Urgent Recommendations to Support Cuba’s Private Sector

By El Toque

Street view of an empty Callejon del Chorro. Photo: Sadiel Mederos

HAVANA TIMES – Supplies, customers, service contracts lost; mobility and connection problems; prices of raw materials and transport going up; maintenance and rental costs, as well as basic bills… these are just some of the obstacles that Cuba’s small business owners are navigating right now.

Like everywhere else in the world, the crisis that has been induced in Cuba by COVID-19, transcends health and is once again challenging politics, society and the economy, like never before.

Still emerging and with just a decade of existence, Cuba’s private sector has filed requests for over 139,000 temporary suspensions of business licenses: 22% of the approximately 605,000 self-employed in the country [which lumps together a shoe repair person, a restaurant owner, a plumber, an Airbnb landlord and a used clothes vender].

The pandemic’s aftershocks have hurt over 26,000 renters, over 500 Airbnb experience hosts and over 52,000 drivers, according to statistics presented by Vladimir Regueiro, first vice-minister of Finances and Prices, on TV, which were cited by a report that AUGE just published.

“Private enterprise in Cuba. A COVID-19 positive patient”,” written up by this consultancy agency (AUGE), which has been offering consultancy services for the creation and management of businesses ever since 2014, explains why Cuban business owners are facing their biggest threat since the government authorized their private ventures in 2010.

In the report, AUGE describes how businesses are trying to adapt to new circumstances. It also proposes concrete measures which policy-makers could take to support the private sector while restrictions persist and, essentially, help take the weight of this crisis off when the economy picks up again with a “new normal”.

Adapt or disappear

The Cuban economy is an “open economy, under severe sanctions, dependent on tourism and remittances” and with zero access to any foreign compensation mechanism in the form of loan contingency from international finance organizations.”

Amidst this landscape, the private sector is sailing through its own perfect stormy sea, seeing their revenue drop or come to a complete standstill. If supply availability was limited before, it is practically zero right now.

Investments in new businesses or the expansion of existing ones has come to a grinding halt, something that “will continue for the rest of this year.” The recovery of which in 2021 “will depend a great deal on how the crisis evolves on a global level, and especially, on when international travel picks up again, the tourism sector recovers and the results of the upcoming US election,” the report explains.

The analysis was written up with information provided by experts, statements from government authorities and 20 business owners were consulted, who work in the most dynamic professions within the sector.

Closed borders are also having an effect because personal trips are being canceled, which was a key source of revenue for the island. Estimates of total purchases for the private import of merchandise were somewhere between 1.5-2 billion USD per year, in recent years.

Business owners consulted for the paper have directed their resistance to the crisis on fighting two fronts: keeping the business running and protecting workers’ jobs.

Where possible, they have adopted working from home and are launching digital campaigns to increase their visibility, which entails increased expenses in Internet connection. Some have set up take-away services and, in some cases, cut prices to encourage sales or retain their customer base.

Deprived of foreign visitors, many are focusing on locals and there will be competition for the national market, where purchasing power is much lower than that of foreign visitors.

“The death of businesses that are not able to adapt” will be high, the report concludes. However, it will be a tough process for the businesses that do manage to survive: it will imply a complete “transformation to simpler and more mass consuming activities.”

Out of the 38 activities that were selected for the mapping exercise, businesses related to basic or essential services are the ones that have reported less of an impact. These include: retail of food, delivery transport, courier services, telecommunication agents and IT programmers, to name a few. In two words: food and communication.

The number of contract workers is expected to fall in June. Many businesses that have managed to carry on running and support their workers by paying wages, won’t be able to do either or both under these limited conditions, which will have been going on for longer than two months.

The pandemic hasn’t been the detonator for all of these problems, though. The private sector and cooperatives have been suffering “unfavorable conditions at home” since 2017.

AUGE explains why: “The imposition of a moratorium on the authorization of new businesses for a year and a half, a reduced flow of foreign visitors, the impact of the US’ latest sanctions and growing shortages of goods to complete supply chains, had already dampened the sector’s dynamic and businesses’ profit margins.

“Express” recommendations

“The response of economic policies should be coherent with the ‘guidelines for updating the Cuban model’,” stated authors Oniel Diaz, a business consultant, and Ricardo Torres, an Economics professor, who identify the digital economy, food production and SMEs as key areas to bear in mind.

They suggest: “The creation of small and medium-sized enterprises by transforming current businesses with food production licenses. (…) These companies should be able to import equipment meant for agroindustry, tax-free,” they propose as a part of their 12 concrete measures series.

Others include: waiving taxes on labor so as to protect jobs; make customs regulations more flexible for importing essential products; preferential prices for the Internet and other technological facilities to encourage interaction between state-led and private services.

They also add that “getting rid of or making the list of authorized independent work activity more flexible” needs to be taken care of urgently, so as to get the national economy going again and “prevent similar services/businesses from (…) ending up in brutal competition, which will affect prices, supplies and the destruction of jobs and kill businesses.”

They propose that a “joint agenda” be agreed upon, to strengthen infrastructure and related services, including ecommerce platforms and delivery services, which different companies have experience in.

Last but not least, there are legal regulations that are scheduled to be passed in 2022, which could be moved forward “and be explored”, as they are “directly linked to production, as well as a law for businesses, and mercantile associations and societies.”



8 thoughts on “Urgent Recommendations to Support Cuba’s Private Sector

  • Sorry to say it is only going to get worse.
    Because Cuba has chosen to follow WHO (World Health Organization) guidelines on reopening after Covid-19. Under those guidelines, Cuba will open to visitors only after the island is virus-free. Accordingly, visitors must come from virus-free nations. Any such visitors would be carefully scrutinized, not exactly a welcoming thought.
    A Cuba-based tourist executive said yesterday that is is unlikely that under these conditions Cuba will open to visitors/tourists this year. That’s right, this year.
    “In a best case scenario, visitors are not likely to be seen in any meaningful numbers until March, 2021.” That’s right, 2021, nine months from now.
    I do not believe that any cuentapropistas can survive this devastating isolation. Nor Airbnbs. Nor cab drivers. Nor, in fact, the government of Cuba itself.
    Why has Cuban chosen to follow WHO guidelines? Because the USA abhors WHO. It’s pique.
    If Cuba remains closed to visitors until March 2021, mark me, it will be a death knell for the island nation.

    Reply
  • The virus is having a disastrous effect on tourism all over the world. Countries that rely on tourism are obviously the most heavily affected. It is estimated that tourism makes up 10% of Cuba’s GDP (depending on who’s doing the estimating).
    There are Caribbean countries where it makes up from a third to over two thirds of GDP.
    Presumably the effects in such countries would be even more disastrous.
    Obviously one needs to take into account the knock on effects as well as the direct effect.
    The statement from Michael that Cuba will be following WHO guidelines because the USA ‘abhors’ the WHO is somewhat odd.
    Does the USA ‘abhor’ the WHO ?
    Do the good folks in Arkansas, Wyoming, California, Massachusetts etc all wake up of a morning thinking ‘Goddam I just abhor that damn WHO’ ?
    Doubt it.
    Now your U.S Conservatives were against the concept of the WHO in the first place. Sure. Of course they were.
    And these days the lying man-child White House resident is trying to deflect blame on to the WHO to cover up for his own ineptitude. The virus that has wiped out approaching 100,000 Americans was initially described by the mentally ill trump as a ‘hoax’.
    That’s some hoax.
    And that’s some ineptitude.
    I think it’s a bizarre non-logic to suggest that Cuba will base their tourism policy on the WHO because the WHO is abhorred by the USA.
    Firstly, the WHO is not abhorred by the USA. Secondly, Cuban leaders can suffer from a certain degree of ineptitude themselves. But not quite that much.

    Reply
  • I notice with concern, that here in Havana Times, both a writer and a respondent refer to the American AirBnb rather than to the excellent Casa Particular service Cuba-particular.com. AirBnb only became involved in Cuba following the Obama visit, When I checked the charges, I found that Casas that charged 25 CUC per night previously, were 40 CUC (US dollars) per night when booked through Air Bnb. The Casa owners were not increasing their charges, but Airbnb was just pocketing the extra charge being made.

    If contributors here wish to support Cubans (not the regime) rather than contributing to AirBnb, then use the excellent service provided by Cuba-particular.com. It provides details of each casa, countrywide, provides reservations which are honoured and you pay the casa owner directly after arrival. There is no charge to the users!

    Beware of getting fleeced!

    Reply
  • Yes, I agree with Carlyle. When, who knows when (?), the Cuba tourism economy opens again, the Cuban government needs to encourage and provide incentives for casas particular to reopen and flourish. These street level micro motels, so to speak, contribute considerably to the health and reputation of the island’s economy, perhaps not a significant financial contributor to the general GDP but certainly a contributor. Cuba needs all the financial help it can muster.

    Direct contact with a casa particular entrepreneur on the Internet is the best method to ensure the financial gain goes directly to the owner and not to a third party such as Airbnb. These business rental owners further invest their monetary gain back into the local economy by purchasing food, utensils, beds, bedding and mattresses, tables and chairs, etc. all to ensure the home comfort of their valued guests, and at the end of the day must pay their fair share of obligatory government taxes. They all do it with a jovial smile.

    These hard working entrepreneurs go out of their way to ensure a tourist is welcomed to Cuba; they provide valuable information about the surrounding neighborhoods and their authentic Cuban cultural hospitality is voiced to future visitors.

    I have had the fortunate opportunity to stay in many casa particular throughout the island and I have nothing but the highest praise and regard for the extreme hospitality and quality comfort shown by those hard working entrepreneurs. This overall positive experience has been shared with many potential and actual Canadian Cuban tourists who after some initial trepidation have validated the said indisputable observations.

    Reply
  • Rates published on the AirBNB website are set by the casa owners, not AirBNB. Sometimes higher, sometimes lower depending on the marketing strategy of the casa owner. The commissions paid to AirBNB are substantially less than the traditional 5 CUC charged by other casa owners for “referrals”. I do not know what Cuban booking agencies charge. Only that I have been told by two different casa owners who are personal friends that the AirBNB commissions are the lowest of everyone.

    I have never used AirBNB in Cuba although I have stayed in many casas so I am not promoting them, just stating facts to counter rumors.

    Reply
  • My comments above were factual not rumours. AirBnB charges were higher for renting the same casas. I did not write of referrals, but of the excellent service run by Cuba-particular. com – I believe the fellow who operates the service is Raul Fuentes.

    Perhaps Bob Michaels could provide details of the charge made by AirBnb and explain why their prices are higher? The business is certainly in it for profit!

    As readers will know, I do not promote the Castro regime. But I am concerned that it is the people who operate their casa service who benefit, rather than some incoming foreign agency.

    As I wrote, AirBnb only moved into Cuba following the Obama visit. As an incidental, I have a niece who operates an AirBnb in British Columbia.

    Reply
  • Carlyle: as I explained earlier, sometimes prices on AirBNB are higher as the casa owner has a different marketing strategy for that market. I know of one where they are lower. CASA OWNERS DETERMINE THE PRICES LISTED ON AIRBNB, NOT THE AIRBNB ORGANIZATION.

    Reply
  • But Bob, if the casa owner receives a booking through Airbnb, he/she has to pay the Airbnb fee, so in consequence they have to either up the charges or reduce their margin. Airbnb is a profit making business, not a Cuban service. It is in consequence factual to state that Airbnb increases the cost for the user. “That market” was initially the US. My concern remains with the casa owners. It remains my advice to tourists to use the excellent service provided by Cuba-particular.com rather than Airbnb. That is because I wish to see the benefits of the casa particulars remain with the owners.

    Look it up on the web!

    No pre-payments, honored reservations, a selection of casas in every part of Cuba and payment directly to the casa owner. Who needs Airbnb?

    Reply

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