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Economics and business in Cuba

According to countryaah, Cuba has been a socialist country with a plan-driven economy since 1961. The country has also been affected by US economic sanctions (often referred to as embargo or blockade). The country received generous subsidies from the Soviet Union, which paid well for Cuban sugar, including oil supplies. With the fall of the Soviet Union, Cuba was hit by very serious financial problems and a dramatic fall in living standards, a crisis known as the "special period".

Business and Economy of Cuba

Cuba today has left much of the crisis behind. The country has gained new business avenues and trading partners. The authorities have implemented limited reforms, but these have not produced expected growth. The sanctions, combined with an ongoing crisis with Cuba's closest ally Venezuela, have created a complicated and uncertain situation for the Cuban economy.

Business and commerce

All three quarters of Cuba's economy is service-based, while industry accounts for 21 percent of GDP, agriculture accounts for just 4 percent. Health services and tourism are the major sources of currency and are more important than the once dominant sugar industry. Other export industries include tobacco and beverages, mining (nickel and cobalt), agricultural products (including citrus fruits), and biotechnology (medicine). For a period, the export of Venezuelan oil was also a significant source of income.

The state controls strategic parts of the economy. It sets wages, prices and controls trading. Cuba has for years been struggling with low productivity and achieving its growth goals. The country depends on importing most of the food it consumes, and wages for government employees are rarely sufficient (real wages are well below the 1989 level). The opening for tourism, remittances from emigrated Cubans and private businesses has given parts of the population a more comfortable financial situation, but has created economic differences. Cuba is ranked much higher on the United Nations Human Development Index (HDI) than the economy would suggest, which is probably due to a lot of welfare schemes.

Since the 1990s, the authorities have sought to spread the trade in several countries, but the US sanctions and penalties make this difficult - among other things, a billion dollars have been given to an international bank that had relations with Cuba. In 2016, the most important trading partners were China, Venezuela, Spain, Canada, Brazil and Mexico. Under Raúl Castro, Cuba has renegotiated its foreign debt and left 90 percent of Russia's major debt, with roots in the Soviet era. During Barack Obama, some of the sanctions against Cuba were eased, but Trump administration has subsequently tightened these again.

The economic crisis in Venezuela is causing major problems for Cuba. From 2016 to 2017, Venezuela went from receiving 42.9 percent of Cuba's exports to 27.7 percent.

Agriculture and fishing

Agriculture employs 18 percent of Cubans, but accounts for only 4 percent of GDP. Cuba has never managed to become self-sufficient in agricultural products and is largely dependent on imports.

When Fidel Castro fell ill and his brother Raúl Castro became the country's top leader in 2008, the authorities began giving farmers the right to use land that is broken. The trial has so far yielded limited results. Coffee is grown on the mountain slopes of the southeastern provinces, and to a lesser extent in the middle parts, but production is marginal compared to the time before the revolution. Otherwise, citrus fruits are produced for internal consumption and export (especially oranges and grapefruit).

The grasslands in the middle and eastern parts of the country formed the basis for an extensive cattle industry. The industry weakened in the years following the revolution and further in the 1990s.

fishing

Fishing has provided the basis for a significant export industry, and is still of importance. The annual catches in the 1980s were about 200,000 tonnes, but in the period 2010-2013 was around a tenth of this. Cubas exports shellfish to a certain extent.

Tobacco

Tobacco is an important export item, it is exported especially in the form of the famous Cuban cigars. The Vuelta Abajo area west of Havana is referred to as the world's best area for tobacco production.

Sugar industry

Sugar production reached 8.5 million tonnes in 1970, accounting for 75 per cent of the country's exports in 1988. In 2017, total production was less than two million tonnes.

Mining

Nickel, which is used to make stainless steel, is the most important metal. Cuba has managed to increase production during the crisis years, despite the fact that the United States introduced punitive measures against a Canadian firm that has been heavily in recovery (Sherritt). Nickel is one of the country's most important export goods, and Cuba has the world's third largest deposits. There are also significant deposits of iron ore, cobalt and manganese.

Most of the mineral resources are found in the mountainous regions of the southeast.

Oil and gas

Petroleum is mined off the north coast and around Ciego de Ávila. Cuba aimed to increase its own oil production from the 1980s and especially after the fall of the Soviet Union.

The production now covers a considerable part of the country's consumption, but the oil is strongly sulfate-containing, which limits its applications. The country depends on imports, especially from Venezuela.

Other industry

Except for the factories that processed agricultural products such as sugar and tobacco, Cuba had little industry before 1959. After the revolution, a number of industrial plants, often on a large scale, were built with financial and technical support from the Soviet Union and the other countries in the Eastern bloc.

Production fell dramatically during the 1990s, when oil, spare parts and wages, among others, were lost. In 2017, industrial production remained at 68 per cent of the 1989 level.

Much of the industrial production is aimed at building and construction activities.

Cuba established a medical industry in the mid-1980s. The biopharmaceutical industry has gradually become a significant export industry, exporting to 40 different countries.

There is also a certain food industry that produces canned foods and various beverages, mostly for the internal market, but Cuban space is exported to many countries.

Tourism

Cuba has long regarded tourism as not ideologically compatible with socialism. Since 1987, the sector has grown gradually. In 2018, the country received 4.7 million visitors, a number that includes Cuban emigrants visiting the homeland. It is an important source of jobs and the authorities aim to be a "locomotive" for the rest of the economy.

Exports of (health) personnel

The most important source of currency is the export of qualified personnel, mainly health workers.

50,000 Cuban doctors and health workers work abroad at any time through government agencies, and are present in 67 countries. The root of the project is Cuban "internationalism" where, under Fidel Castro, auxiliary workers were sent to much of the world. In recent years, the state has increasingly paid for these services.

As of 2000, Cuba has agreed with Venezuela to switch health services to oil. Cuban authorities have agreements on the export of health services with Brazil, with around 10,000 doctors and health workers in this country. The crisis in Venezuela and political changes in Brazil create uncertainty about this business and how lucrative it will be in the future.

Infrastructure

The transport network is well developed, but is characterized by many years of economic crisis. Cuba got railways as early as 1837, before it came to Spain, ie the colonial power that controlled Cuba. Today there is a well-developed state-run railway network of just under 5000 km, but it is characterized by poor maintenance. Cuba has signed an agreement with Russia to modernize the railway.

The road network has a length of around 13,000 km with a fixed tire, and a motorway crosses the island from Pinar del Río in the northwest via Havana to Santiago de Cuba in the southeast. The main port cities are Havana, Cienfuegos, Santiago de Cuba, Nuevitas and Matanzas.

A major investment under Raúl Castro (2008-) has been the construction of a free trade zone with a port in Mariel, built with Brazilian investments. The country's strategic location in the Gulf of Mexico, opportunities for receiving so-called Postpanamax ships, created, along with the relief of the Barack Obama embargo, expectations that this could be the beginning of a Cuban trade and industrial adventure. However, the embargo persists and has been tightened under Donald Trump, and so far there is little activity at the new port.

History

During the colonial period, Cuba was a commodity-producing economy characterized by monoculture and slave labor. Tobacco became an important export commodity and one had a short-lived coffee boom, but sugar was to become the dominant product.

The indigenous people of Cuba were almost exterminated during the colonization in the first half of the 16th century, and the plantation system the Spaniards established, based on the labor force of African slaves. From the second half of the 18th century, the country's economy accelerated. The trade monopoly and dependence on Spain was weakened by the British occupation of Havana (1762-1763), which brought businessmen from North America into Cuba, as well as economic reforms under Spain's King Charles 3. In Haiti, the revolution (1781-1804) led to a collapse in coffee and sugar production, and capital instead drifted towards neighboring Cuba. There was a dramatic increase in slave imports from Africa; by 1825, the black population was in the majority.

Although Cuba was a Spanish colony until as late as 1898, North American economic interests were heavily inland until the late 1800s. Cuba was occupied by the United States (1898-1902) and then turned into a protectorate under its neighboring country, but even after the status of protectorate ceased in 1934, economic dependence remained great.

Cuba was considered one of the richer countries in Latin America and the Caribbean. Cuba was the world's largest sugar producer in the 1920s, and received significant labor immigration from Spain, among others. However, the contrast between modern Havana and poverty and the distress that characterized most of the country was great. The monoculture made it very vulnerable to fluctuations in sugar prices. Seasonal work created a demand for labor during the harvest, but unemployment was high most of the year.

The post-revolution economy

Fidel Castro's revolution of 1959 led to a reshaping of the country's economy, including land reform and extensive nationalization. The revolution was declared socialist in 1961.

The 1960s were marked by tumultuous and ever-changing attempts to develop. The socialism model still allowed private small businesses. Towards the end of the decade, the authorities tried a series of ultra-radical experiments that included the nationalization of the latest small businesses, and that a number of goods and services were made free of charge.

In 1972, Cuba joined the Soviet- dominated trade cooperation Comecon, and largely followed Soviet economic management principles, which were more pragmatic than the many followed in the previous radical experiments. Market relations and material incentives were accepted to a limited extent, especially in the period 1980-1986 where one had privately owned farmer's markets where prices were determined by supply and demand.

The economic dependence on the Soviet Union was high. Although Cuba had made an investment law (1982), the start for new industries such as medicine (1986), and opened to tourism (1987), increased dependence and towards the end of the decade, 85 per cent of foreign trade with Comecon countries. When the Soviet Union collapsed, the authorities implemented painful reforms such as legalizing previously banned US dollars. New sources of income were added, such as money transfers from emigrated Cubans, and the authorities invited investors to build tourist facilities. They also opened to private small businesses in certain selected industries, but this process stagnated and was partially reversed in the 2000s.

It was not until around 2010 that Cuba to a greater extent opened up to private companies owned by Cuban nationals, and then within a group of pre-specified categories of businesses. Around 70 per cent of the workforce still works for the public sector, and the private sector must be regarded as complementary. Today, however, the private sector is recognized by the authorities as a "natural" part of a socialist economy, while in the 1990s it was viewed more as a foreign element or a necessary and perhaps transient crisis response.

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