Cuba

Cuba’s private sector is growing but restrictions generate millions for other countries

Cuba’s Nostalgicar business ferries tourists around the island

Capitalizing on the Cuban nostalgia craze, a group of Cuban private entrepreneurs have formed Nostalgicar to ferry visitors around the island in classic style.
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Capitalizing on the Cuban nostalgia craze, a group of Cuban private entrepreneurs have formed Nostalgicar to ferry visitors around the island in classic style.

The growth of Cuba’s private sector may be one of the keys to rescuing the island’s sluggish economy, but tight government controls are funneling millions of dollars to other countries.

Panama’s decision to lift visa requirements for Cubans who want to shop there could mean more than a $3 million profit in flights, hotels, purchases and taxes, if only 2,000 of the more than 500,000 private and cooperative sector workers on the island make one shopping visit, said John Kavulich, president of the U.S.-Cuba Trade and Economic Council.

“Current laws and regulations and policies adopted by the government of the Republic of Cuba suggest a preference to enrich other countries rather than authorize a critical component required to develop and sustain a private sector — the availability of an import/export wholesale marketplace from which self-employed may purchase products,” Kavulich wrote in an email.

Access to wholesale markets where they can buy raw materials has been one of the principal demands of Cuban entrepreneurs because the government holds the monopoly on imports and exports. In their absence, Cubans regularly travel to the United States, Mexico, Panama and Guyana to buy products they need for their businesses or merchandise they can sell on the island. Many of the products are not even available in Cuba, where the government also controls all commercial networks.

The Havana Consulting Group, based in Miami, has estimated that in 2017 more than 48,000 Cubans made an average of 11.5 trips abroad to buy merchandise. The value of that activity far surpasses the foreign investments that the Cuban government has managed to attract to the Mariel special development zone — barely $265 million in 2017.

Havana Consulting has estimated more than $2 billion may leave the country with the Cuban shoppers, about the same amount that the Cuban government estimates it needs in foreign investment per year.

The Cuban government “is not taking advantage … of the large amount of hard currency that these businesspeople generate, compared to the drought of hard currency faced by state companies and the central government administration, which has forced the government to drastically reduce the purchase of raw materials abroad and led to its failure to pay many providers,” Havana Consulting President Emilio Morales wrote in a report.

The $2.39 billion that Morales estimates leaves the country winds up abroad with airlines, hotels, drivers, shop owners and the companies that ship packages to Cuba.

Many Cuban business owners also have managed to obtain residence in the United States, Spain and other countries, which allows them to buy properties and obtain loans and credits that they use to finance businesses on the island.

“For example, the purchase of furniture, household appliances, cellphones, computers and televisions, just to name a few, are financed with credit cards,” Morales noted. “The shops most often used are Brandsmart, Best Buy, El Dorado, Rooms To Go and Walmart.”

Kavulich said the government could easily profit by establishing a wholesale market for the private sector that would charge by membership.

But the government allows all that money to seep out of Cuba because of its ambivalent attitude toward the private sector, experts say.

Although the proposed new constitution drafted by the Communist Party recognizes private property, it does not allow Cubans who live on the island or abroad to create formal enterprises or make major investments.

After freezing permits for new private commercial activity for several months, new regulations that will take effect at the end of this year will block Cubans from holding more than one license for a personal business and limit the number of chairs in a restaurant — among other measures designed to avert “the accumulation of wealth.”

The government and its news media have been campaigning against “hoarding,” accusing business owners of buying up all the merchandise at retail shops and making shortages worse.

A recent report in the official Cubadebate news site highlighted the case of a Havana market that sold 15,000 apples to one client. The buyers were described as “baby oligarchs,” some of them “wearing clothes with the U.S. flag.”

The government also has criticized the shopping trips abroad.

“Crimes have been committed. There are reports of one person owning two, three, four and even five restaurants. Not one province, but several, have seen people who made more than 30 trips to different countries. Where did the money come from? How did he do it?” former Cuban ruler Raúl Castro said in a speech to the National Assembly.

These “counter-reforms” approved by Castro before he left the government in April show that the Cuban government believes the economic opening “went too far too fast,” Ted Henken, an academic who monitors Cuba’s private sector, said during a recent event organized by the Inter-American Dialogue in Washington.

The hurdles placed in front of the private sector are the result of politics, Kavulich said.

“A successful private sector represents a pathway to inequality,” he said. “The self-employed, the small business, the private sector, consist of owners and those who work for the owners. Some earn more than others. Some want to earn more than others.”

“The government of the Republic of Cuba has struggled with defining success and to what level an individual may be successful,” Kavulich added.

Follow Nora Gámez Torres on Twitter: @ngameztorres

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