Economy of Cuba

Economy of Cuba
Hotel Nacional y Malecon de La Habana.jpg
Skyline of Havana
CurrencyCuban peso (CUP) = 100 cents and Cuban Convertible Peso (CUC) = 25 CUP
Calendar year
Statistics
Unemployment2.6% (2017 est.)[1]
Main industries
Sugar, petroleum, tobacco, construction, nickel, steel, cement, agricultural machinery, pharmaceuticals[2]
External
Exports$4.41 billion (2015 est.)[2]
Export goods
sugar, medical products, nickel, tobacco, shellfish, citrus, coffee[2]
Main export partners
 Venezuela 33.5%
 Canada 15.9%
 China 9.5%
 Netherlands 4.5% (2014)[3]
 Italy 1.4% (2014)[3]
Imports$15.2o billion (2015 est.)[2]
Import goods
petroleum, food, machinery and equipment, chemicals[2]
Main import partners
 Venezuela 38.7%
 China 12.3%
 Russia 4.7%
 Algeria 4.4% (2014)[4]
 Poland 2.4% (2014)[4]
Public finances
$25.21 billion (31 December 2014 est.);[2]
Revenues$54.52 billion (2017 est.) [2]
Expenses$64.64 billion (2017 est.) [2]
Economic aid$88 million (2005 est.)

All values, unless otherwise stated, are in US dollars.

Cuba has a planned economy dominated by state-run enterprises. The Cuban government owns and operates most industries and most of the labor force is employed by the state. Following the fall of the Soviet Union in 1991, the ruling Communist Party of Cuba encouraged the formation of worker co-operatives and self-employment.

As of 2000, public-sector employment was 76% and private-sector employment (mainly composed of self-employment) was 23% - compared to the 1981 ratio of 91% to 8%.[5] Investment is restricted and requires approval by the government. The government sets most prices and rations goods to citizens. In 2016 Cuba ranked 68th out of 182 countries, with a Human Development Index of 0.775, much higher than its GDP per capita rank (95th).[6] As of 2012, the country's public debt comprised 35.3% of GDP, inflation (CDP) was 5.5%, and GDP growth was 3%.[7]

Housing and transportation costs are low. Cubans receive government-subsidized education, healthcare and food subsidies.[8]

The country achieved a more even distribution of income after the Cuban Revolution of 1953-1959,[citation needed] which was followed by an economic embargo by the United States (1960- ). During the Cold War period, the Cuban economy was heavily dependent on subsidies from the Soviet Union, valued at $65 billion in total from 1960 to 1990 (over three times as the entirety of U.S. economic aid to Latin America), an average of $2.17 billion a year.[9] This accounted for anywhere between 10% and 40% of Cuban GDP, depending on the year.[10] While the massive Soviet subsidies did enable Cuba's enormous state budget, they did not lead to a more advanced or sustainable Cuban economy; although described by economists as "a relatively highly developed Latin American export economy" in 1959 and the early 1960s, Cuba's basic economic structure changed very little between then and 1990. Tobacco products such as cigars and cigarettes were the only manufactured products among Cuba's leading exports, and even these were produced by a preindustrial process. The Cuban economy remained inefficient and over-specialized in a few highly subsidized commodities provided by the Soviet bloc countries.[11] Following the collapse of the Soviet Union, Cuba's GDP declined by 33% between 1990 and 1993, partially due to the loss of Soviet subsidies[12] and a crash in sugar prices in the early 1990s. It rebounded in the early 2000s due to a combination of marginal liberalization of the economy and heavy subsidies from the friendly socialist government of Venezuela, which provided Cuba with low-cost oil and other subsidies worth up to 12% of Cuban GDP annually.[13] Cuba retains high levels of healthcare and education.[14]

History

Before the Revolution

Although Cuba belonged to the high-income countries of Latin America since the 1870s, income inequality was high, accompanied by capital outflows to foreign investors.[15] The country's economy had grown rapidly in the early part of the century, fueled by the sale of sugar to the United States.[16]

Prior to the Cuban Revolution, Cuba ranked fifth in the hemisphere in per capita income, third in life expectancy, second in per capita ownership of automobiles and telephones, first in the number of television sets per inhabitant.[17] Its income per capita in 1929 was reportedly 41% of the U.S., thus higher than in Mississippi and South Carolina.[18]

Its proximity to the United States made it a familiar holiday destination for wealthy Americans. Their visits for gambling, horse racing and golfing[19] made tourism an important economic sector. Tourism magazine Cabaret Quarterly described Havana as "a mistress of pleasure, the lush and opulent goddess of delights." According to Perez, "Havana was then what Las Vegas has become." [19] Cuban dictator Fulgencio Batista had plans to line the Malecon, Havana's famous walkway by the water, with hotels and casinos to attract even more tourists. Today Hotel Havana Riviera is the only hotel that was built before the revolutionary government took control.[20]

Cuba had a one-crop economy (sugar cane) whose domestic market was constricted. Its population was characterized by chronic unemployment and deep poverty.[21] United States monopolies like Bethlehem Steel Corporation and Speyer gained control over valuable national resources. The banks and the country's entire financial system, all electric power production and the majority of the industry was dominated by U.S. companies.[22] U.S. monopolies owned 25 percent of the best land in Cuba. More than 80 percent of farmland was owned by sugar and livestock-raising large landowners.[23] 90 percent of the country's raw sugar and tobacco exports was exported to the U.S. In 1956, U.S.-owned companies controlled "90 percent of the telephone and electric services, about 50 percent in public service railways, and roughly 40 percent in raw sugar production" according to a report published by the Department of Commerce. The gains from these investments were reaped by American businessmen leading to discontent among the Cuban people.[24]

In the 1950s, most Cuban children were not in school. 87 percent of urban homes had electricity, but only 10 percent of rural homes did. Only 15 percent of rural homes had running water. Nearly half the rural population was illiterate as was about 25 percent of the total population. Poverty and unemployment in rural areas triggered migration to Havana.[25] More than 40 percent of the Cuban workforce in 1958 were either underemployed or unemployed.[26]

Cuban Revolution

On March 3, 1959, Fidel Castro seized control of the Cuban Telephone Company, which was a subsidiary of the International Telephone and Telecommunications Corporation. This was the first of many nationalizations made by the new government, the assets seized totaled US$9 billion.[27]

After the 1959 Revolution, citizens were not required to pay a personal income tax (their salaries being regarded as net of any taxes).[28] The government also began to subsidize healthcare and education for all citizens; this action created strong national support for the new revolutionary government.

After the USSR and Cuba reestablished their diplomatic relations in May 1960, the USSR began to buy Cuban sugar in exchange for oil. When oil refineries like, Shell, Texaco, and Esso refused to refine Soviet oil, Castro nationalized that industry as well, taking over the refineries on the island.[29] Days later in response, the United States cut the Cuban Sugar Quota completely, Eisenhower was quoted saying "This action amounts to economic sanctions against, Cuba. Now we must look ahead to other moves - economic, diplomatic, and strategic".[29]

On February 7, 1962, Kennedy expanded the United States' embargo to cover almost all U.S. imports.

In 1970, Fidel Castro attempted to motivate the Cuban people to harvest 10 million tons of sugar, in Spanish known as La Zafra, in order to increase their exports and grow their economy. With the help of the majority of the Cuban population, the country was able to produce 7.56 million tons of sugar.[30] In July 1970, after the harvest was over, Castro took responsibility for the failure and later that same year he blamed the Sugar Industry Minister saying “Those technocrats, geniuses, super-scientists assured me that they knew what to do in order to produce the ten million tons. But it was proven, first, that they did not know how to do it and, second, that they exploited the rest of the economy by receiving large amounts of resources . . . while there are factories that could have improved with a better distribution of those resources that were allocated to the Ten-Million-Ton plan”.[31]

During the Revolutionary period Cuba was one of the few developing countries to provide foreign aid to other countries. Foreign aid began with the construction of six hospitals in Peru in the early 1970s.[32] It expanded later in the 1970s to the point where some 8000 Cubans worked in overseas assignments. Cubans built housing, roads, airports, schools and other facilities in Angola, Ethiopia, Laos, Guinea, Tanzania and other countries. By the end of 1985, 35,000 Cuban workers had helped build projects in some 20 Asian, African and Latin American countries.[32]

For Nicaragua in 1982, Cuba pledged to provide over $130 million worth of agricultural and machinery equipment, as well as some 4000 technicians, doctors and teachers.[32]

In 1986 Cuba defaulted on its $10.9 billion debt to the Paris Club. In 1987 Cuba stopped making payments on that debt. In 2002 Cuba defaulted on $750 million in Japanese loans.[33]

Special Period

The Cuban gross domestic product declined at least 35% between 1989 and 1993 due to the loss of 80% of its trading partners[clarification needed] and Soviet subsidies.[34] This loss of subsidies coincided with a collapse in world sugar prices. Sugar had done well from 1985–90 and crashed precipitously in 1990–91 and did not recover for five years. Cuba had been insulated from world sugar prices by Soviet price guarantees. However, the Cuban economy began to boost again following a rapid improvement in trade and diplomatic relations between Cuba and Venezuela following the election of Hugo Chávez in Venezuela in 1998, who became Cuba's most important trading partner and diplomatic ally.

This era was referred to as the "Special Period in Peacetime" later shortened to "Special Period". A Canadian Medical Association Journal paper claimed that "The famine in Cuba during the Special Period was caused by political and economic factors similar to the ones that caused a famine in North Korea in the mid-1990s, on the grounds that both countries were run by authoritarian regimes that denied ordinary people the food to which they were entitled to when the public food distribution collapsed and priority was given to the elite classes and the military."[35] Other reports painted an equally dismal picture, describing Cubans having to resort to eating anything they could find, from Havana Zoo animals to domestic cats.[36] But although the collapse of centrally planned economies in the Soviet Union and other countries of the Eastern bloc subjected Cuba to severe economic difficulties, which led to a drop in calories per day from 3052 in 1989 to 2600 in 2006, mortality rates were not strongly affected thanks to the priority given on maintaining a social safety net.[37]

The government undertook several reforms to stem excess liquidity, increase labor incentives and alleviate serious shortages of food, consumer goods and services. To alleviate the economic crisis, the government introduced a few market-oriented reforms including opening to tourism, allowing foreign investment, legalizing the U.S. dollar and authorizing self-employment for some 150 occupations. (This policy was later partially reversed, so that while the U.S. dollar is no longer accepted in businesses, it remains legal for Cubans to hold the currency.) These measures resulted in modest economic growth. The liberalized agricultural markets introduced in October 1994, at which state and private farmers sell above-quota production at free market prices, broadened legal consumption alternatives and reduced black market prices.

Government efforts to lower subsidies to unprofitable enterprises and to shrink the money supply caused the semi-official exchange rate for the Cuban peso to move from a peak of 120 to the dollar in the summer of 1994 to 21 to the dollar by year-end 1999. The drop in GDP apparently halted in 1994, when Cuba reported 0.7% growth, followed by increases of 2.5% in 1995 and 7.8% in 1996. Growth slowed again in 1997 and 1998 to 2.5% and 1.2% respectively. One of the key reasons given was the failure to notice that sugar production had become uneconomic. Reflecting on the Special period Cuban president Fidel Castro later admitted that many mistakes had been made, "The country had many economists and it is not my intention to criticize them, but I would like to ask why we hadn’t discovered earlier that maintaining our levels of sugar production would be impossible. The Soviet Union had collapsed, oil was costing $40 a barrel, sugar prices were at basement levels, so why did we not rationalize the industry?"[38] Living conditions in 1999 remained well below the 1989 level.

Recovery

Historical evolution of Cuban statistics

Due to the continued growth of tourism, growth began in 1999 with a 6.2% increase in GDP.[39] Growth then picked up, with a growth in GDP of 11.8% in 2005 according to government figures.[40] In 2007 the Cuban economy grew by 7.5%, higher than the Latin American average. Accordingly, the cumulative growth in GDP since 2004 stood at 42.5%.[41][42][clarification needed]

However, from 1996, the State started to impose income taxes on self-employed Cubans.[28] Cuba ranked third in the region in 1958 in GDP per capita, surpassed only by Venezuela and Uruguay. It had descended to 9th, 11th or 12th place in the region by 2007. Cuban social indicators suffered less.[43]

Every year the United Nations holds a vote asking countries to choose if the United States is justified in their economic embargo against Cuba and whether it should be lifted. 2016 was the first year that the United States abstained from the vote, rather than voting no, "since 1992 the US and Israel have constantly voted against the resolution – occasionally supported by the Marshall Islands, Palau, Uzbekistan, Albania and Romania".[44]

Post-Fidel reforms

Either we change course or we sink.

— President Raúl Castro, December 2010[45]

In 2011, "The new economic reforms were introduced, effectively creating a new economic system, referred by some as the "New Cuban Economy"[46][47] Since then, over 400,000 Cubans have signed up to be entrepreneurs. As of 2012, the government lists 181 official jobs no longer under their control—such as taxi driver, construction worker and shopkeeper. Workers must purchase licenses to work for some roles, such as a mule driver, palm tree trimmer, or well-digger. Despite these openings, Cuba maintains nationalized companies for the distribution of all essential amenities (water, power, ...) and other essential services to ensure a healthy population (education, health care).

Around 2000, half the country's sugar mills closed. Prior to reforms, imports were double exports, doctors earned £15 per month and families supplemented incomes with extra jobs. After reforms, more than 150,000 farmers could lease land from the government for surplus crop production. Before reforms the only real-estate transactions were home-owners were swapping properties; post-reform legalized buying and selling then created a real-estate boom in the country. In 2012 a Havana fast-food burger/pizza restaurant, La Pachanga, started in the owner's home; it now serves 1,000 meals on a Saturday at £3 each. Tourists can now ride factory steam locomotives through closed sugar mills[48]

In 2008, Raúl Castro's administration hinted that the purchase of computers, DVD players and microwaves would become legal.[needs update] However, monthly wages remain less than 20 U.S. dollars.[49] Mobile phones, which had been restricted to Cubans working for foreign companies and government officials, were legalized in 2008.[49]

In 2010, Fidel Castro, in agreement with Raúl Castro's reformist sentiment, admitted that the Cuban model based on the old Soviet model of centralized planning was no longer sustainable. They encouraged the creation of a co-operative variant of socialism where the state plays a less active role in the economy and the formation of worker-owned co-operatives and self-employment enterprises.[50]

To remedy Cuba's economic structural distortions and inefficiencies, the Sixth Congress approved expansion of the internal market and access to global markets on April 18, 2011. A comprehensive list of changes is:[51][52]

  • Expenditure adjustments (education, healthcare, sports, culture)
  • Change in the structure of employment; reduce inflated payrolls and increase work in the non-state sector.
  • Legalizing of 201 different personal business licenses
  • Fallow state land in usufruct leased to residents
  • Incentives for non-state employment, as a re-launch of self-employment
  • Proposals for creation of non-agricultural cooperatives
  • Legalization of sale and private ownership of homes and cars
  • Greater autonomy for state firms
  • Search for food self-sufficiency, gradual elimination of universal rationing and change to targeting poorest population
  • Possibility to rent state-run enterprises to self-employed, among them state restaurants
  • Separation of state and business functions
  • Tax policy update
  • Easier travel for Cubans
  • Strategies for external debt restructuring

On December 20, 2011 a new credit policy allowed Cuban banks to finance entrepreneurs and individuals wishing to make major purchases to do home improvements in addition to farmers. "Cuban banks have long provided loans to farm cooperatives, they have offered credit to new recipients of farmland in usufruct since 2008 and in 2011 they began making loans to individuals for business and other purposes".[53]

The system of rationed food distribution in Cuba was known as the Libreta de Abastecimiento ("Supplies booklet"). As of 2012 ration books at bodegas still procured rice, oil, sugar and matches, above government average wage £15 monthly.[54]

Raul Castro signed Law 313 in September 2013 in order to create a special economic zone in the port city of Mariel, the first in the country.[55]

On 22 October 2013 the dual currency system was set to be ended eventually.[56] As of 2018, the dual currency was still being used in Cuba.

The achievements of the radical social policy of socialist Cuba, which enabled social advancement for the formerly underprivileged classes, were curbed by the economic crisis and the low wages of recent decades. The socialist leadership is reluctant to tackle this problem because it touches a core aspect of its revolutionary legitimacy. As a result, Cuba's National Bureau of Statistics (ONE) publishes little data on the growing socio-economic divide. A nationwide scientific survey shows that social inequalities have become increasingly visible in everyday life and that the Afro-Cuban population is structurally disadvantaged. The report notes that while 58 percent of white Cubans have incomes of less than $ 3,000 a year, among Afro-Cubans that proportion reaches 95 percent.[57] Afro-Cubans, moreover, receive a very limited portion of family remittances from the Cuban-American community in South Florida, which is mostly white. Remittances from family members from abroad serve often as starting capital for the emerging private sector. The most lucrative branches of business such as restaurants and lodgings are run by white people in particular[58].

Other Languages
العربية: اقتصاد كوبا
Bahasa Melayu: Ekonomi Cuba
português: Economia de Cuba
srpskohrvatski / српскохрватски: Ekonomija Kube
українська: Економіка Куби
Tiếng Việt: Kinh tế Cuba
中文: 古巴经济