Cuba’s Private Sector Amid a Difficult Backdrop

Nayvis Diaz (D), leader of the small business “Velocuba” along with a member of her team. Velocuba is a SME dedicated to fixing and renting out bikes, in Havana, Cuba. January 4th 2022. Photo: Jorge Luis Baños/IPS

By Patricia Grogg (IPS)

HAVANA TIMES – The new year kicked off with over 1000 micro-, small and medium-sized enterprises (MSMEs), the first to be authorized since September, with their owners hopeful amid a backdrop of economic tensions and a dangerous uptick of COVID-19.

Up until December 22, 2021, there were 1188 SMEs, out of which 1166 are private and 22 state-led, plus 19 non-agricultural cooperatives, the other form of private enterprise after a series of regulations came into effect in September, which allows them to join the economy in this country with a socialist government.

The Cuban Ministry of Economy pointed out that 58% of the total authorized up until this date, were already existing independent businesses (without real legal status as such) that were restructured, and the rest were new businesses. The official report added that these entities, spread across the country of 11.2 million people, will create 18,603 job opportunities.

They range from food production, building material production, furniture, textiles, footwear, plastic, as well as cleaning and hygiene products, I.T. programming activities, material recovery and recycling and technical services, to name a few.

“For small private businesses, like our own, MSMEs are the chance for us to enter the national economy as a recognized and legitimate player,” Adan Perugorria, creative director and co-founder of the Gorria Gallery/Studio, said when consulted by IPS.

Workers processing mangos for jam production, at a mini-industry, in the Baracoa municipality, in the eastern province of Guantanamo, Cuba. June 13th 2018. Photo: Jorge Luis Baños/IPS

This cultural institution in the crowded San Isidro neighborhood in Old Havana, is linked to local development in the area and doesn’t rule out becoming a MSME in the future, which will give it the opportunity to have a legal personality, a bank account, and other special features of this kind of economic actor.

“There is no doubt that this is a new reality for business in Cuba, that will allow enterprises to develop in conditions that favor supply chains, and greater opportunities to prosper,” Perugorria pointed out. 

The official opening of the economy to this new form of MSMEs has been well-received and as an economic “boost”, although many experts agree that it should have been adopted several years ago or before the Reforms Process at least, which was officially called Tarea Ordenamiento and involved the currency unification process that began on January 1, 2021.

Even so, some entrepreneurs decided not to join in on this reorganizing of the self-employed into business owners. “We have a year to analyze all of this and we’re going to wait. First of all, because we have accumulated debt in these past two years, which we are still trying to pay off and it has been very hard to get by,” a restaurant owner explained, who asked to remain anonymous.

“We are worried about these regulations which actually mean, especially regarding taxes, and in a legal context. We are also still unsure of what advantages we will have right now, by becoming a SME. A group of restaurants are already sure about this, but we’re not,” he told IPS.

Another small business shows its products. Photo: Jorge Luis Baños/IPS

Experts and entrepreneurs both point out how unfair the tax regime is, which doesn’t differentiate between the different kinds and establishes the same kind of tax and taxes for micro-, small and medium-sized enterprises, which other countries in the region do.

Furthermore, taxes are the same for state-run companies, but are generally bigger and protected by the State. “The tax burden is excessive,” David Tavares, co-founder of Digital Marketing Agency JYD Solutions, weighed in when talking to IPS. In this first phase, his business didn’t get a license to become a company.

“Despite existing legislation, we aren’t allowed to directly transform into a MSME with our current business model, we are still studying and looking at this, for when we are able to become legal persons with all of the challenges and problems we know this implies,” he said.

Speaking from many years of experience in the self-employment sector, Tavares advises new business owners to be flexible and adapt business models to the realities of the market. As well as diversifying goods and services that businesses offer and avoid short-term thinking.

“We will have to work really hard and be extremely efficient, in order to make our businesses work in an economy in crisis, so short-term thinking can be more of a problem than a solution,” he pointed out.

Entrepreneurs are afraid that the recent uptick in COVID-19 cases will lead to new restrictions. After 13 consecutive weeks of numbers of infections dropping, more cases were recorded in the last few days of 2021 than in the seven days prior.

2022 began with Cuban scientists predicting a new wave of infections in the country and the government appealing to citizens to act responsibly and respecting health protocols to stop the spread of the epidemic.

However, there are hopes that with over 90% of the population (11.2 million people) vaccinated and making progress with the fourth dose of the booster, the situation can be kept under control in the early months of the year. (Editors Note: the number of new cases are rising quickly in the first 9 days of 2022.)

The health situation also depends on whether the country will meet its goal of welcoming 2.5 million tourists and manage to increase the GDP by a moderate 4% over last year. 

However, efficiency in the relationship between economic actors, both public and private, is key for this revival, in a landscape where SMEs will prove their resilience (or not).  Experts in economic affairs believe its necessary to create conditions for developing this entire business system.

Read more from Cuba here on Havana Times.