Cars and Cuba’s New Economics

Henry G. Delforn (*)

HAVANA TIMES, Jan 24 – If you wish well for the Cuban people, especially the middle class, you have no choice but to like Castro’s new economics.

In the first year of the largest economic reform program of the last 54 years now well underway, Cuba’s GDP is expected to grow by 3.4% in 2012 despite the 53-year-old U.S. embargo.

The size of Cuba’s economy is about half the size of Google and about a quarter of Exxon.  But unlike shareholder-only benefits, growth in Cuba’s GDP is expected to bring benefit directly to the middle class citizen.

Indication of this benefit comes from the automobile sector which is one component of President Raul Castro’s revolutionary reform plan, “Proyecto de Lineamientos de la Política Económica y Social“.

Since the 4th quarter of 2011 and in line with the reform plan Cubans have been able to legally buy and sell automobiles. This change is step one in a multi-step process to battle transportation problems and boost the economy.

However, the cost of a typical used car in Cuba is very expensive. For example, a Russian made mid-1980 Lada can cost over 10,000 cuc (11,000 usd) and not even U.S.-funded relatives can afford it. Hence, car prices must come down if this component of the reforms is to succeed. But how will prices come down?

Here are two possible answers to this question. One, a new law could prohibit these high prices. But such law is not likely since it would discourage sellers and would not encourage trade or boost the economy.

A more likely scenario is the flooding of new cheap cars into the market to thereby lower prices and increase GDP with sales of new inexpensive cars. For example, the Indian made Tata Nano which sells new for about 2,500 usd is a likely candidate.

Today, one can buy a new Cuban made Minerva electric motorcycle for about 1,500 cuc, and hence, one can also expect that when this motorcycle market is exhausted, step two in the process will be taken to import new cars.
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(*) Henry G. Delforn is an electrical engineer (Cuban-born U.S.citizen) who lives in the U.S. and often travels to Cuba.