Cuba has announced strong private sector expansion as the Communist government struggles to cope with the worst economic crisis since the fall of the Soviet Union.
Just weeks after the peso was devalued and a dual currency system was abolished, President Miguel Díaz-Canel’s government said over the weekend that it would open most of the economy to private companies.
Labor Minister Marta Elena Feito Cabrera said that instead of allowing private participation in 127 professions, the government would allow it in more than 2,000, reserving only 124 areas in part or in full for l ‘State. She did not specify which one.
The decision was made as the Caribbean island faces rising inflation after the currency devaluation, the first since the 1959 revolution. The government is also planning to end subsidies to some state-owned enterprises, although this is the case. leads to bankruptcy.
Both monetary reform and the decision to free up the private sector are viewed as politically risky by analysts. The devaluation caused the prices of most goods, services, and utilities to rise, triggering popular vocal complaints despite sharp increases in state wages and pensions.
Cuba’s fragile economy was already reeling from a tightening of economic sanctions ordered by the Trump administration when Covid-19 struck. The pandemic has cut off most tourism income, leaving the island dependent on imports hopelessly short of foreign exchange.
The economy shrank 11% in 2020 after stagnating for years and imports collapsed by a third, leaving creditors empty-handed and Cubans lining up for hours to buy staples.
The vital tourism industry saw an almost 80 percent drop in visitor numbers last year. In November, airports reopened and a trickle of tourists returned, but an increase in Covid-19 cases appears to be undermining hopes of a rebound.
Cuban economist and reform advocate Ricardo Torres said the decision to open up the economy would help create jobs and control inflation.
“This gives the authorities more leeway to move forward with the restructuring of state-owned enterprises and reduces the discretion of the bureaucracy,” he said.
The Cuban government is hoping that US President Joe Biden will roll back some of the punitive sanctions imposed by the Trump administration – which in its final days designated Cuba a sponsor state of terrorism – and return to the relaxation of the Obama era.
John Kavulich, president of the United States-Cuban Economic and Trade Council, said that if Havana was successful in liberalizing exchange rates and developing the private sector, it would spur Washington to engage.
“The key is that the Biden administration must believe that the Díaz-Canel administration is serious about restructuring the economy,” he said. “The only way to show this seriousness is to endure the pains of transformation. “
Since the fall of the Soviet Union, Cuba has struggled with space to allow private initiative, limiting and severely regulating it.
The authorities seem to have difficulty pronouncing the words “private sector”, which is referred to as the “non-state” sector, and “private enterprises” which are referred to as “independent”. State media reports on the ministers’ meeting called the latest move “self-employment upgrading.”
It is only in the last few months that private companies have gained access to wholesale markets and allowed to import and export, although they must use state-owned companies, and they can now partner up. with foreign investors. A long-promised law granting them corporate status and putting their rights on an equal footing with other economic players has yet to materialize.
The non-state sector is made up mainly of small private enterprises and cooperatives, their employees, artisans, taxi drivers and traders. In agriculture, there are hundreds of thousands of small farms, but they have to buy inputs from the state and sell their products to the state.
The Minister of Labor said that there were more than 600,000 people in the private sector, around 13 percent of the labor force and around 40 percent of them depended mainly on the tourism industry or worked in the public transport.
Pavel Vidal, a former Cuban central bank economist who teaches at Javeriana Cali University in Colombia, said freeing private companies was key to the success of monetary reform that would force restructuring of state-owned companies and some bankruptcies.
“The self-employed will not have an easy task in this new start due to the complex environment in which they will operate, with few dollars and inputs in the economy, but they will gradually increase”, a- he declared.
Additional reporting by Michael Stott in London