Self-Employment in Cuba Expanding, But Not Enough

Patricia Grogg

HAVANA TIMES, Sept. 26 (IPS) — This month, the Cuban government eased up on taxes and other legal aspects involved in self-employment. But experts warn that there are serious limitations standing in the way of growth of private enterprise, which is supposed to absorb hundreds of thousands of employees slashed from the public workforce.

“There has been resistance to the changes that (President) Raul (Castro) wants to carry out, and what is happening with self-employment is one example,” an expert who preferred to remain anonymous told IPS.

Nevertheless, the number of officially registered self-employed people – known in Cuba as “cuentapropistas” – climbed from 157,000 in September 2010 to just over 333,000 in August 2011.

Deputy minister of finance Meisi Bolaños, quoted by the Cuban press, said the growth in one year was higher than projected.

But according to specialized sources, around 25 percent of self-employment permits had actually been returned as of July.

“At least in housing and room rentals, people I know have quit this business because they were losing money,” a woman in the quiet residential Havana neighborhood of El Vedado who rents a room in her house to foreign tourists told IPS.

“My mother and I decided to wait and see if things get better, although if it weren’t for my son, who once in a while sends us some money (from abroad), we would be in trouble,” she said.

She added that this year the number of tourists renting her spare room has plunged, whether it’s because of the global economic crisis or because people have lost interest in Cuba.

She admitted that the latest decrease in the monthly tax paid per rented room “helped, although not enough. The bad thing is that payment of the tax is compulsory, whether or not you have rented out your room,” she complained.

But Ariel García, also from El Vedado, said his experience has been different: “Those of us who accept pesos (instead of hard currency) always have renters; at least that’s the case in my neighborhood.”

“Maybe that’s because we depend less on foreign tourists,” said García, a former maintenance worker at a Havana hotel.

Economists Omar Everleny Pérez and Pável Vidal reported in a study on the issue that the most popular permits as of the first half of this year were for preparing and selling food, providing transportation, workers hired by other self-employed workers and room rentals.

The first category refers to food take-out businesses, cafeterias and small family-run restaurants, called paladares, a word taken from a popular Brazilian soap opera. Regulations approved earlier this month permit paladares to seat up to 50 people, up from the limit of 12 that existed in the 1990s.

“For now I’m sticking to 15 seats. Things are going well and I’m excited about my little business,” Santiago González, owner of the “Paladar el Lobo”, told IPS. His restaurant is on the centrally-located Paseo del Prado boulevard in Cienfuegos, 254 kilometers from Havana.

González had a video-viewing hall for four years during the 1990s. “With the money I saved, I was able to set up my restaurant,” he said, estimating that within a couple of years he will have recovered his investment.

“The good thing is that I did not have to borrow money from anyone,” he added.

A few months ago, the government approved bank loans for private businesses in agriculture and other areas. It has not worked for the self-employed, though, according to Pérez and Vidal.

“Moreover, the financial system has liquidity problems and the two national currencies (the peso and the CUC, which circulates in the country instead of the U.S. dollar) have limitations on their convertibility into hard currency,” say the experts, who propose as an alternative streamlining and promoting international cooperation in the area of microcredit.

“Although there are no precise data available, everything seems to indicate that remittances (from Cubans abroad) are becoming a source of capital for the new businesses that are opening up, given the absence of nationally-available credit,” the economists say in their article on “self-employment and its limitations for increasing production.”

In that respect, a January 2011 survey by two U.S. academics of 300 people who receive remittances in Cuba found that 34 percent of the respondents were thinking about opening a small business, 23 percent already had, and 43 percent were not interested in the idea.

The study by Manuel Orozco, senior associate at the Inter-American Dialogue, and Katrin Hansing, associate professor of Black and Hispanic Studies at Baruch College in New York, found that the respondents uninterested in opening a small business listed as their main reasons a lack of resources and start-up capital, little knowledge about running a business or the unstable political and economic context.

The new regulations that seek to make non-state employment more attractive include tax cuts, more flexible rules for housing rentals, authorization to sell goods and services to state companies or institutions, and permission to hire workers for any of the 181 authorized self-employment trades and activities.

The ability to hire other workers turns the cuentapropistas into small businesses, Pérez and Vidal say, noting that two of the limitations on growth include the lack of authorization for “the creation of small and medium-sized businesses that can be incorporated into national production on a larger scale, or that can generate products and services for export.”

Another obstacle is the lack of a wholesale market for necessary supplies and inputs, something that will be hard to resolve in the short term given the country’s precarious economic and financial situation. An opening to microcredit with international cooperation, however, would facilitate an inflow of foreign exchange enabling the new micro-enterprise owners to import supplies, the two economists say.

According to Pérez and Vidal, the biggest complication is the low rate of economic growth, which along with the huge increase in unemployed workers makes it difficult to imagine that demand for goods and services on the part of families and state enterprises will rise to the level needed to keep such a large number of self-employed people in business.

Self-employment was introduced in Cuba for some 150 occupations in 1993, at the height of the economic crisis that hit the country in the wake of the collapse of the Soviet Union and East European socialist bloc. It was expanded last year when the government announced massive lay-offs of public employees, which were to potentially affect one million people by the end of 2011.

But the government has slowed down the pace of the reforms, to make them less traumatic. Prior to the slashing of the public payroll, the government employed more than 80 percent of the workforce in Cuba.