Finance

Cuba lifts ban on most private business

Cuba has announced a big expansion of the private sector as the communist government struggles to deal with the worst economic crisis since the fall of the Soviet Union.

Only weeks after devaluing the peso and scrapping a dual currency system, President Miguel Díaz-Canel’s government said over the weekend it would open up most of the economy to private businesses. 

Labour Minister Marta Elena Feito Cabrera said that instead of allowing private participation in 127 professions, the government would permit it in more than 2,000, reserving only 124 areas partly or wholly for the state. She did not specify which. 

The decision was taken as the Caribbean island confronts rising inflation after the currency devaluation, the first since the 1959 revolution. The government also plans to end subsidies to some state companies, even if that leads to bankruptcies.

Both the monetary reform and the decision to free up the private sector are considered politically risky by analysts. The devaluation has led to increases in the price of most goods, services and utilities, triggering vocal popular complaints despite big rises in state wages and pensions.

Cuba’s fragile economy was already reeling from a tightening of economic sanctions ordered by the Trump administration when Covid-19 hit. The pandemic has cut off most tourism revenue, leaving the import-dependent island desperately short of foreign exchange.

The economy shrank by 11 per cent in 2020 after stagnating for years and imports collapsed by a third, leaving creditors empty-handed and Cubans queueing for hours to purchase everyday goods.

The vital tourism industry saw a close to 80 per cent drop in visitors last year. In November the airports reopened, and a trickle of tourists returned, but a surge in Covid-19 cases appears to be undermining hopes of a rebound.

Cuban economist and reform advocate Ricardo Torres said the move to open up the economy would help create jobs and control inflation.

“It gives the authorities a greater margin of freedom to advance in the restructuring of state companies and reduces the discretion of the bureaucracy,” he said.

The Cuban government is hoping that US president Joe Biden will reverse some of the punitive sanctions imposed by the Trump administration — which in its final days designated Cuba a state sponsor of terrorism — and return to Obama-era detente.

John Kavulich, president of the US-Cuba Trade and Economic Council, said that if Havana successfully pushed through exchange rate liberalisation and expanded the private sector, this would create incentives for Washington to engage.

“The key is the Biden administration must believe the Díaz-Canel administration is serious about restructuring the economy,” he said. “The only way to show that seriousness is to endure the pains of transformation.”

Since the fall of the Soviet Union, Cuba has grappled with how much space to allow private initiative, severely limiting and regulating it.

Authorities appear to have problems uttering the words “private sector”, which is referred to as the “non-state” sector, and “private businesses” which are referred to as the “self-employed”. State media reports of the ministers meeting referred to the latest measure as the “perfecting of self-employment”.

Only in the last few months have private businesses been granted access to wholesale markets and allowed to import and export, though they must use state companies, and they can now partner with foreign investors. A long-promised law granting them company status and putting their rights on par with other economic actors has yet to materialise.

The non-state sector is composed mainly of small private businesses and co-operatives, their employees, artisans, taxi drivers and tradesmen. In agriculture, there are hundreds of thousands of small farms but they must buy inputs from the state and sell their produce to the state.

The labour minister said there were more than 600,000 people in the private sector, some 13 per cent of the labour force and an estimated 40 per cent of them depended mainly on the tourism industry or worked in public transport.

Pavel Vidal, a former Cuban central bank economist who teaches at Colombia’s Universidad Javeriana Cali, said freeing up private business was key to the success of monetary reform that would force restructuring of state businesses and some bankruptcies.

“The self-employed are not going to have it easy in this new beginning due to the complex environment in which they will operate, with few dollars and inputs in the economy, but they will rise little by little,” he said.

Additional reporting by Michael Stott in London

 

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