"Cuban Economy Is Still Stagnant Despite Reforms: Cuban National

"Cuban Economy Is Still Stagnant Despite Reforms: Cuban National
By Christopher Witrak Dec 04, 2012 1:30 pm
"The United States is the ceiling of heaven," says Cuban national.
MINYANVILLE ORIGINAL

Nearly 60 years after the Cuban Revolution, much has changed: It's now
legal for citizens to own and sell property, start a business, and
emigrate (at least to Spain and Ecuador if not the US). This year, Cuba
released numerous political prisoners, made it easier for Cubans to
travel, and expanded other personal liberties as well as private sector
jobs (178 private sector job categories and 350,000 licensed business
owners now exist). For the first half of 2012, the island's economic
growth was reported to be 2.1% -- better than what was seen in the
United States. For all of 2012, its been reported that Cuba will grow a
total of 3.1%, missing the government's estimate of 3.4%.

As restrictions ease, however, more Cubans are arriving in the US by
various measures. The US accepts 20,000 Cubans per year via the
immigration lottery; thousands more are accepted under family
reunifications plans and political asylum. Via the terms of the "1995
wet-foot, dry-foot policy" amendment to the 1966 Cuban Refugee
Adjustment Act, any Cuban who shows up in the US is automatically
allowed entry without a visa and can apply for residency one year later.
In recent years, the number of Cubans availing themselves of the Refugee
Act has been between 4,000 and 5,000. Yet last year, the Miami Herald
estimated that this figure had risen to 7,400 per year while other
sources say that number is close to 10,000.

Probably the most perilous way to enter the US is by boat from Cuba.
Last month, the South Florida Sun Sentinel (via ABC News Univision)
reported that the largest number of Cubans have tried to reach the
United States this way since the financial crisis began in 2008. The US
Coast Guard detained 1,275 Cubans traveling by boat in the 2012 fiscal
year ending in September versus just 422 in 2010. Another 97 have been
picked up over the past month and a half.

According to many experts, government reforms themselves have emboldened
citizens to leave the country. Decree-Law No. 302, which goes into
effect on January 14, 2013, modifies Law No. 1312, or "Immigration Law."
Among other changes to immigration law, the decree lessens the
punishment for those who left the country after 1990 and wish to return
to visit the island. Cubans can also travel abroad more easily next year.

Minyanville spoke with a Cuban national who has been in the US about one
month to find out more. The individual (identified as "he" for the sake
of this article) did not want the specifics of his arrival (which is
legal if he leaves shortly) revealed. However, it is well know that
Cubans have come to the US through Canada, Mexico, Ecuador (where
approximately 100,000 Cubans have settled), and Spain (where thousands
of Cubans of Spanish descent have been allowed to move.)

The main reason Cubans are on the move, said our source, is that the
local economy is stagnant. "One thing is what [the government] tells
you, and another is the truth. The economy really isn't doing better.
There are a lot of government programs to help improve the economy, but
there are no perceptible results. There is a lot of poverty."

On a side note, Cuban-Americans who had migrated in the 1960s after
Castro came to power were present during the interview, and added their
own commentary mostly to complain that the source was sugar-coating
answers although it's hard to believe "a lot of poverty" is painting a
rosy picture.

Our source verified what Jorge Duany of the Cuban Research Institute at
Florida International University said in an interview with ABC/Univision
News:

[The increased number of Cubans leaving is] due to the continuing
economic downturn in Cuba, which is leading a large number of people
outside of Cuba. Short-term reasons for this rise could be that there
are a number of people who are unemployed and looking for a job in the
small private sector in Cuba who were laid off by the government and
have doubts about future prospects.

Starting a Business: Try Something in Tourism

All citizens are allowed to start a small business in Cuba. Whether or
not fellow citizens -- many of whom earn $20 per month -- can afford the
goods and services from these enterprises is a different matter.

Our source explained how one would start a business:

In order to start a business, you need to acquire a permit from the
government, but first you need to give a "contribution" to the
government. The government does not question from where you receive the
money. It could even be from relatives in the US. You could start a
brick-and-mortar business with 10,000 to 15,000 Cuban convertible pesos,
which equals $10,000 to $15,000 in Cuba, but many Cubans need money from
family members living abroad in order to launch the business.
Afterwards, the government does not care if you continue to receive
money from outside sources [though it must be in limited amounts] and
you conduct your commerce. Business owners also have to pay taxes.

To put this in perspective, a $15,000 fee would be the equivalent of 50+
years' worth of earning for the average citizen.

The government outlawed the US dollar in 2004 after former Cuban
President Fidel Castro had legalized its use in 1993. Our source said
that when Cubans receive US dollars from family members, they have to
pay a 10% fee at banks and convert them to the Cuban convertible peso,
informally called chavito. The convertible peso has an official 1-to-1
parity with the US dollar, but the conversion fee results in Cubans only
receiving 0.90 convertible pesos for every US dollar. The Cuban peso, or
national peso, constitutes the other form of official currency used in
Cuba. One convertible peso or US dollar equals 25 national pesos.

The interviewee named the restaurant and tourism industries as two
sectors doing relatively well when asked which businesses benefited the
most from the small business reforms. The interviewee added later, "The
best job in Cuba is tourism. The tips alone will allow you to make it."

By all accounts, including the Cuban Oficina Nacional De Estadística E
Información, a little over 2.7 million tourists visited the island in
2011, and the number has steadily increased since 2007. The vast
majority -- more than two million -- come from Canada and Europe. US
citizens can even get a so-called "people-to-people" license
(essentially claiming the trip is educational).

Tourism's pay is so strong that it has attracted individuals from
unexpected sectors of the economy. Our source told us about two surgeons
who left their positions to become taxi drivers because the tips earned
from tourists exceeded their salaries as surgeons. A musician earned
significantly more from his tips working at a hotel than a dentist
earned from his salary. Many medical professionals only earn 625
national pesos, or $25, per month.

Food: Small Entrepreneurs Have the Edge

Once in Cuba, not surprisingly, tourists need to eat. In this area, the
small business owner is at an advantage and many privately run
restaurants have done well largely because of their connection to the
tourism industry.

According to our source, a Cuban national would have to pay the
equivalent of a month's salary or more to eat a single meal at one of
these establishments. A meal can cost 4 convertible pesos, and many
Cubans only eat at restaurants when relatives from abroad visit and pay
for their meals. (The situation was similar with other goods, not just
food. Our source talked of living in a town with only one store carrying
clothing virtually inaccessible to the average Cuban as purchasers
needed convertible pesos to afford them.)

Our source noted that the large, state-owned restaurants cannot compete
with the smaller, privately run restaurants, which offer better service
and better food. In fact, at least according to an AP report (via
Huffington Post), the government may begin renting state-owned
restaurants in hopes of improving the quality of the restaurants. The
Communist Party newspaper Granma published an article in which the
Interior Commerce Vice Minister Ada Chavez Oviedo said that a pilot
program will begin on December 1 in three of Cuba's fifteen provinces:
Artemisa, Villa Clara, and Ciego de Ávila. State-owned restaurants
suffer from theft of food by the workers. The renters will be
responsible for the maintenance, the repairs, and the utilities of the
restaurant. The government has also started similar policies for beauty
salons and barber shops.

Our source elaborated on the business structure of a private restaurant:

Restaurateurs can either grown their own food or purchase food from
farmers. All farmland is state owned, and the government only leases
pieces of government registered land to individuals such as farmers or
restaurants owners. The government calls this "Uso Frutus Gratis," or
free use of the fruit of you labor. The land is never yours, though.
Plus, a contribution (a sort of tax) from the harvest must be paid to
the state for the funding of institutions such as hospitals and schools.
[The government may begin experimenting with new land cooperatives.]

Despite the possibility of renting land, most restaurants owners
have to purchase produce from farmers in the marketplace. Those who sell
food in the marketplace can charge whatever price they want, making
their oferta de mando, or offer of demand. Problems occur because the
lack of a fixed price allows sellers to charge whatever price they wish
and constantly change prices. When you go to a market, farmers will
begin competing on price, constantly undercutting each other."

Our source's description of the interactions in a local market indicated
that market mechanisms may still seem alien to some Cubans.

When asked about any popular restaurants in the country, our source said
that no restaurant franchises existed and restaurants varied from city
to city. On the topic of available, affordable food, our source called
the US "the ceiling of heaven" and frequently referenced the prevalence
and proliferation of McDonald's (NYSE:MCD) and Starbucks (NASDAQ:SBUX).

Rationing and the Black Market

Our source reasoned that the government allowed a black market to exist
out of fear of civil unrest if the people's basic needs are not met. The
government will step in, though, if it believes a person has become
reckless or too conspicuous with one's wealth, he said.

The state-run rationing system provides little for the average Cuban.
Similar to starting a business, one needs money to acquire anything
other than basic necessities. Our source said, "Every head of the
household gets a rationing booklet from the government that covers
essentials. The book lists what may be collected from the government
throughout the year. For example, Cubans may only get one pair of
underwear and one pair of shoes per year from the government. However,
the shoes may be the wrong size."

Frequently, the government will run out of a particular good. The
US-Cuba Trade and Economic Council in its "Report for Calendar Year
2011" states that ration cards are supposed to supply food for 30 days,
but may only provide 14 days worth of food.

Ironically, would-be entrepreneurs can find themselves on both sides of
the black market with the same business, and our source related the
following story:

One family, which rented a small piece of land, went from living in
poverty to operating a registered car dealership. Through working the
land and bartering or selling the remainder of harvest after taxes, the
family saved enough money to purchase a small car. The car provided
access to different markets in different towns because the family
members could transport the food and goods, such as heavy bags rice, to
areas that lacked these items. The individual with the car transported
food and goods from the interior of the country to the urban areas like
Havana and made a killing. Urban residents have a rough time acquiring
food from the countryside, though, many urban gardens exist in cities
like Havana.

The family purchased additional cars with the profit from sales and sold
more goods in multiple areas. However, selling food and goods outside of
the family's town was illegal, making the family a group black market
dealers.

Eventually the family collected a small fleet of cars and asked the
government for permission to become a car dealer. The family registered
the business with the government and paid taxes, making the business
legitimate again. Entrepreneurs in Cuba constantly walk the line between
legal and illegal commerce.

Overall -- and despite accusations that he was going easy on Cuba -- our
source expressed disappointment with the results of the changes Cuban
President Raúl Castro has introduced and tremendous disillusionment.
While there have been various reforms, many of which were implemented
since 2010, it's made little difference day-to-day. Asked if the
government was likely to make other major political reforms, the
individual simply responded, "No."

Twitter: @ChrisWitrak

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