After opening a space for private enterprise and eliminating prohibitions, the Cuban model of economic changes has set its sights on monetary and currency exchange policies, foreign investments and the state-run enterprises, which support the economy’s greatest weight. But the population continues waiting for results, while the GDP slowdown threatens to become more accentuated in 2014.
The transformations undertaken by Cuba entered a difficult crossroads: the government is intensifying and even speeding up the so-called updating of the economic model but, simultaneously, the economy is losing impetus, the financial indicators are getting complicated and for the population the time to get a taste of the benefits is taking too long. Some measures are even generating tension in the atmosphere.
In the second and last parliamentary session of 2013, President Raúl Castro rejected for the nth time the demands to speed up the changes. After proclaiming the will to continue advancing in the implementation of the agreements and economic guidelines approved during the Sixth Party Congress, held in April 2011, he reiterated the decision to carry them out “without haste, but without pauses, despite the varied exhortations made with healthy intentions and others that definitely are not.”
Reluctant to “skip stages” because “irremissibly, instead of advancing in the materialisation of a programme it leads to a step backwards and defeat,” he also said that “we are among those most interested in advancing at a yet greater speed.”
The truth of the matter is that, though the authorities are in favour of acting with caution and gradually, starting last year the Cuban economic reform gained impetus and opened the doors to more ambitious and novel changes, judging by the list of measures implemented in 2013 and those announced for 2014.
The head of the government commission in charge of leading the transformations, Council of Ministers Vice President Marino Murillo, had anticipated this change in direction in December 2012. He said before the National Assembly of People’s Power that the process “has started to enter more in depth in questions of greater scope, complexity and depth.” He warned that “the tasks…for implementing the Guidelines will be more complex, of greater importance and impact in the updating of the economic model and in the whole of society during 2013 and 2014.”
In a similar legislative scenario, Murillo retook the subject a year later. According to the national press, in December 2013 he again told the MPs that the most technical and complex tasks of the process of adjustments and innovations of the economic policies should be carried out in the next two years.
However, contrary to the results that could be expected and that the very government had previewed for the quinquennium – in 2010 it planned a GDP average annual growth of 5.1 percent until 2015 -, in each one of the last three years the economy has grown slowly and less than the planned amount. But if before 2013 the advance at least surpassed that of the previous year, this time it was below that of 2012.
The economy is threatening to slow down even more this year, precisely when the changes are at their deepest point.
The economy loses impetus
In 2013 the Cuban economy grew almost one percent less than the planned 3.6 percent. In fact, in the first version of the annual plan presented to Parliament, Economy Minister Adel Yzquierdo proposed a slightly higher growth: 3.7. But the GDP only grew 2.7 percent.
The economy’s slowing down already had been foreseen, after growing a lukewarm 2.3 percent in the first semester. Among the causes, the government cited at the time the damages left by Hurricane Sandy, which heavily affected eastern Cuba in October 2012. The recovery actions cost the country 6.9 billion pesos, the Economy and Planning Ministry (MEP) reported. Faced by the year’s takeoff, in July the authorities readjusted the annual growth forecasts to between 2.5 and three percent.
The final advance slightly surpassed the regional mean. According to the preliminary overview of the Economic Commission for Latin America and Caribbean (ECLAC), the area countries averaged a growth of 2.6 percent, four decimal points from the three percent previewed in July.
The United Nations regional agency considered that “less buoyant external demand, greater international financial volatility and falling consumption were the factors determining the more modest economic performance of countries in 2013.”
Together with factors such as a slowdown in the wage bill and credit, the Latin American economy suffered from the contraction of consumption and a depreciation of basic products whose export at better prices had served as a shield for Latin America and the Caribbean in the face of the crisis of important world economies, like Western Europe.
According to ECLAC, “A widespread worsening of the terms of trade – on the back of continued commodity price reductions – contributed to the balance-of-payments current account deficit widening from 1.8% of GDP in 2012 to 2.5% in 2013 (mainly as the result of a higher increase in merchandise imports relative to exports).”
A call to attention also came after the Cuban case. When assessing the causes of the non-fulfilment of the 2013 plan and planning an even lower GDP growth for 2014, the economy minister mentioned “the drop in prices of export goods like sugar and nickel,” the newspaper Granma reported.
By contrast, Yzquierdo complained about the parallel hike in the price of imported foodstuffs, together with the “low growth of the manufacturing industry due to financial and technological restraints.” More expenditure in purchases in the international market and, at the same time, less hard currency income than the previewed had a negative effect on the country’s planned intake.
The minister also recognised internal mistakes that taxed the activity in the face of the external markets, like difficulties in contracts, deficiencies in the processes of conciliation and planning of production and delays in imports, due to low credit capacities.
Foreign trade perspectives
The international environment continues threatening the island’s economy in the recently initiated year. Several of the principal Cuban export products faced the risk of lower prices.
Nickel, which holds first place in the Cuban export of goods and third place in the general portfolio of goods and services, dropped in July to its lowest price in three years in the world market: 13,377 dollars per ton, according to reports by Reuters from the London Metal Market. It practically languished at that price, after reaching in February the highest price in the year (18,590 dollars per ton). In December it closed very near to 14,000 dollars.
With such international market trends, that mineral probably contributed less than a billion dollars to Cuba’s revenues in 2013. If this data were to be confirmed, it would be the second consecutive annual drop after having fallen in 2012 to 1.06 billion dollars, almost a third below the previous year, according to the Cuban Statistical Yearbook.
The prospects are not encouraging. Signs of oversupply in addition to restrictions of the demand in the important European industrial sector have maintained the prices unchanged, despite the hike expectations animated by the strength of the Asian demand, the forecasts made about a global economic recovery by the World Bank and the decision by Indonesia, a country that supplies between 18 and 20 percent of the world’s nickel, to ban the export of metals.
Proof of the dark horizon is that, while Barclays analysts are confident regarding a better price for 2014, those from the PNB Paris have reduced the projections for the prices of the majority of the basic metals, including nickel.
Studies by the Cuba Foreign Trade and Investment Ministry observe the panorama with pessimism, due to increased stocks in the London Metal Market and the expectations of an international increase in the production and export of nickel. What’s concrete is that the low prices with which December closed have not gone up.
Sugar is another important Cuban export product over which external stormy clouds hang.
Despite the violent contraction experienced after the Cuban government closed more than half of the country’s sugar mills, production has taken the road to recovery. Though it did not meet the plans, the 2012-2013 harvest produced more than 1.5 million tons, eight percent more than the previous harvest.
The depression of the sugarcane plantations, the source of raw material, was the factor that most affected the sugar industry. This is the reason why the 2009-2010 harvest registered its lowest production in a century: 1,168,200 tons. But in the subsequent triennium it grew at an annual rate of 12 percent, to the extent that sugarcane planting and harvesting recover.
The instability in international prices has not prevented that the contribution of Cuban sugar exports have almost doubled in three years, up to more than 455 million dollars in 2012.
There are still no official data for 2013, but judging by the production indicators and the external price trends, Cuban revenues for sugar could have grown. The oversupply of the world market has weakened the prices for several years, but not as much as some producers feared. The downward previsions of prices cooled down the production plans of key countries and this lessened the pressure on the market.
For 2014 the forecasts are ambiguous. According to the Brazilian Datagro consultancy firm, the world sugar surplus would fall by 68 percent during the 2013-2014 season with respect to the previous cycle, due to growing world consumption.
The International Sugar Organisation (ISO) expects the same tendency: a global drop in surplus to 4.5 million tons in 2013-2014, though it warned that this would not help sugar prices. During the previous period, excess stocks in the world sugar market surpassed the nine million tons.
Other experienced consultancy firms, like Kingsman and Czamikow, coincide in forecasting a reduction in the global sugar surplus, but they still observe that the supply is higher than the demand. That is why they expect reductions in some country’s harvests and an increase in demand in the face of the low prices, factors that could force a price hike in the midterm. Contrary to this, banks specialising in basic product markets, like Morgan Stanley and Societé General, of the United States and France, respectively, do not expect reductions in the harvest of the largest producer: Brazil.
The Cuban sugar agribusiness is openly sailing in the opposite direction: it is not renouncing the sustained production expansion. For the current harvest, 2013-2014, the Azcuba business group has planned an 18 percent leap. The number of sugar mills that started to grind earlier increased, though they have been hindered since the first weeks by untimely rains and excess humidity, an uncomfortable drawback for the sugar mills’ yields and productivity.
From basic products to high technology
Other principal export products have done well in recent times. The Cuban revenues for tobacco, for example, have grown slightly – to 224 million dollars in 2012, according to the National Office of Statistics and Information (ONEI) in the 2013 edition of the Statistical Yearbook.
Partial reports by the Habanos S.A. corporation (the Cubatabaco and British Altadis S.A. joint venture) indicate that in 2013 it marketed on the international market between two and three percent more cigars, after achieving 416 million dollars a year before. With an extensive distribution network in 160 countries, its sale of Cohiba, Montecristo, Partagás, Romeo y Julieta and other brands grew in traditional markets in Europe – Switzerland, France, Germany and United Kingdom -, while it decreased in Spain.
But the horizon is also cloudy for this product. Climate whims have affected the cultivation of the sought-after leaf.
Unusual rains during the current winter season frustrated the planting of tobacco, usually carried out between November and January. Pinar del Río, the province that contributes 70 percent of that production, lost 813 hectares and another 1,000 suffered partial damages, out of a plan of more than 15,000 hectares. Tobacco growers extended by a month and a half the planting schedule, in an attempt to reduce the losses.
A sector less punished by nature fared better: the biotechnology and pharmaceutical industry. According to the Statistical Yearbook, its products rank second among the export products, with an income of 553 million dollars in 2012.
Leaders from the BioCubaFarma business group – it groups together research centres, producing and marketing enterprises – expressed in 2013 the hope of increasing production by twofold in upcoming years. They preview earning more than five billion dollars, after having brought in 2.779 billion during the previous five-year period, through the sale of 50 biotechnology and pharmaceutical industry products to more than 50 countries.
The expansion of this sector has introduced a new nuance in the Cuban export portfolio, among which the low added value raw materials have predominated for centuries. The Cuban offer now includes generic medicines, therapeutic and prophylactic (preventive) vaccines, biopharmaceuticals, diagnosis systems and cutting-edge medical devices.
This industry has also given greater autonomy to the domestic supply in that area. Last year the Cuban industry produced 580 of the 880 products of the Basic Chart of Medicines, including eight of the 13 vaccines used in the immunisation programme.
Another alternative that has also changed the Cuban export picture are high value added professional services. In expansion until it became the first product of the Cuban balance of payments, they contribute more than six billion dollars, especially at the expense of the medical personnel sent to numerous countries in the region and in other continents. Among the Latin American countries, Brazil has recently been incorporated to the destinations for the Cuban medical missions.
Together with the revenues from tourism, the services sector makes up for around 70 percent of the money coming in from exports. Their predominance in the Cuban offer abroad compensates for the deep gap between exports and the import of goods.
That is why in 2013 the Cuban economy achieved a positive balance of 1.256 billion dollars in the commercial balance of goods and services, according to the preliminary report given by the economy minister to the MPs.
Despite the new trade signs, the offer is still narrow: they do not take away priority, therefore, from a policy defended by the Cuban authorities: diversifying markets and export products and substituting imports.
Tourism and finances
The positive balance in the State coffers covers hundreds of millions of dollars that were left out in 2013, judging by the non-fulfilment of plans in several activities.
One of the sectors that contribute the most revenues to the country, tourism, once again did not reach the three million foreign visitors it hoped for. A year before, meeting with MPs, Tourism Minister Manuel Marrero had proclaimed the goal of 3.1 million. But the results for 2013 were really bad until October. If the annual close achieved any way a minimum advance over 2012, it was thanks to an excellent takeoff of the current peak season in Cuba. The flows in November and December (7.6 and 8.8 percent, respectively) compensated for the low in previous months.
In the end, the leisure industry broke a new record of 2,852,572 visitors, a figure that was just 0.5 percent higher than that of 2012.
However, if the hard currency revenues faced a similar non-fulfilment in the number of planned visitors, then more than 200 million dollars escaped from the country in terms of visitors who never arrived. A year before, the sector earned 2.678 billion dollars, according to the ONEI.
The failures have not cooled the strong investment programme in hotels and non-hotel installations. The government has set the goal of expanding the number of rooms and the leisure industry in general and turning it into the real driving force of the economy. Agriculture and numerous national industries have in the hotel networks more accessible clients than the competitive foreign markets.
Tourism’s losses were added to those attributed to a combination of more expensive imported foodstuffs and the low prices for important exports. However, fewer incomes than previewed did not affect the persistence with which the government is attempting to put order in its external finances.
In the end of the year speech, President Raúl Castro retook the subject: “Throughout 2013 and despite the intensification of the U.S. blockade, especially in the commercial and financial spheres, the global economic crisis and our economy’s limitation to gain access to sources of foreign credit, the financial obligations we assumed continued to be strictly complied with.”
He especially announced the “significant advance” in the restructuring processes of the foreign debt, an objective set to favour “the international credibility of the Cuban economy.”
Some of the most notorious cases include the agreement to restructure the historic debt with Russia. Moscow wrote off 90 percent of Havana’s debt of 32 billion dollars, between the Caribbean country and the former Soviet Union. The agreement establishes the return of the remaining 3.2 billion in 10 years. China, Japan and Mexico are the other countries with which Cuba has signed the same kind of agreements.
Review of transformations
The combination of a difficult international scenario, financial limitations and the need to face with “greater objectivity,” according to Yzquierdo, the projections of the investment process – an area of non-fulfilments year after year – weighed at the time of planning in 2014 a GDP growth inferior to the one registered before: 2.2 percent.
“We are absolutely not satisfied,” said the Cuban president before Parliament. But he defended the move as the “fruit of a profound and objective analysis of our current possibilities.”
In apparent paradox with the previewed slowing down, Cuba started 2013 with a group of transformations that range from the elimination of obstacles and elemental prohibitions and the expansion of private enterprise to the implementation of forms of non-state management of greater scope and to changes in policies and areas that support the main weight of the economy.
The year began with the creation of cooperatives in non-agricultural sectors of the economy. Until then the non-state actors – historically present in the agricultural world, joint ventures and foreign commercial representatives – had gained growing prominence through the expansion of self-employment.
The number of persons with licences to work independently grew, according to reports by the Labour and Social Security Ministry, to 444,109 at the close of last November, 11 percent more than the figure registered a year before. The growth, 44,763 in absolute terms, is greater than the one experienced in 2012, a year when the incorporation to that new form of non-state employment lost impetus.
At the end of the year, however, the authorities approved measures to eliminate self-employment alternatives which they defined as illegal because they were not included among the authorised activities, especially the sale of imported clothes and the 3D cinema halls.
In addition to recognising “the duty to facilitate self-employment and stamp out stigmas and prejudices that existed regarding this form of employment, law and order also has to be guaranteed by all,” the Cuban president demanded. “Each step we take must be accompanied by the establishment and preservation of a climate of order, discipline and exigency,” he added.
During a controversial session, Parliament approved in December a new Labour Code, with new regulations for labour relations in the self-employment sector. As a greater novelty, it confers protection to “workers contracted by authorised natural persons for this and by associative forms.” It establishes the conditions that the employer must guarantee in the relations among natural persons: duration of the workday, minimum wage and vacation pay, among others. It confirms and legalises indirectly the presence of private microenterprises in Cuba.
However, the transformation of the Cuban economic model entered deeper ground with the extension of the cooperative forms, only present in agriculture, toward other economic activities.
The first group of 124 cooperatives appeared in July. Others joined later on, to close the year with a total of 250 in operation – some 20 more being created and another 228 in the approval stage. They operate in activities that, under the state umbrella, dragged old conflicts of inefficiency and other vices: gastronomy, commerce, construction, agricultural markets, passenger transport, repairs and recycling of raw materials, among others.
As a form of social ownership, the government seems more inclined toward favouring cooperatives in the non-state economic sphere. Contrary to the options opened to self-employment – and the private microenterprises -, the legislation allows the formation of cooperatives in professional activities, though for the time being it only includes a limited number: translation, informatics and accounting.
Credits and food
As a way of backing the effort to expand non-state forms of economic management, the Cuban banks gave a new change of direction a few years ago to their credit policy and subsequently have continuously made them more flexible.
In early 2013 the banks expanded the possible guarantees to gain access to bank loans, an option offered to private workers since December 2011, through Decree-Law 289. The service, which they previously provided to agricultural cooperatives, was also opened for natural persons interested in financing the purchase of construction materials or the contracting of labour force to repair and build homes.
In February last year the Central Bank of Cuba (BCC), the MEP and the MFP introduced a package of instructions and resolutions that expands the range of guarantees that the banks admit from the credit applicants – including small farmers and private workers – or from their co-debtors. Meanwhile, the green light was given to state entities to contract and pay for the services of private workers.
However, as a tendency these new actors of the Cuban economy have kept a distance from the bank credits. In a Cuban television programme – Mesa Redonda -, executives from the BCC reported at the end of the year that only “credits had been granted to more than 550 private workers,” out of 218,400 authorised loans to natural persons from December 2011 to a similar date in 2013, worth more than 1.773 billion pesos.
The BCC representatives blame that coolness to the lack of culture and information and the uncertainty of the self-employed. Experts estimate, however, that that sector has sought the initial capital of its businesses in their own savings, the sale of personal goods, the solidarity of family members and friends, including remittances and other supports.
The BCC, interested in attracting this segment of clients, took another step to make even more flexible the offer; in October of last year it reduced, through Resolution 88, from 3,000 to 1,000 Cuban pesos the minimum loan natural persons can apply for.
Contrary to private workers, the new cooperatives have shown greater disposition to negotiate with the banks. At the close of the year, 96, more than a third of the existing ones, had received bank loans, fundamentally as initial work capital.
Until now, the majority of the credits, around 95 percent, have been applied for by consumers to buy construction materials.
The credit policy climbed another step in January 2014 when it added for consumers the possibility of financing through credits the purchase of kitchen appliances, including cooking rings and electrical devices, in the network of shops selling in convertible pesos (CUC) as well as the offer in Cuban pesos (CUP).
The new alternative seeks to alleviate the tensions generated among the population due to the bad quality of equipment handed over by the State with the Energy Revolution begun in 2004. But it also supports the reactivation of domestic consumption, fundamentally to revitalise the Cuban economy, depressed because of the general low purchasing power of the Cuban population.
With sights set along the same direction – consumption – the government Commission for the Implementation of the Guidelines undertook in November experiments with the agricultural markets in three western provinces – Havana, Mayabeque and Artemisa -, in order to encourage the agricultural activity.
Food production, defined by the government as a matter of national security, has still not reacted as expected to the successive and numerous measures approved for more than five years, which include from the handing over of idle land in free usufruct to cooperatives and private farmers to the increase in the prices paid to producers for some of their crops, among others.
Perhaps the most significant progress can be seen in the growth of rice fields, essential in the Cubans’ diet, which has traditionally been one of the principal import products.
Changes on the threshold
The news on the decision by the Council of Ministers to eliminate in December the prohibition on the purchase and sale of automobiles and other vehicles among individuals, existing for decades, generated great turmoil among the Cuban population. It also annulled the bureaucratic mechanism of Transport Ministry stamped letters to purchase an automobile and other legal regulations that restricted any commercial operation in this field.
But the initial welcome given to the fall of one more barrier – it was preceded by the liberalisation of the purchase/sale of homes – changed tone when the government’s onerous prices for the automobiles came to light, in line with its decision to assume “retail prices similar to those recognised by the market between private individuals.”
On the sidelines of the popular condemnation of the measure, the truth is that the real purchasing power of the majority of Cubans is very distant from the automobile market, at whatever the prices.
The news of the start of a programme for the currency unification in the country, officially announced in October, actually led to greater and deeper social upset.
The government reported in a note published in the newspaper Granma the start of a timetable to eliminate the dual currency and exchange, to which it resorted in 1993 as a salvation in the face of the economic crisis that generated during those years a dangerous inflationary spiral.
While the majority of the population received with pleasure at that time the legalisation of the possession of hard currency and then the entry in circulation of the convertible peso, the extension in time of the currency and exchange deformation has generated serious and diverse conflicts. Enterprises, investments and foreign trade on the one hand and retail consumption on the other are permanently running into each other in an economy dragged down by the persistence of two currencies and two exchange rates – the official (1 dollar or 1 CUC x I CUP) and that of the network of exchange houses, CADECA, to which the population has access (1 CUC x 25 CUP).
Though the official note does not give details, it announces that “the principal changes in that first stage will take place in the sector of juridical persons.” It first points to the entrepreneurial world, with an explicit objective: “favouring the conditions to increase efficiency, the better measuring of the economic facts and encouraging the sectors that produce goods and services for export and the substitution of imports.”
Natural persons or retail consumption are left for the second stage.
Considering the signs given by the succinct information, the complexity of the process and the opinions by experts, it would take the country several years to advance toward currency unification, though the government recognises it as a basic step to “undertake transformations of greater scope and depth in terms of wages and pensions, prices and rates, subsidies and taxes,” as Raúl Castro recognised in the parliamentary session of July 2013.
The elimination of the dual currency will represent a transcendental step for the functioning of the enterprises. Today they work with a double currency accounting system that prevents seeing with precision which are profitable and which are not, or at least up to what point the profits they register are real.
The change of monetary policy will have opportune antecedents in the business sphere.
In mid 2013, a meeting of the Council of Ministers backed measures with the aim of “undoing the knots that are an obstacle to the management of economic entities,” in order to give more independence to their administrations when making decisions.
The Economy Ministry also put in force through Resolution 134 a new way of establishing the social objects of enterprises, cooperatives and commercial budgetary units, which breaks away from the rigid traditional verticality of the Cuban economic model.
A while later, the head of the Commission for the Implementation of the Guidelines, Marino Murillo, announced new guidelines of the National Economy Plan that offer more autonomy to the state enterprises, on the road toward the decentralisation of the Cuban economic model. But the regulations also promise greater exigency regarding the indebted entities or those unable to produce with efficiency.
The rules of the game change for the wholesale market, the administration of stocks, imports and the system of payment according to results among other novelties, but perhaps the one with the greatest impact is the introduction of new variants for capitalisation. Enterprises won’t have to contribute amortisation to the State starting 2014 and will also be able to retain 50 percent of their profits after paying taxes. According to Murillo, the first option leaves some 500 million pesos in the hands of the enterprises and the second is equivalent to approximately 3.6 billion.
The enterprise managements will have autonomy to decide what to do with that capital. But, at the same time, the government warned that it will reduce the millions of pesos in expenditures that the Budget allocated for the recapitalisation of the entrepreneurial system.
Evidently, the process of transformations of the economic model has started to enter the field of the state-run enterprise, the principal support of the Cuban economy, after initial steps more centred in liberalising and expanding the private area in an economy that was totally in the hand of the State.
New stage for foreign investments
While the authorities advance in the proclaimed direction, the new year promises more ambitious and even daring changes. There is even proof of the political will to speed them up.
In an unusual programming, the National Assembly of People’s Power advanced for next March an extraordinary session to approve a new foreign investment law, though officials from the Foreign Trade and Investments Ministry later commented on the possibility if postponing the special legislative meeting for April.
As a foretaste, the Mariel Special Development Zone (ZED), 45 kilometres to the west of Havana, sent a signal when it opened a door to business with foreign entrepreneurs.
During the official inauguration of the Container Terminal located in the ZED, the Cuban president revealed that “a new stage is now beginning in which we aim to promote important national and foreign investments in the Mariel Special Development Zone that make it possible to increase exports, the effective substitution of imports, the high-tech and local development projects and that they contribute new employment sources.”
Brazilian President Dilma Rousseff, present at the cutting of the inaugural ribbon of the Terminal, announced a new financing of 290 million for the ZED, in addition to the 802 million dollars invested in the first stage by the government of the South American giant.
The changes, visible in terms of government decisions, are still not being reflected in the macroeconomic indicators and, above all, their fruits are taking long for the majority of the population. Between expectations, doubts and conjectures, the big question is, when will they get here? The asymmetry between the speed of the steps and the perception of results confirms the complexity and considerable length of the road being travelled by Cubans. (2013)
Normas para comentar:
- Los comentarios deben estar relacionados con el tema propuesto en el artículo.
- Los comentarios deben basarse en el respeto a los criterios.
- No se admitirán ofensas, frases vulgares ni palabras obscenas.
- Nos reservamos el derecho de no publicar los comentarios que incumplan con las normas de este sitio.