Cuban private enterprise – dwkcommentaries

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 21^st 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).