Small Businesses in Cuba, Challenges and Obstacles

By Rachel D. Rojas  (Progreso Semanal)

HAVANA TIMES — Anything to do with funding, supplies and taxes has to be a headache today for Cuba’s self-employed. [In the case of taxes, they were once demonized here as an evil of only capitalist systems.] The other obstacles on the road to success are huge.

The restrictions on being able to access loans, the absence of wholesale markets, the impossibility of legally operating as Small and Medium-Sized Private Businesses (they can only be considered self-employed workers), the lack of licenses for professional high added value jobs, bans on importing supplies and technology and poor access to information, among other factors, put a very low ceiling on the prospects of these people.

Life in Cuba, in many cases detached from international practices, encourages many of these small businesses to focus on activities which might seem innovative for here, and I’m not only talking about cafes and taxi drivers, but only because of the distortion of reality that has been created thanks to so many years of the US economic embargo.

If these home grown hurdles and the embargo didn’t exist, we can positively say that Cuba’s history, generally-speaking, would have been very different. And especially so for the self-employed.

How can any private business grow and make progress while respecting the laws? Just filling out a tax form is a juggling act in its own right. Government authorities have recognized that under declarations are a widespread practice.

And going further, how can a Cuban business compete against any foreign investor?

Ever since limited forms of self-employment was allowed again starting in 1993, after being pretty much outlawed for decades, the temporary nature of this measure, which was taken to relieve the economic crisis in the 1990s, was made clear, it wasn’t going to form a part of the country’s economic development.

“The conditions of the Special Period in Time of Peace (crisis of the 1990s) have established the need to extend the scope for self-employment,” Decree-Law 141 stated.

In the same document, a Joint Resolution clearly sets out the limits: Professionals and university graduates were excluded from the possibility to work as self-employed. The opening was only for lesser skilled State workers, the retired, people with limited working capabilities, “left over workers”, those receiving a subsidy after being laid off, or the closing of a state business, and also housewives.

“Left-over workers”, as they were called, or subsidized workers, who joined this sector, would not be dismissed of their obligations to the State workplace they were tied to in the case that the country needed them. The State also had the right to limit the right of people to be self-employed in places where the government’s work force was scarce and more urgent; these workers would not be allowed to leave their places of work. Today, professionals can be self-employed, but only in the limited sectors which have been approved, not in their area of expertise.

In the 90s and part of the first decade of this century, the self-employed were forbidden from hiring paid help.  And before being allowed to put bread on the table by their own means, workers would first have to prove their job discipline at their state-run workplace. Now, none of this is necessary as the self-employed can now hire workers (who are legally also considered self-employed).

At first the limited products or services of the self-employed could be sold directly to the people, but couldn’t be sold to government businesses or institutions, now they can as this has finally been approved. The activities where small businesses are allowed are at the discretion of the State, which reserves the right to intervene in the marketing activity depending on its public and social interest.

It tries “to avoid, at all costs, the rising of intermediaries who speculate and profit from other people’s efforts.” At first, the minimum monthly fees which self-employed workers had to pay could be increased by the Municipal Government’s Administrative Council if they produced “excessive earnings.”  And today, as well.

It still remains clear today that after consecutive reforms of these laws and regulations, and within a completely different context to that of the Special Period – except for certain kinds of shortages, which are now being distributed in other ways – the political model which the Cuban government has opted for isn’t designed for accumulating capital, something which has always gone hand in hand with private business and is already happening in the country anyway.

It also remains clear that in the face of a new economic crisis, which is becoming more and more evident, Cuba is forced to reform its economic model yet again, which they’ve already done giving greater space to self-employed workers. This time with less obstacles, but still with limited scope.

The way in which in the ‘90s they tried to get “left-over workers” – now called “available workers” or “subsidized workers” [to not use the word unemployed] – to become self-employed, was repeated over the last decade.

This time there was an excess of a million State workers, and “with the objective of ensuring the rational use of the nation’s work force and strengthening the role of their salary and its relation with their work output,” the Labor Agreement for them was published in 2011 in the Gaceta Official with new updates to the Regulations which would govern the new law for the self-employed.

While designed in first instance to get these “excess” workers off the government payroll, reality proved that the opening in the market for the self-employed didn’t “absorb” the work force without a place as was hoped. Rather, it legalized many people who up until them didn’t have any ties with a workplace [read were part of the black market]. According to Prensa Latina news agency, this group is 68% of those who are involved in private businesses today.

After 274 Communist Party “guidelines”, and a Conceptualization of the Cuban Economic Model where small and medium businesses would exist, the governing has approved a list of 201 activities for self-employment, which includes the update in 2013. And even though Raul Castro said in 2016 that we can stop using euphemisms and start talking about the existence of small, medium-sized private businesses and micro-companies, the self-employed continue to be at an disadvantage in the face of ever more likely competition from foreign investors.

Let’s take a look at the laws which set out the regulations for these two sectors. In regard to allowed activities self-employed workers are limited to working in a list of sectors which are mostly of low added value. These include jobs like bathroom cleaners, cobblers, plumbers, palm tree pruners or phone card salespeople.  It is clear that they aren’t going to save the national GDP and its deficit. Not even the most exalted private restaurants (paladares) which already exist could do this.

The real opportunities favor foreign investors

On the contrary, in the last portfolio of investment opportunities presented to foreign investors “priority sectors included agricultural production and food industry; tourism, including health tourism; developing energy sources, especially renewable energy sources; exploring and exploiting hydrocarbons and mining resources; and the construction or improvement of industrial infrastructures.” These are all key sectors to Cuba making economic progress.

Any foreign investor will find in Cuba, if not an extremely favorable climate for setting up businesses, at least a more relaxed tax law than that which exists for the self-employed: a tax break on profits for 8 years, and 10 years if the company is based in the Mariel special development zone. The self-employed are exempt from paying tax obligations (Tax on sales, Excise tax on Products and Services, Using Employees and Personal Incomes) for just the first three months.

The Foreign Investment Law doesn’t speak in terms of maximum amounts or limitations on business growth. Meanwhile, all of these issues limit the development and progress of the island’s self-employed, who in the long run – and not even then – delays the “made in Cuba” trademark and leaves us even more vulnerable to foreign capital.