Ukraine War, a New Setback for the Cuban Economy

By Luis Brizuela (IPS)

HAVANA TIMES – International sanctions against Russia in response to its invasion of Ukraine and the war being waged in this European country could slow down post-COVID economic recovery in Cuba, likely impacting both the state-led and private sectors, as well as the black market which helps many families to get by.

Conflict escalation is keeping prices high in the oil sector, as well as of minerals, fertilizer, wheat and other foods.

A situation like this is an additional strain on an economy highly dependent on imports such as that of the Caribbean island of 11.2 million inhabitants, which buys approximately 60%-70% of the food it consumes from abroad.

With extremely low production levels of sugar, citrus fruits, coffee and cocoa, etc. in recent years, the island has very few products it can export to balance its additional expenditure.

Cuba is amongst the top 10 producers of nickel in the world, and it is its no.1 export sector, and third in terms of revenue it brings in, after professional services and tourism.

Russia is responsible for 10% of global nickel production, which is essential for making stainless steel and electric vehicle batteries.

Fears of a potential lack of supply meant that this mineral was worth up to 100,000 USD per ton on the London Metal Exchange, on Tuesday March 8th, and trading came to a halt.

However, levels of production of Cuban nickel have been dropping since 2012, when one of its processing plants was closed (two are still operating) after damage caused by hurricanes and technological obsolescence.

With annual averages of over 70,000 tons during the 2000-2010 decade, production barely scraped 30,000 tons in 2020.

On March 4th, the Cuban president, Miguel Diaz-Canel, and the president of Canadian company Sherritt International, Leon Binedell, talked in Havana “about the potential (to) increase this country’s participation in Cuba’s economic development, especially in activities such as mining, oil exploration and electricity generation,” an official statement read.

The Canadian company has been working with Cuba’s Cubaniquel Corporation for 27 years, running the mixed company Moa Nickel SA Comandante Pedro Sotto Alba, which is the country’s main manufacturer of sintered metal (a compact mixture of metal powders) and nickel sulfides, as well as cobalt, extracted from deposits in Moa, in the Holguin province, to the east of the country.

Effects on tourism

Sanctions against Russia could also impact Cuba’s plans to receive at least 2.5 million foreign visitors this year.

In 2021, Russia became the leading source of tourists to Cuba, accounting for 41% of the 573,944 international travelers the island received, and knocked Canada from this position, who had been the main source of tourists to Cuba for many years.

European countries, the US and Canada have closed their airspace to Russian planes, so Aeroflot and other companies have suspended flights to the American continent, while some 5500 tourists are waiting on the island for evacuation flights to get them back to the Eurasian country.

Before the conflict began, Cuba was estimating a 4% growth of its gross domestic product (GDP) in 2022.

Other impacts

However, “sanctions against Russia are also going to be felt in informal supplies of equipment and materials for private transport,” business and ventures advisor Angelo Marcelo Rodriguez predicted in a conversation with IPS.

The sociologist and economist recalled the fact that many private drivers keep their vehicles up and running with parts and pieces that come from this country.

In addition to the classic US cars from the ‘40s and ‘50s, popularly known as “almendrones” (nutshells), a vast number of cars manufactured during the former USSR still drive on Cuban roads, such as old Lada models.

Official statistics indicate that approximately 27% of the Cuban capital’s total number of passengers get around thanks to self-employed drivers, which the Government has classified as key to alleviating the chronic deficit of public transport in this city of 2.2 million inhabitants.

“Medicine supplies on the black market will also be affected,” Rodriguez added.

Russia has waived visa requirements for Cubans, Russia had been a very popular shopping tourism destination up until now, where Cuban citizens would go to buy goods their families needed or to resell them on the black market.

The structural crisis of the Cuban economy, which has gotten worse due to the effects of the COVID-19 pandemic and a stricter US blockade (in force since 1962), means there are shortages of food, medicines and other consumer goods, as the country is in a financial rough patch and is unable to produce or import them with its centrally-planned economy.

In July 2021, the Government authorized non-commercial food, hygiene and medical imports, and waived customs fees of goods in passenger baggage, which will remain in force until June 30th.

“The suspension of flights to Russia is bad news. The products I used to buy there helped improve the quality of life of my two children and family,” Gillian Suarez said, a resident in Moa city, 815 km east of Havana.

Suarez, the 35-year-old former electrical engineer, explained to IPS over the phone that she brought “some electrical appliances, clothes, shoes, and medicines and syringes for my father, who is diabetic and needs to inject insulin,” from Moscow in January. “I know people who bring medicines over, and they get paid well for them because we don’t have these medicines here, but I don’t sell them.”

Opportunities

Analysts consulted by IPS believe that the current crisis situation presents an opportunity for policies to help radically change Cuba’s economic development model, and greater opportunities for foreign investment within a new geopolitical context.

“The opportunity for the private sector could be finding new spaces for access to supply sources, while this is also difficult,” Rodriguez analyzed.

He believes that a promising situation could be on the horizon if the rapprochement process between Cuba and the US picks up again.

“Members of Cuba’s private sector could travel to the neighboring country to access certain goods and services and then import them as personal goods, or via micro, small and medium-sized enterprises (MSMEs), and this will resemble a trade relationship,” he added.

During the Cuban Thaw between December 2014 and January 2017, many agreements between the governments of former presidents Raul Castro (2008-2018) and Barack Obama (2009-2017) contributed to the private sector flourishing on the island thanks to the arrival of cruises, direct charter flights and an atmosphere of political detente.

The embargo is still blocking Cuba’s access to goods and services from the main economy on the planet, which lies just 167 kms away from its coastline.

This factor drives down Cuba’s GDP and especially harms consumerism and family dynamics, as well as the private sector’s sales and work, researcher Pavel Vidal underlined in his analysis of the economic impact of US sanctions between 1994-2020.

Vidal’s analysis was published by the Elcano Royal Institute of International and Strategic Studies, based in Spain, on February 7th.

On March 3rd, the US announced that it will gradually resume consular services and grant visas in Havana, after pretty much paralyzing its operations in 2017 due to health incidents reported by US diplomats.

Nevertheless, the family reunification visa – the only visas at the moment – will be processed “as soon as possible”, but without a “definitive timeline”, Emily Mendrala, Deputy Assistant Secretary for Western Hemisphere Affairs at U.S. Department of State, explained during a press conference on Monday 7th.

Read more from Cuba here on Havana Times.