Social Problems in Cuba Await Greater Economic Growth

Passers-by walk by a graffiti with the phrase “Chicken arrived”, in Havana’s Cerro municipality. Poultry meat and other foods have been missing from Cuban tables, due to shortages of basic essentials. Photo: Jorge Luis Baños / IPS

By Luis Brizuela (IPS)

HAVANA TIMES – Forecasts for Cuba’s economic growth continue to be low for a country that has been hit by emigration, inflation and low production, which are just a few of the challenges it faces before the vast majority are able to see their living conditions improve.

According to the Ministry of Economy and Planning, this Caribbean island’s gross domestic product (GDP) grew 2% in 2022 and is estimated to grow by 3% in the next 12 months.

However, the Economic Commission for Latin America and the Caribbean (ECLAC) has cut this foecast for 2023 by half.

Experts predict that Cuba will need constant annual growth of at least 6% to support its development plans.

From January 2020 until late September 2021, Cuba’s GDP shrunk by 13%, as a result of the pandemic, and measures implemented by former US president Donald Trump (2017-2021), which made the US embargo against the island – in place since 1962 – a lot stricter.

But the years before these incidents were marked by low economic growth and they are still off the desired foreign investment mark of at least 2.5 billion USD per year.

According to official statistics, sectors such as agriculture, the cattle industry, fishing and construction are receiving investments way below business services, real estate and rental activities that include building hotels, for example.

Add to this the decapitalization of most national industries, low productivity and a series of economic reforms that, despite popular consensus and approval in 2011, have suffered setbacks or their implementation has been unsuccessful.

People use the lights on an electric motorbike to play dominoes during a blackout. The country experienced an electricity generation crisis for most of 2022, with blackouts lasting up to 12 hours in almost all of the country’s 15 provinces, a situation that eased up at the end of the year. Photo: Jorge Luis Baños / IPS

Wishes vs. reality

“If only next year we have a bit of a breather and things really begin to improve, we see a bit more food around, medicines aren’t in shortage and getting around on public transport is no longer a headache,” wished Juana Maria Limonta, a pensioner living in Havana, told IPS.

Currency reform began in early 2021, when the economy had practically grinded to a halt as a result of COVID-19, but it increased money in circulation and prices shot up amidst shortages. Nor has the process kept the partial dollarization of the economy in check.

Results from dozens of government measures meant to stimulate production have yet to be seen, especially in the countryside, in this country that was agricultural in the past and now needs to import 70% of its its food for a population of 11.1 million people.

Electrical engineer Sergio Núñez says that he would notice economic recovery “if prices drop and I can buy food and other supplies, which can only be found in dollar stores or on the black market and are super expensive in both, if I can pay for them with my wages in Cuban pesos.”

Núñez, who lives in the town of Santa Cruz del Norte, 45 km east of Havana, told IPS that he would like to “buy cement and other materials at an affordable price to finish my house” next year, so I don’t have to carry on living with my wife and two children at my in-laws’ house.”

Availability and prices of building and housing materials are a headache for many families when the country has a housing deficit of over 863,000 houses and nearly a third of its 3.9 million homes are classified as being in a regular or poor state.

During sessions of the National Assembly of People’s Power – Cuba’s unicameral parliament -, that took place between December 12th and 14th, it emerged that just over 21,200 houses had been completed during the year, 58% of the planned target.

They hope to finish 30,000 properties by 2023, and if they keep going at this rate, the current housing deficit would be eliminated in over 28 years.

“Cuban workers find they are losing their purchasing power with extremely high inflation. This doesn’t motivate work and automatically leads to lower productivity,” economist Omar Everleny Perez Villanueva explained when talking to IPS.

In one of his speeches before Parliament, President Miguel Diaz-Canel recognized that inflation, shortages, devaluation and the non-convertibility of national currency are macroeconomic imbalances that “have produced a substantial deterioration to the purchasing power of workers’ and pensioners’ incomes and the population’s living conditions.”

A man walks down a street in the western city of Pinar del Rio, after mighty Hurricane Ian swept through, leaving economic losses in the millions, as well as damaging over 100,000 houses, electrical and telecommunications networks, and many crops in this region and in western Cuba in general. Photo: Jorge Luis Baños / IPS

Tough year

In 2022, the Cuban economy felt the negative impact of the explosion at the Hotel Saratoga in Havana, on May 6th, and the fire at the Matanzas Supertanker Oil Facility, between August 5th and 11th.

Mighty Hurricane Ian swept through the Pinar del Rio province on September 27th, causing damage to over 100,000 homes, electricity and communications networks, as well as crops – including the important export crop tobacco -, in this region and others in western Cuba.

Constant breakdowns and maintenance of ancient power plants for the most part of the year led to an energy crisis with blackouts for 12 hours or more in nearly all of the island’s 15 provinces.

When the year was drawing to an end, blackouts significantly decreased, in parallel with a drop in demand due to the winter’s cooler temperatures.

This goes hand-in-hand with investments that have slowly been breathing life back into some plants, along with Cuba leasing powerships (floating power plants) from Turkey and incorporating fueloil and diesel engines, to complement the National Grid.

Over 224,000 Cubans emigrated to the US alone, between October 2021 and September 2022, mainly because of the economic situation and barriers that stop them from undertaking their life projects in Cuba.

This exodus of over 2% of the population – mostly young people and professionals -, has a negative impact on development plans in a country that is also marked by a fastly ageing population.

Independent workers inside a cellphone and computer repair store, in Central Havana. Latest news about the private sector’s tax payments and the suspension of new licenses for small private businesses stirs up resentment among economists and business owners over the impediments to a key sector in increasing food production, goods and services.  Photo: Jorge Luis Baños / IPS

Getting to the heart of the problem

The 2023 economic plan includes a program on macroeconomic stability which, according to the Government, includes regulatory measures to bring in more revenue to fund social services and programs, as well as trying to cut the general government deficit, estimated at over 68 million pesos (over 2.8 million USD).

Controversial decisions include the Ministry of Finance and Prices announcing that they expect to set out the minimum to calculate tax (on sales and personal wages) by 2023, and that they will modify the tax rate to apply tax on the total sales and services of micro, small or medium-size enterprises (MSMEs).

The ministry announced that businesses restructured into MSMEs or newly-created ones will no longer be exempt from paying tax for six months – to a year, respectively, like they had been up until now.

Nevertheless, it explained that it will uphold benefits and incentives such as tax-free profits in technology parks, for up to five years, and in the case of natural persons importing photovoltaic systems and devices that use renewable sources of energy etc.

“Lifting tax exemptions on MSMEs shows their ignorance or express wish not to support the sector, which goes against what was approved just a year after they were born,” professor and researcher Iliana Fernandez, the coordinator of Entrepreneurial and Innovation Network at Havana University, told IPS.

A civil demand for years, the Government authorized the creation of MSMEs in September 2021, as part of a plan to revive the economy post-COVID-19, focusing on increasing food production and other goods and services.

Up until November 30th, 5,895 of these actors (mostly private owners) were authorized, which should have created approximately 102,000 jobs, but the suspension of new licenses in recent weeks has stirred resentment among economists and business owners about the application of possible impediments to a sector that is still viewed with suspicion.

The Government previously said that MSMEs compliment the economy, they act equally like every other recognized economic actor and there wouldn’t be any setbacks or brakes in opening up the private sector.

“Tax systems also have the function of serving incentives or disincentives, not only collecting money… When you start a new business under new and rigorous rules, you need to be supported after the restructuring process in order for it to take off,” Fernandez weighed in.

Perez Villanueba believes that economic development over more than the past six decades “ still presents serious difficulties, which are recognized by the highest authorities, but they keep using the same economic measures to resolve them, and these haven’t been efficient, just like price controls or fines for hoarding.

“I believe that we need to go to the heart of the problem of economic disorder, which is to incentize production and to remove the nooses that still exist, which are more than financial, they are production-related,” the expert summarized.

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One thought on “Social Problems in Cuba Await Greater Economic Growth

  • A very balanced and insightful article.

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