Tag: Cuban private enterprise

U.S. Congressional Hearing About Cuban Private Sector

On June 27,  the U.S. House of Representatives Subcommittee on the Western Hemisphere of the Foreign Affairs Committee held a hearing regarding  “The Curse of Socialism in Central America and the Caribbean“ that focused on the Cuban private sector [1]

Testimony of Eric Jacobstein

The lead witness for this hearing was Eric Jacobstein, the Deputy Assistant Secretary for Western Hemisphere Affairs at the State Department.

He testified that the United States Government is committed to continuing to promote the growth of the private sector in Cuba and supporting the economic well-being of the people, in the face of strengthening Havana’s relations with Moscow and Beijing.”

“Today, more than a third of the Cuban workforce works in one of the more than 11,000 private companies on the Island. The Cuban people still see the United States as a preferred partner. Therefore, we cannot give space to Russia or China and we must continue to encourage private sector growth.”

“The private sector offers ordinary Cubans the opportunity for a better life.”

Testimony of Greg Howell

Also testifying was Greg Howell,  the deputy administrator for the Office for Latin America and the Caribbean of the United States Agency for International Development (USAID). He said this entity has provided for the training of hundreds of journalists, “whose work in major international media has countered the Cuban regime’s manipulation of information, documenting the difficult conditions on the island and highlighting human rights violations by the [Cuban] Government.”

“For nearly 30 years, across four U.S. administrations, U.S. assistance has helped the people of Cuba in the face of an oppressive government, supporting human rights, fundamental freedoms, and democratic values ​​by strengthening civil society and providing a better access to information.”

USAID, “responding to a request from Cuban authorities, . . provided personal protective equipment for [Cuban] firefighters in September 2022, more than a month after the fire that broke out on August 5 at the Matanzas Supertanker Base and caused the deaths of 17 people, mainly young people who were performing their mandatory military service.

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[1] The US is committed to ‘continuing to promote the growth of the private sector’ in Cuba, Diario de Cuba (June 28, 2024) ;

House of Representatives, Foreign Affairs Comm., Subcommittee Hearing Announcement: “The Curse of Socialism in Central America and the Caribbean (June 20, 2024)

House of Representatives, Foreign Affairs Comm., Subcommittee Hearing, “The Curse of Socialism in Central America and the Caribbean (June 27, 2024)

 

More Reactions to New U.S. Regulations for Cuban Private Enterprise     

On May 28, 2024, the U.S. Department of State held a Special Briefing on the Treasury Department’s new regulations on Cuban private enterprise.

First there were comments by three unnamed Senior Officials. Then there was Q&A with members of the press.[1]

Comments by Senior Officials

Senior Official One said, this development was “an important step to support the expansion of free enterprise and of . . . the entrepreneurial business sector in Cuba. . . . [We] recognize that this is a growing and dynamic sector of economic activity in Cuba, where people are gaining greater independence from the state, and we felt that it was essential as part of the Biden administration’s Cuba policy to ensure that this sector continues to expand and is supported.”

“We believe that the growth of an independent entrepreneurial private sector in Cuba is fully aligned with our values, is the best hope for generating economic development and employment in Cuba, and the growth of this sector is also consistent with the President’s guidance to implement measures that will benefit the Cuban people while continuing to minimize resources to the Cuban Government.”

“[P]roviding this support for Cuba’s private sector will help to stem irregular migration from the island by creating more economic opportunity on the island.  It further allows Cuba to be self-sufficient without relying on their government for all of their daily necessities.

Senior Official Two added, “We know the Cuban economy is in dire straits.  Amid recurring shortages of fuel, electricity, and increasingly even food, it’s clear the communist experiment in Cuba has failed and the government is no longer able to provide for its citizens’ most basic needs.  In a country where there are no free elections, the Cuban people are voting with their feet, including by using dangerous irregular migration routes.”

“With over 11,000 private businesses registered – operating in diverse fields from food distribution, to construction, to auto repair – Cuba’s private sector is now responsible for nearly one-third of all employment on the island.”

“These changes have profoundly affected Cuban culture.  Young Cubans are eager to earn private sector wages rather than work for the state.  A class of independent business leaders is emerging.  I know this because our team, including myself – both in Havana and in Washington – meets with these individuals.  These entrepreneurs look to the United States for inspiration and to develop the necessary skills to run successful businesses.  In an acute twist of irony, the island’s communist government must now rely on private enterprise to provide food and basic services for its people.  It’s not an easy road for these entrepreneurs.  The Cuban Government’s mismanagement of its economy has led to unparalleled high inflation.  But because it is more nimble and efficient than the government, the private sector currently serves as a life preserver for the Cuban people without which they could not stay afloat.  We believe the organic expansion of the private sector and evolution of the digital economy on the island – led by the Cuban people themselves, and not by any foreign government – is critical.”

“Above all, we must encourage the freedom of Cuban citizens to define their own economic future.  Cuban entrepreneurs prefer U.S. values and our economic model and see the United States as their business partner of choice.  We are focused on taking measures that inject a real sense of hope among the Cuban people and stem the tide of worsening humanitarian and migration conditions – all while remaining steadfast and promoting accountable for the Cuban’s Government’s continued abuses.”

Senior Official Three: “[These] updates to the regulations . . . support two priority policy goals:  First, we wanted to increase support for the internet freedom in Cuba, but also increase economic support for the Cuban population.  On internet freedom, we’ve added examples of authorized internet services and made updates to allow U.S. companies to provide services to install, repair, or replace certain items.  So for example, some of the additional services that are now authorized include social media platforms, collaboration platforms, video conferencing, e-gaming and e-learning platforms, automated translation, web maps, and user authentication services.”

 “[We] redefined the term ‘self-employed individual’ to ‘independent private sector entrepreneur’ to better reflect the types of individuals and entities that operate in the Cuban private sector.  This new definition includes not only the definition of self-employed individual from our old regulations, but also includes private sector businesses, and private cooperatives, and sole proprietorships of up to 100 individuals – and this also includes farms.”

“By the latest count, there are over 11,000 registered private businesses in Cuba.  It’s important to note that the new definition for independent private sector entrepreneurship excludes prohibited officials of the Cuban Government, such as the national assembly members, Cuban military officers, or certain ministry and staff regime propagandists, and prohibited members of the Cuban Communist Party.  For a Cuban private sector business to qualify under this definition, its ownership cannot include such insiders.”

“[We] will also allow Cuban independent private sector entrepreneurs to establish and remotely access U.S. bank accounts, including through online payment platforms, to conduct authorized or exempt transactions.  This will help facilitate independent private sector entrepreneurs in Cuba, importing food, equipment, and other goods that support the Cuban people.  Third, to help facilitate remittances in payments for authorized transactions, including authorized transactions to and from the Cuban private sector, we have also reinstated authorization to allow U-turn transactions.  These are funds transactions which start and end outside the United States but pass through the U.S. financial system, and they are a common occurrence in international commerce.”

“[Our] Cuba sanctions remain in place and the regulations continue to maintain restrictions on the Cuban Government and its military, intelligence, and security services.  Today’s action is about support for greater freedom and expanded opportunities for the Cuban people.”

Responses to Questions

“On May 15th the State Department determined that “Cuba’s continued certification as a not fully cooperation country [on terrorism] was no longer appropriate [and therefore terminated that designation].

Cuba, however, remains a State Sponsor of Terrorism under U.S. law, which “establishes a specific statutory criteria for rescinding the SST designations, and any review of Cuba’s status on the SST list would be based on the law and the criteria established by Congress.”

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[1] U.S. State Dep’t, Senior Administration Officials on the Cuba OFAC Rollout (May 28, 2024).

 

U.S. Treasury Department Issues New Regulations To Promote Cuba’s Private Business Owners     

On May 28, the U.S. Treasury Department announced that it has prepared new regulations “to increase support for the Cuban people [that} update and clarify authorizations in support of internet-based services to promote internet freedom in Cuba, support independent Cuban private sector entrepreneurs, and expand access to certain financial services for the Cuban people.”[1]

These new regulations “update and clarify the scope of authorized internet-based services, including by adding examples of authorized services incident to the exchange of communications over the internet and updating the authorization for services in support of such communication.  Additional examples of authorized services include social media platforms, collaboration platforms, video conferencing, e-gaming and e-learning platforms, automated translation, web maps, and user authentication services.  [They are] also clarifying that persons subject to U.S. jurisdiction may provide cloud-based services (including remote data storage, data transport service, content distribution networks, virtual machines, software-as-a-service, and infrastructure-as-a-service) to support services incident to the exchange of communications over the internet.”

The new regulations also “expand the authorization for services, including training, to install, repair, or replace items related to communication, or items used to develop software that improves the free flow of information or that will support private sector activities in Cuba consistent with the export or reexport licensing policy of the Department of Commerce, including by removing the requirement that referenced items fall within specific export control classification parameters.  [They also are] further authorizing the export or reexport of Cuban-origin software and mobile applications from the United States to third countries, which will expand the ability for independent Cuban entrepreneurs to offer their software and mobile applications on global application stores.”

The new regulations add a “new term ‘independent private sector entrepreneur.’  The new term continues to include self-employed individuals, such as owners or employees of private businesses or sole proprietorships, but the amended definition now also includes private cooperatives or small private businesses that are wholly owned by or consisting solely of such individuals.  In each case, the new term is limited to private cooperatives, small private businesses, and sole proprietorships located in Cuba of up to 100 employees.  The amended definition better reflects Cuba’s non-state sector, as Cuba now authorizes the establishment of small- and medium-sized private enterprises.  Finally, [the Department]  is excluding prohibited Cuban officials and prohibited Cuban Communist Party members from the new term to ensure they do not take advantage of U.S. actions intended to benefit independent private sector entrepreneur.”

The new regulations authorize “independent private sector entrepreneurs who are Cuban nationals to open, maintain, and remotely use U.S. bank accounts, including through online payment platforms, to conduct authorized or exempt transactions, whether the independent private sector entrepreneur is physically located in the United States, Cuba, or another country.”

The new regulations reinstate “authorization for ‘U-turn’ transactions, which are funds transfers that originate and terminate outside the United States where neither the originator nor beneficiary is subject to U.S. jurisdiction.  [The Department] previously removed the authorization for ‘U-turn’ transactions in September 2019.  This reinstated authorization is intended to help the Cuban people, including independent private sector entrepreneurs, by facilitating remittances and payments for transactions in the Cuban private sector that are authorized by various provisions of the [regulations].  Under this reinstated authorization, U.S banks are authorized to process ‘U-turn’ funds transfers in which Cuba or a Cuban national has an interest, provided that neither the originator nor the beneficiary is a person subject to U.S. jurisdiction.”

Finally the new regulations authorize “the unblocking and return of any ‘U-turn’ funds transfer that was blocked prior to this reinstatement of the ‘U-turn authorization.”

A senior U.S. official “said that it was ‘essential’ for the Biden administration to make sure the private sector continues to expand on the island.”

Reactions

This is great news! Cuba’s private sector is helping ordinary Cubans cope with the extraordinary problems of the Cuban economy.

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[1]   U.S. Treasury Dep’t, Treasury Amends Regulations to Increase Support for the Cuban People and Independent Private Sector Entrepreneurs (May 28, 2024); Torres, In a first, Cuba’s private business owners will be able to use U.S. banks, Miami Herald (May 28, 2024).

 

 

Cuban Private Enterprises Offer Opportunities on the Island 

Since 2021, with Cuban government approval,  “roughly 10,200 new Cuban private businesses have opened, creating a dynamic, if fledgling, alternative economy. . . . About 1.5 million people work for private businesses, a 30 percent jump since 2021, and they now represent almost half of the total work force on the Caribbean island” and about 15% of gross domestic production. While “Cubans working for the state, including white-collar professionals, doctors and teachers, make the equivalent of roughly $15 a month in Cuban pesos, . . . employees in the private sector can make five to 10 times that amount.”[1]

Last year, this sector imported roughly $1 billion of goods, mostly from the U.S. and mostly financed by cash remittances sent by Cubans in the U.S. to their relatives back home. “Across Havana, new delis and cafes are appearing, while entire office floors are leasing space to young entrepreneurs bursting with business plans and products, from construction and software to clothes and furniture.”

An example of such businesses is two Home Deli markets in Havana, which offers a mix of locally made items like pasta and ice cream and imported goods like beer and cereals. They are owned by Diana Sainz, who had lived and worked in Europe, but who returned home to Cuba to open and operate these stores.

Another example is a Havana restaurant, La Carreta, that was reopened by a local restaurant owner and Obel Martinez, a Cuban-Amereican interior decorator based in Miami.

The Cuban government, however, could do more to build this sector. Such businesses are limited to 100 employees. Cuba’s state-owned banks do not allow account holders to access deposits in dollars to pay importers because of the government’s lack of foreign currency to pay its own bills. U.S. sanctions also prohibit direct banking between the United States and Cuba. And the Cuban government has kept major industries off limits to private ownership, including mining and tourism.

Benjamin Ziff, the chargé d’affaires who heads the U.S. Embassy in Cuba, observes, “Cuba is falling apart faster than it is being rebuilt. There is no turning back.’’ He wonders “whether the [Cuban] government will allow the private sector “to expand fast enough and freely enough to meet the challenges.”

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[1] Adams, In a Communist Stronghold, Capitalists Become an Economic Lifeline, N.Y. Times (April 29, 3024).

Congressional Opposition to U.S. Helping Cuban Private Businesses  

As previously noted, the Biden Administration has been developing regulations to allow private Cuban entrepreneurs to open bank accounts in the United States to facilitate their operations and allow U.S. banks to clear dollar transactions originating in third countries that involve Cuban nationals. But those proposed regulations have not yet been publicly announced.[1]

The apparent reason for this delay has been opposition by Florida Republican Rep. Mario Díaz-Balart, who has said both in public and in meetings with administration officials that he is against providing any aid to the Cuban government. Díaz-Balart, the chairman of a House subcommittee that makes decisions on the State Department budget, has been for a long time a strong supporter of sanctions against the Cuban regime.[2]

Moreover, the budget bill that Díaz-Balart helped pass in the House to fund the State Department and other foreign aid programs says that the $30 million for democracy promotion programs in Cuba cannot be used “for business promotion, economic reform, entrepreneurship, or any other assistance that is not democracy building.” This bill, however, still needs to be reconciled with the Senate version.

According to a State Department spokesman, however, “Longstanding U.S. policy supports Cuban entrepreneurs and the growth and independence of Cuba’s private sector to maximize benefit to the Cuban people while minimizing benefit to the Cuban government. We have seen encouraging signs that the Cuban government is opening more space for the private sector, and we believe its continued growth provides a window of opportunity to introduce the Cuban people to a different societal model, one fueled by market economics rather than government control.”

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[1] E.g., Signs of Increasing Connections Between Cuban Private Enterprise and U.S., dwkcommentareis.com (Sept. 27, 2023).

[2] Torres, Proposed policy changes to help the private sector in Cuba face opposition in Congress, Miami Herald (Oct. 20, 2023).

 

More Information on Cuban Entrepreneurs

As discussed in a prior post, a group of Cuban entrepreneurs recently attended a conference in Miami, Florida.[1] According to the Miami Herald, this conference provided the following insights into the current status of private enterprise on the island.[2]

“In just two years, . . . the small and medium enterprises  have played a significant role in importing food and other basic supplies.” But some of the Cuban visitors are “producing other goods like clothes . . . fruit juice and preserves . . ., lamps . . ., and decorations and furniture . . . . Other enterprises export software and provide services like logistics, transportation, interior design and company-management solutions. And the companies are spread throughout the island, not concentrated just in Havana.” And “many of the companies have diversified.”

These enterprises fact many problems. “A major roadblock: lack of access to the international banking system.” They cannot easily  “borrow money to buy supplies, pay workers and expand their businesses.” While the Biden Administration is planning to allow these enterprises to open U.S. bank accounts, “experts believe few U.S. banks will take the risk” because the U.S. still lists Cuba as a state sponsor of terrorism.

Those Cuban enterprises that have bank accounts in other countries face the difficulty of converting the Cuban peso into foreign currencies, especially the U.S. dollar. And the Cuban government recently limited cash withdrawals from Cuban banks and demanded that most transactions take place online.

Cuban enterprises also face difficulties in obtaining capital, credit, technology, expertise, cheaper providers and basic materials like food preservatives and packaging  from the U.S. and other countries. They also need help in training employees on new technologies.

These challenges are “particularly acute in the construction field, where it is difficult to retain labor because of the continual mass emigration of Cubans to the U.S. and other countries.” This will be worse in the near future because “most of Cuba’s infrastructure and residential buildings are in bad shape.”

Some enterprises are forced to buy essential supplies from Europe and China, which increases their costs and, therefore, their prices in Cuba.

Of course, these enterprises still face challenges from the omnipresence of the Cuban government regulating what they can do.

On the plus side, the recent gathering in Miami of Cuban enterprises has led to the opening of an office in Florida to support Cuban entrepreneurs visiting the U.S. with work space, car rentals, mail and other business essentials.

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[1] Signs of Increasing Connections Between Cuban Private Enterprise and the U.S., dwkcommentaries.com (Sept. 27, 2023).

[2] Torres, Miami visit gave a rare inside look at Cuba’s fledgling capitalists. Some key takeaways, Miami Herald (Oct. 2, 2023).

Criticism of Cuba’s New Regulations for Private Enterprise

Cuba’s 126 pages of new regulations for private enterprise (cuentapropistas), which were published on July 10, have been criticized by U.S. economist Richard Feinberg, a professor at the University of California San Diego’s School of Global Policy and Strategy and a Fellow at the Brookings Institution. He calls them “the revenge of the bureaucrats,” who are jealous of those in the private sector who are making much more money than employees of struggling state enterprises.[1]

The new regulations contain details about potential violations, penalties and fines, oversight and performance requirements. For example, an operator of a private day-care facility must devote at least 21.5 square feet per child plus provide a detailed inventory of personal toiletry items.

These regulations also are designed to virtually guarantee that most private businesses will not grow beyond 20 employees. For example, once a private employer hires more than 20 employees, the 21st employee must be paid six times the average wage for the first 20 employees.

In short, private enterprise is fine so long as they “don’t get too rich, diversify their businesses, open branches, try to evade taxes, resort to the black market, or provide too much competition to the state sector.” Indeed, a major motivation for the regulations is to halt growing inequities between ordinary Cubans and those in the private sector.

Moreover, the new regulations do not allow “for white-collar professionals to work for themselves, . . . private entrepreneurs to directly import for their businesses, and there is no recognition of their businesses as legal entities” and no provision for the creation of wholesale markets for the private sector.

These criticisms of the regulations were echoed in a  recent Cuban public opinion poll carried out by the CubaData Project with a team of academics from Cuba, Mexico and Venezuela. 87.6% believe that Cuban professionals should be able to establish businesses and businesses within their professions. In addition, a high percentage of those surveyed believe other political parties should be permitted and that the election of the island’s president should be direct.[2]

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[1] Whitefield, New Cuba regulations for private enterprise on the island have a long list of don’ts, Miami Herald (Aug. 2, 2018). See these posts to dwkcommentaries.com: Cuba Announces New Regulations for Private Business (July 10, 2018); More Details on New Cuban Regulations for Private Business (July 11, 2018); Comment: Yet More Details on Cuba’s New Regulations for Private Business (July 13, 2018).

[2]  Survey: Cubans want more autonomy for their business, political pluralism and elect president, Diario de Cuba (July 30, 2018).