in particular inflation, low tax collection and growing inequality. But in reality, the causes of this situation are due to the inadequate use of existing instruments.
In addition, a campaign has been orchestrated to increase the prices of products from these forms of ownership, and it is true that there are high prices. But it is widely known that state-owned stores, now in the hands of the Grupo de Administración Empresarial SA (Gaesa) , maintain high profit margins for various reasons, which means that their prices often exceed those of SMEs.
The Cuban Prime Minister acknowledged that products in MLC stores may be more expensive than in MSMEs, because they are not imported from the same countries, and stated that the TRD (Foreign Currency Collection Stores) will take measures on the matter.
408 SMEs have been approved with wholesale and retail marketing as their main activity and another 4,636 with this activity as a secondary objective. And in my opinion, all those requested by Cuban entrepreneurs should be approved. The market and prices are adjusted, in this case the risks are on the part of the entrepreneur, however, they offer more goods and services.
The state's job is to collect the corresponding taxes, not to allow tax evasion. But not to discourage these forms of ownership from a position of power, which is the message that is being offered. I wonder where on earth a state should be managing food and gastronomy businesses? And if it does, it should do so based on competition and not on the imposition of measures that go against the goods that the population needs.
The following table shows the high dynamism that MSME sales were having in one year (11,046 MSMEs approved since 2021) despite the fact that the authorities have stated that many are evading information. However, accepting it as valid, MSME sales grew almost 900% in 2023 compared to 2024, which would be showing that this year 2024 the growth would be enormous.
Despite the difficulties of obtaining foreign currency for non-state entities, they imported goods worth 900 million in the first half of 2004. Of these, 622 million were received by MSMEs, which is much higher than in previous periods. In other words, they have enormous potential.
Tourism
A sector that once played the role of Cuba's driving force, today its results are far from meeting the country's foreign exchange needs.
Although tourism grew by 1.8% in 2023, those 1.8 million visitors were only 85% of the plan and 51.6% of what was achieved in 2019. The main issuing markets were Canada, Russia, Cubans living abroad and Germany. What is striking is that Cuba's closest and most competitive markets, such as the Riviera Maya and Cancun in Mexico and the Dominican Republic, have already surpassed pre-crisis indicators.
It cannot be ignored that American tourists travel to these countries, but what is also true is that in 2018 these tourists did not come to Cuba either and more than 4.7 million visitors were achieved.
Tourism cannot be separated from the country's economic situation. This leads to the leisure industry being subject to many shortcomings such as the lack of maintenance in the country's main tourist centres, difficulties with food, lack of electricity, the state of the roads, the lack of own planes, among other adverse elements.
That is why, at the end of June 2024, tourism is barely growing compared to 2023, according to the following table:
Agriculture
By the end of June 2024, most agricultural production had not met its targets due to shortages of fertilizers, pesticides, fungicides, fuels and animal feed. Photo: Jorge Luis Baños_IPS
Agriculture is a sector that is so necessary to get the Cuban economy back on track, due to its strategic role in feeding the population. However, at the end of June 2024, it was reported that most agricultural productions were not fulfilled, due to the shortage of fertilizers, pesticides, fungicides, fuels and animal feed as one of the main causes of the production deficits.
Non-compliance is notable in basic products such as eggs, meat and milk.
Alexis Rodríguez Pérez, Director General of Economy and Agricultural Development of the Ministry of Agriculture, said the following at the last Assembly:
“In livestock production, beef and horse meat production rates have been affected by poor organisational work between companies and the meat industry for contracting producers, insufficient transportation of animals to the slaughterhouse due to lack of fuel, low weight of slaughtered animals due to feed shortages and drought in some areas. Of a cumulative plan of 20,400 tonnes of this meat, only 15,200 tonnes were produced.”
“Pork production has decreased by 1,800 tons in the same period in 2023. Of a cumulative plan of 11,300 tons, only 3,800 tons were produced in the period analyzed. In the case of eggs, the situation is similar. 231,900,000 units were produced, 94,070,000 units less than the planned figure. Other products also show a downward trend compared to the plan: beans, agricultural tobacco, milk, coffee, cocoa and honey.”
What is clear is that if agriculture does not resolve the issue of increasing agricultural production, at least in the essential products of the Cuban family diet, it will be very difficult to achieve positive results in the so-called macroeconomic stabilization, a term very much in vogue today, but whose specific plan is unknown.
The question is: what use is this information from the National Assembly to the population if the citizens do not feel it in their daily lives? What the country needs is to know what concrete measures have been taken to reverse this situation, what problems have been resolved for producers, whether Acopio will pay the outstanding bills to producers, among other provisions.
And when will producers begin to be paid in foreign currency for imported food products, which was one of the measures that was announced to be taken, especially in the case of rice?
What is clear is that if agriculture does not resolve the issue of increasing agricultural production, at least in the essential products of the Cuban family diet, it will be very difficult to achieve positive results in the so-called macroeconomic stabilization, a term very much in vogue today, but whose specific plan is unknown.
Zafra Azucarera
Something related to agriculture is the sugar harvest, since one of the fundamental problems is the lack of cane for the industry and it is decreasing more and more, due to different factors, the resources that do not arrive on time and the lack of motivation of the farmers, due to the still low price that is paid for the ton of cane, although it is fair to say that the price of cane has been raised on several occasions, but it is still insufficient.
In addition to the already known factors of delays in investments, lack of parts and spare parts, among other shortages, according to the executives of the Azcuba business group, there is also “the low availability of lubricants, fuels and other inputs. Most of the agro-industrial companies did not comply with their production plan, mixing subjective problems with real limitations of shortages, which reveals indiscipline and lack of demand from presidents of cooperatives and heads of areas in the industry.”
Julio García Pérez, president of Azcuba, also referred to the fluctuation of the workforce as one of the distinctive elements of recent years in the sector. The executive pointed out that among the main reasons for migration is the search for higher-paying job opportunities and the demand for qualified labor by new economic actors.
Specifically, the harvests barely exceed 300,000 tons, values from more than 100 years ago, when current mechanization did not exist.
The following chart illustrates the current situation with the country's sugar production:
Manufacturing Industry
When we analyse the country's industrial production, we conclude that it is a sector in clear decline, with major technological obsolescence and very far from its technical potential. Thus, we see that the index of the physical volume of industry continues to decline every year. Nothing shows that in the first half of 2024 these indicators have improved, but quite the opposite.
Certain industrial productions related to two sensitive issues due to their effects on the population have suffered a noticeable deterioration in recent years, such as the production of food products and construction materials for the repair and maintenance of homes.
These indicators of declining production of construction materials illustrate that solving the housing issue is one of the unfulfilled promises since the beginning of the Cuban revolutionary process, and there is no sign that the country will be able to obtain the 100,000 houses a year that a special program in 2006 hoped to build. This lack of materials illustrates this.
The Director General of Housing of the Ministry of Construction, Delilah Díaz, stated during the parliamentary sessions that the housing deficit in Cuba amounts to more than 850,000 homes, and that the deterioration of housing includes the persistence of 8,915 tenements and shacks and 87,368 houses with dirt floors.
Knowing that only 4,159 homes were built in the first half of 2024, which represented 49% of the plan for that date, we can conclude that the housing issue will remain unresolved for a very long period.
In short, the Cuban industry is not recovering, but, above all, a group of these industrial companies are among the 340 with losses at the end of the first half of 2024, where 67 of them are in the agricultural sector, 45 in sugar mills and 11 in the food industry.
The government is clearly not addressing the issue of industrial decapitalisation with the necessary emphasis, and this is demonstrated by the fact that there are no concrete measures to prevent this deterioration.
There are many issues that could be used to assess the current situation of the Cuban economy, but today most sectors are in a complex situation.
For example, in the Transport sector, the downward trend in passenger transportation in the country continues, based on, among other factors, the deterioration of the technical availability coefficient and fuel limitations. For 2024, the plan contemplates 1.306 billion passengers and, by April, 908 million had been reached.
Transport Minister Eduardo Rodríguez Dávila said that, at the end of April, 52% of the routes of the Provincial Transport Companies were paralyzed and of those active, 86% had only one trip in the morning and another in the afternoon. The provinces of Camagüey, Granma, Villa Clara, Ciego de Ávila, Holguín, Matanzas and Artemisa are those with the most critical situation.
In general, there are difficulties in all economic sectors. Added to this are those of Communal Hygiene, especially in the capital of the country. The shortage of medicines in pharmacies, some of which are sold under controlled conditions, is also alarming. Many health centres are in serious disrepair. Sports and cultural facilities are in the same state of disrepair.
External debt
The government plans to collect the excess peso in circulation, advance the partial dollarization of the economy and the process of banking, and increase tax and fiscal collection, among other measures. Photo: Jorge Luis Baños_IPS
One of the main obstacles facing the Cuban economy is its huge external debt, especially the debts that have been renegotiated several times with the Paris Club after a significant portion of the total was forgiven. A 2015 Paris Club agreement forgave $8.5 billion of the $11.1 billion in sovereign debt that Havana has defaulted on since 1986.
It should not be forgotten that Cuba's debt to the Club remains high due to the low foreign exchange earnings of the Cuban economy at the moment. Cuba's debt to the Paris Club amounted to 4.62 billion dollars at the end of 2023, the second largest in all of Latin America and the Caribbean.
In its report, with figures from the end of last year, the Paris Club states that, of the Cuban debt, 259 million corresponds to sums granted to Havana by institutions (including export credits or development agencies) as official development assistance, and the remaining 4.36 billion are unofficial development aid.
On July 25, Cuban economist Pedro Monreal (@pmmonreal) expressed in account X that:
“Although Cuba's debt to the Paris Club was 15.7% of the country's total debt in December 2023 ($29.4 billion), the default on sovereign debt is an important factor in the assessment of 'country risk' and influences access to international credit.”
The lack of foreign currency in the Cuban economy is once again leading to a direct re-dollarization of the economy, which is also called partial dollarization. Prime Minister Manuel Marrero himself announced before the National Assembly that sectors of the economy would be re-dollarized, including tourism and a segment of domestic trade, as well as import taxes for the private sector, through the direct use of the US currency.
The measure, in extremis, is a step back from official promises to progressively eradicate the circulation of the dollar, while it is a reversal, at least partial, of the banking process, one of the government's strategic programs.
In September 2023, during the annual visit to Cuba by representatives of the Paris Club to Havana, the then Minister of Foreign Trade and Foreign Investment, Ricardo Cabrisas, reiterated “the willingness of the Cuban government to honor the commitments made to our creditors” as long as they are under viable conditions for the island. But in reality, no payment has been made to reduce the outstanding amount.
Conclusions
Only a few areas of the Cuban economy have been analyzed, which show that the Cuban economy is not recovering from previous periods of better economic conditions. However, the Cuban authorities do not clearly explain the shortcomings of the centralized planning scheme they use, and the so-called macroeconomic stabilization program continues only in announcements. In addition, its promised positive results for economic growth have not appeared to date.
When there have been rigorous academic works that propose certain solutions, the defense put forward by the authorities is that social networks only focus on the problems and not on the sacrifices made by the authorities to solve the difficulties. As happened when it was said that state conglomerates have higher prices for their products than those of SMEs.
As long as the state does not recognize that it must give free rein to the growth of SMEs, something that it is not doing at present, it makes no sense not to also grant greater autonomy to state enterprises, and not to fully approve the so-called Business Law , one of the first measures that should have been approved and which is known to have been torpedoed by some institutions that do not want to lose their prerogatives.
The evidence of the Cuban economic situation requires the state to take redistributive measures in society, stop subsidizing unprofitable companies and increase the pensions granted before the monetary order in the first place, end the generalized subsidies for the lowest social groups. Short-term measures.
The solution, already repeated by everyone, is to implement the postponed comprehensive reform of the economy and give the market the role it should occupy in a society with so much economic inefficiency and which, for the misunderstandings, is not to move to neoliberal capitalism, but a social model with a market, as applied by China and Vietnam. (2024)
https://www.ipscuba.net/author/omar-everleny-perez-villanueva-economista-e-investigador-cubano/
New restrictions on wholesalers spark fears about Cuban private sector’s future
BY NORA GÁMEZ TORRES AUGUST 20, 2024 3:09 PM
Cuban Prime Minister Manuel Marrero announced new restrictions on the private sector during a session of the National Assembly on Wednesday, July 17, 2024.
Oficina de la Presidencia de Cuba. The Cuban government has announced new measures, including limiting wholesale trade by the private sector, that officials say would “correct economic distortions” but will likely exacerbate shortages and worsen inflation in the midst of a severe economic crisis. In a 167-page document published Monday in the official Cuban gazette, the government issued several laws and regulations imposing new taxes, protracted bureaucratic requirements and restrictions on the activities of small and medium enterprises, non-agricultural cooperatives and the self-employed, which comprise the island’s nascent private sector. TOP VIDEOS According to the new rules, which Prime Minister Manuel Marrero hinted at during a National Assembly session last month, small and medium private enterprises, known in Spanish as mipymes, and cooperatives will still be able to import goods from abroad for their business. However, they can only import and sell goods in the wholesale market if that is their stated “main activity” as a company and only “through contracts involving state entities.” In an official list of 11,288 existing private enterprises and cooperatives compiled by the Ministry of Economy, only one private enterprise has “wholesale trade” stated as its principal activity. The measures could disrupt supply chains in the private sector, because many private enterprises have found it profitable to buy goods abroad to supply not just their own businesses but also to sell to others, including the self-employed. Many self-employed workers have also made fast cash by buying and selling wholesale, but the new regulations, which kick off in 30 days, prohibit that as well. Official figures reveal that the private sector imported food and other goods valued at $1.3 billion in 2023, and another $936 million this year until June, providing a lifeline to the Cuban population during the country’s worst economic crisis in many decades. The regulations come after the government imposed price controls last month on some food products sold by the private sector, which is already causing shortages. The government is not even able to pay for the food distributed through rationing cards, but Cuban leaders, who that insist state-owned “socialist enterprises” should be predominant in the economy, have become hostile to the rapid growth of the private sector. Marrero has accused business owners of tax evasion and pledged to enforce stricter controls, sparking concerns about the island’s economic future. The private sector has become a formidable competitor to the conglomerate known as GAESA, which is run by the military and which controls large sectors of the Cuban economy. GAESA used to control the foreign currency entering the country in the form of remittances — money sent by Cubans abroad to families on the island. But the Trump administration sanctioned the military company handling remittances, and Cubans in Miami found other informal channels to send money to relatives, which ended up helping finance private businesses. Government stores, including military-run chains such as TRD, are struggling to fill their shelves, while private stores are increasing nationwide. By limiting which companies can be involved in wholesale and ensuring state participation, the government may be trying to ensure that goods bought by the private sector are sold in government stores or used to revitalize state industries. Cuban economist Pedro Monreal, who lives in Spain, said on X that the restrictions on wholesale trade could favor big private sector players with connections to the government. However, the impact of the restrictions is not yet fully understood because the Ministry of Domestic Trade has yet to issue its regulations to implement them. CRISIS IN CUBA Cuba’s economic crisis is worsening. The country lost 10% of its population to migration, but the government announced a crackdown on the private sector. Read more on this story. → Illegal drug use and violent crime are on the rise amid crisis, Cuba’s leader admits → Cuba admits to massive emigration wave: a million people left in two years amid crisis → Cuba moves to ‘partially’ dollarize economy as government struggles to make payments →Despite worsening economy, Cuba announces crackdown on growing private sector → Castro hated them and banned them: Why TV commercials are making a comeback in Cuba The new laws also state that private businesses must use their Cuban checking bank accounts for “all” their business transactions and use only the local currency, the Cuban peso, a measure first announced by Marrero last month that has generated uncertainty among Cuban entrepreneurs. If enforced, this requirement would hinder private businesses’ ability to pay providers abroad. Currently, many use bank accounts in third countries to pay for supplies because Cuban banks do not have dollars to support such operations and do not allow such transfers. Many business owners have resisted rules imposing electronic payments as the only way to get paid by clients and customers for goods and services because they need cash to buy dollars in the black market to pay for supplies abroad. “At first glance, these new laws represent another major step backward for the Cuban economy,” said Ric Herrero, the executive director of the Washington-based Cuba Study Group, a Cuban-American organization that supports the island’s private sector. “They generate a lot of uncertainty but do make it clear that their goal is neither economic nor developmental growth. Instead, they appear primarily designed to hinder the growth of the Cuban private sector and protect the interests of under-performing state-owned companies.” Herrero also believes the new regulations send the wrong message at a time when the United States and even Cuban allies like Russia and China would like to see the government moving forward with economic reforms. Resisting calls to open the private sector to foreign investment, the new government decree requires that company owners be Cubans with “effective” permanent residence on the island, ruling out that Cubans living abroad can legally own such businesses. Some Cuban Americans have tried to bypass such prohibitions — and U.S. embargo restrictions as well — by setting up businesses in Cuba under the name of relatives and friends. But that is also prohibited under new rules that ban company owners from representing someone else’s interests. For the first time, the government will allow foreigners to own private businesses in Cuba, but they must also be permanent residents of the country. More significantly, the rules do not even address the possibility that these businesses may receive foreign investment, which most economists agree is essential for the island’s economic development. “These laws also show little concern for the negative impact they will have on the foreign relations of a bankrupt country that should be prioritizing its integration into the global economy,” Herrero said. MORE RESTRICTIONS ON THE PRIVATE SECTOR The new regulations increase the number of activities that are prohibited to the private sector, from 112 to 125. Most professions, tourism, banking and anything related to telecommunications or the media remain off-limits. Still, the rationale for some new prohibitions, like a ban on making orthopedic footwear, is unclear. Other rules, like requiring honey producers to sell only to the state, seem designed to stifle competition from the private sector. Other rules will immediately put some companies out of business. For example, the new rules prohibit teachers of languages, music and other arts from forming academies, which many have already done. The new legal framework also adds red tape to opening a business, requiring multiple authorizations, including first approval by municipal authorities, which Herrero fears might exacerbate corruption at the local level. The government also eliminated tax incentives and imposed an additional 5% workforce tax for self-employed workers, who are allowed to hire up to three employees. Oniel Díaz Castellanos, a Cuban entrepreneur who runs a business helping set up private enterprises, said many regulations are not new and maintain “absurd, regrettable and counterproductive prohibitions.” He believes not much will change for business owners in the upcoming months because many rules come with a 180-day implementation window. Even if not “catastrophic” for the private sector in the short term, the regulations ran counter to the government’s stated goals to improve the economy, he said: “We are going in the wrong direction.”
NORA GÁMEZ TORRES EL NUEVO HERALD 305-376-2169 Nora Gámez Torres is the Cuba/U.S.-Latin American policy reporter for el Nuevo Herald and the Miami Herald. She studied journalism and media and communications in Havana and London. She holds a Ph.D. in sociology from City, University of London. Her work has won awards by the Florida Society of News Editors and the Society for Professional Journalists.//Nora Gámez Torres estudió periodismo y comunicación en La Habana y Londres. Tiene un doctorado en sociología y desde el 2014 cubre temas cubanos para el Nuevo Herald y el Miami Herald. También reporta sobre la política de Estados Unidos hacia América Latina. Su trabajo ha sido reconocido con premios de Florida Society of News Editors y Society for Profesional Journalists.
Read more at: https://www.miamiherald.com/news/nation-world/world/americas/cuba/article291215475.html#storylink=cpy
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