Structural Limits on the Private Sector

 

How much can the private sector grow in Cuba?

By Daniel Torralbas On Oct 26, 2025

 

 https://progresoweekly.us/cuanto-puede-crecer-el-sector-privado-en-cuba/

 

Private entrepreneurs in Cuba complain about the lack of regulation to promote micro, small, and medium-sized enterprises (MSMEs), self-employed workers, cooperatives, and other businesses. But there is one thing that is perfectly regulated: its limits

In Cuba, a certain conceptual resistance persists toward the adoption of private property within the socialist model. Although this concept is enshrined in the Constitution and in the guiding documents for national development, the theoretical consensus has broken down when faced with practical implementation. To a certain extent, a fear, rejection, and reproach of the private sector has been cultivated, a sector that offers no solutions. Instead, it divides us.

Why this stigma? And, more importantly, can the private sector in Cuba grow to the point that justifies it?

Historically, the 1959 Revolution was founded on a critique of production relations based on exploitation and heavy dependence on foreign capital, especially American capital—characteristics that marked the Cuban economy in the first half of the last century. In 1968, the so-called Revolutionary Offensive almost completely eliminated private businesses, consolidating a dominant model of state ownership that, with the fall of the Soviet socialist bloc, showed its limitations.

In contrast, other socialist countries like China and Vietnam embarked on profound reforms in the 1970s and 1980s aimed at integrating private enterprise and the market. As a result, China has become the world's second-largest economy and a central player in the global geopolitical reshaping, while Vietnam aspires to become one of the  world's top 30 economies  within five years.

Cuba hasn't even undertaken half the economic reforms of China and Vietnam. Current laws keep Cuba's private sector small by definition. Its expansion has clear limits. Its growth has a ceiling. It seems there are too many micro, small, and medium-sized enterprises (MSMEs) because the starting point was zero, but the fear that they will control the economy, privatize everything, and sell off the country is not only exaggerated and malicious, but also unfounded. Let me explain:

Private entrepreneurs in Cuba complain about the lack of regulation to promote micro, small, and medium-sized enterprises (MSMEs), self-employed workers, cooperatives, and other businesses. But there is something that is perfectly regulated: its limits. This is discussed much less. Let's debunk the idea that the Cuban private sector can displace state-owned enterprises and "take over" the country:

Regulatory limits

Size

This is fundamental. Private enterprises, which are the type of businesses with the greatest growth potential, are by definition micro, small, or medium-sized. A micro, small, or medium-sized enterprise (MSME) can only have up to 100 employees. This limit restricts investment once they reach the maximum size. It will be impossible to see a "small or medium-sized" private enterprise in Cuba with 500, 1,000, or 5,000 employees and hundreds of retail outlets throughout the country.

For self-employed workers (TCP), the most numerous form of business, the restriction is greater: they can only hire up to three people, whether they are family members or not.

In the case of cooperatives, based on the principle that all members contribute their labor, they can only employ 10% of their members. That is, a cooperative with ten members could only hire one employee.

A partner, a micro, small, or medium-sized enterprise (MSME)

The principle of “one partner, one SME” establishes that a person can only be a partner (owner) in one SME. No one can own more than one company, under the principle of avoiding “concentration of ownership,” as stipulated in the Constitution.

Anyone acting as a front man commits one of the most serious offenses, according to  Decree-Law 91/2024 , which implies “(…) the confiscation of assets and the definitive cancellation for the self-employed worker and forced dissolution for micro, small and medium-sized enterprises, and non-agricultural cooperatives (…)”.

 

Strategic Sectors

No non-state sector business may invest in sectors that the State has declared strategic, such as mineral extraction, oil production, biopharmaceutical manufacturing, the sugar industry, education, health, aeronautics, and rail transport, etc

These are all captive markets for state-owned enterprises. In some, foreign investors are allowed to participate, even when there are no opportunities for domestic private companies. Examples include the nickel, tobacco, and pharmaceutical manufacturing and export industries.

In other sectors, such as tourism, the ban is not total, but there are significant barriers. Private individuals can offer accommodation services (such as private homes), but they cannot create a private hotel chain or operate as a travel agency. The hotel tourism market is different from that of private accommodations. This is an example where, rather than competing, the state and private sectors complement each other to meet the demand of different market segments.

Other prohibited activities

There is another broad range of economic activities that, while not strategic, are prohibited to private entities under current legislation. Decree  107/2024  includes in its list the sale of vehicles, television and radio broadcasting, and financial intermediation. The manufacture of medical equipment, electricity generation (except for that produced from renewable sources), and solid waste collection are also prohibited, among many others. Various goods are not marketable by private entities: medicines, weapons, timber, and so on. In other words, only the State participates in this range of activities where, as in the strategic sectors, private entities are barred.

Professional activities such as consulting, engineering, architecture, advertising agencies, and legal services deserve special mention. The market for these services has grown; the state-run system doesn't cover them and isn't specialized in small businesses. Faced with the impossibility of operating legally, some entrepreneurs have opted for the informal sector. Worse still, those who choose not to take the risk decide to emigrate, and many find professional fulfillment where they can establish or participate in these types of businesses.

Access to real estate and land

The transfer of home ownership is strictly controlled in Cuba. An individual can only own a maximum of two homes. One must be their permanent residence. The other can only be a vacation or holiday home, according to the General Housing Law.

Property ownership in private legal entities (micro, small, and medium-sized enterprises and non-agricultural cooperatives) is not regulated. In practice, members of micro, small, and medium-sized enterprises cannot transfer ownership of their homes to their company's assets, even free of charge. The treatment of housing in Cuba as non-seizable property means that owners cannot offer their homes as collateral or security.

So how do they do it? Most private businesses that require a premises to carry out their activities do so in two ways: 1) within the owner's home, 2) renting in a state-owned premises or another private residence.

The situation with land is similar. Current laws, predating the creation of micro, small, and medium-sized enterprises (MSMEs), neither prohibit nor regulate the procedure for granting land to these legal entities, whether as owners or usufructuaries. However, the  draft Land Law,  which is expected to be approved in the coming months, makes it clear: Cuban legal entities will not be able to own or lease land.

Barriers to accessing land and real estate are significant limitations on the growth of the private sector as a whole. They inherently restrict its physical expansion and, consequently, its economic growth. At the same time, they limit the potential of private micro, small, and medium-sized enterprises (MSMEs) to enter, for example, the struggling agricultural sector.

The famous monopoly of foreign trade

All goods imported by private entities pass through state-owned companies. Raw materials, machinery, food, and beverages… No private economic actor—to the best of our knowledge—can import goods directly. Direct exports, while potentially a regulatory incentive, are also prohibited.

These intermediaries, while intended to facilitate trade, often operate bureaucratically and add extra costs without providing value. Faced with the increase in private sector foreign trade operations, the number of state-owned entities authorized to act as intermediaries grew to over 70. However, in an attempt to maximize control, the government reduced the number to 48 last year.

The Government holds “the key” to private foreign trade.

 

Foreign Investment

Foreign investment businesses (wholly foreign-owned enterprise, joint venture, and international economic partnership contract) are reviewed and approved centrally by the Council of Ministers

In July 2022, the then Minister of Foreign Trade and Foreign Investment (MINCEX)  announced  to parliament that they were studying “(…) some seven foreign investment projects linked to non-state management models.” That same year, the national press mentioned one project that would receive external financing to  produce pork , but ultimately that project did not come to fruition. To date, no formal foreign investment in micro, small, and medium-sized enterprises (MSMEs) has been finalized.

Other Limitations

Beyond regulatory barriers, Cuban businesses face the economic and financial limitations of the context: foreign currency shortages, inconvertibility of the peso, lack of wholesale markets, inflation, low productivity, energy deficit…

To make matters worse, in addition to all the design and contextual limitations, there are discretionary limitations, such as the freeze on the creation of micro, small, and medium-sized enterprises (MSMEs). In the ten months from September 2024 to July 2025,  only 231 “new” economic actors were approved  .

So what happened?

The withdrawal of the state from activities where it was predominant five years ago is evident. The most palpable example is retail: Cuban families make  55% of their purchases  in private stores, according to the ONEI (National Office of Statistics and Information).

Is this happening because SMEs have "snatched" market share from state-owned companies that sold food in CUP? No, what has happened is that the state has practically withdrawn from that market. Private companies are barely trying to fill the gaps.

But this doesn't mean the private sector is "ousting" the state sector. Even in its most difficult times, the state sector controls major industries and factories, dominates exports and imports, is the only national player in foreign investment in Cuba, has no competitors in diverse branches of the economy, its companies are repeatedly saved from bankruptcy, and it employs more than two million Cubans…

The clarity of the legal limits established for the private sector in Cuba is unquestionable.

Should the country focus on further squeezing micro, small, and medium-sized enterprises (MSMEs)? Or does the state-owned enterprise need the profound reform that has been pending for years?

The Business Law has been announced  since 2015. Ten years and several postponements have passed. We are wasting time debating whether SMEs are “good” or “bad,” or even whether they are a “necessary evil.”

Let's discuss how to transform Cuban state-owned enterprises to make them more efficient, competitive, and autonomous. But let's have a serious discussion, without falling into the wishful thinking that each director or worker in the state sector should fulfill their individual duty to solve all the problems. The solution essentially lies in political will expressed through economic policy decisions.

Daniel Torralbas holds a degree in Economics from the University of Havana (2019). He is currently pursuing a Master's degree in Entrepreneurship and Innovation Management at Loughborough University London. He worked at the Ministry of Economy and Planning (2019-2023), where he was a founding member of the commission that designed the policy and regulatory framework for the private sector in 2021. He participated in the authorization and implementation of the changes that led to the creation of more than 11,000 micro, small, and medium-sized enterprises (MSMEs) in Cuba. He has coordinated international cooperation projects to promote entrepreneurship and is a business development consultant. He is the author of *El Escudo Empresarial* (The Business Shield). Link to  LinkedIn.

Taken from OnCuba News