Economy of Cuba

Economy - overview: The Cuban Government continues to adhere to socialist principles in organizing its state-controlled economy. Most of the means of production are owned and run by the government and about 75 percent of the labor force is employed by the state. The state under the durable dictatorship of Fidel Castro plays the primary role in the domestic economy and controls practically all foreign trade.

The Cuban economy is still recovering from a decline in gross domestic product of at least 35 percent between 1989 and 1993 due to the loss of Soviet subsidies[?]. The government has undertaken several reforms in recent years to stem excess liquidity, increase labor incentives, and alleviate serious shortages of food, consumer goods[?], and services. To alleviate the economic crisis, the government introduced a few market[?]-oriented reforms including opening to tourism, allowing foreign investment, legalizing the US dollar, and authorizing self-employment for some 150 occupations. These measures resulted in modest economic growth; the official statistics, however, are deficient and as a result provide an incomplete measure of Cuba's real economic situation. The liberalized agricultural markets introduced in October 1994, at which state and private farmers sell above-quota production at unrestricted prices, have broadened legal consumption alternatives and reduced black market prices.

Government efforts to lower subsidies to unprofitable enterprises and to shrink the money supply caused the semi-official exchange rate for the Cuban peso to move from a peak of 120 to the dollar in the summer of 1994 to 21 to the dollar by yearend 1999. Living conditions[?] in 1999 remained well below the 1989 level. New taxes introduced in 1996 have helped drive down the number of self-employed[?] workers from 208,000 in January 1996.

Havana announced in 1995 that GDP declined by 35% during 1989-93, the result of lost Soviet aid and domestic inefficiencies. The drop in GDP apparently halted in 1994, when Cuba reported 0.7% growth, followed by increases of 2.5% in 1995 and 7.8% in 1996. Growth slowed again in 1997 and 1998 to 2.5% and 1.2% respectively. Growth recovered again in 1999 with a 6.2% increase in GDP, due to the continued growth of tourism. Central control is complicated by the existence of the informal economy, much of which is denominated in dollars. Living standards for the average (dollarless) Cuban remain at a depressed level compared with 1990.

In the mid 1990s tourism surpassed sugar, long the mainstay of the Cuban economy, as the primary source of foreign exchange. Tourism figures prominently in the Cuban Government's plans for development, and a top official cast it as the "heart of the economy." Havana devotes significant resources to building new tourist facilities and renovating historic structures for use in the tourism sector. Cuban officials estimate roughly 1.6 million tourists visited Cuba in 1999 with about $1.9 billion in gross revenues. The official projections for 2000 are only slightly higher than in 1999. Independent analysts and journalists partially attributed low numbers in January to Y2K concerns.

Sugar remains an important part of the Cuban economy with large amounts of land, labor, and other resources dedicated to the industry. Sugar production in 1989 was over 8 million tons, but fell to about 3.5 million tons in the 1994-95 harvest, one of the lowest on record. With increased fertilizers and management attention, subsequent harvests have improved but remain well below the 1989 level. Prospects for regaining that level of output are poor unless the Cuban Government undertakes substantial reform of the sugar industry, something it has been reluctant to do.

To help keep the economy afloat, Havana actively courts foreign investment, which often takes the form of joint ventures with the Cuban Government holding half of the equity, management contracts for tourism facilities, or financing for the sugar harvest. Cuban officials said in early 1998 that there were a total of 332 joint ventures. Many of these are loans or contracts for management, supplies, or services normally not considered equity investment in Western economies. Investors are constrained by the U.S.-Cuban Liberty and Democratic Solidarity Act which provides sanctions for those who "traffic" in property expropriated from U.S. citizens. As of March 1998, 15 executives of three foreign companies have been excluded from entry into the United States. Over a dozen companies have pulled out of Cuba or altered their plans to invest there due to the threat of action under the Libertad Act.

In 1993 the Cuban Government made it legal for its people to possess and use the U.S. dollar. Since then, the dollar has become the major currency in use. To capture the hard currency flowing into the island through tourism and remittances--estimated at $500-800 million annually--the government has set up state-run dollar stores throughout Cuba that sell food, household, and clothing items. The gap in the standard of living has widened between those with access to dollars and those without. Jobs that can earn dollar salaries or tips from foreign businesses and tourists have become highly desirable. It is common to meet doctors, engineers, scientists, and other professionals working in restaurants or as taxi drivers.

To provide jobs for workers laid off due to the economic crisis, furnish services the government was having difficulty providing, and to try to bring some forms of black market activity into legal--and therefore controllable--channels, Havana in 1993 legalized self-employment for some 150 occupations. The government tightly controls the small private sector, which has fluctuated in size from 150,000 to 209,000, by regulating and taxing it. For example, owners of small private restaurant can seat no more than 12 people and can only employ family members to help with the work. Set monthly fees must be paid regardless of income earned and frequent inspections yield stiff fines when any of the many self-employment regulations are violated. Rather than expanding private sector opportunities, in recent years, the government has been attempting to squeeze more of these private sector entrepreneurs out of business and back to the public sector. Many have opted to enter the informal economy or black market.

Prolonged austerity and the state-controlled economy's inefficiency in providing adequate goods and services have created conditions for a flourishing informal economy in Cuba. As the variety and amount of goods available in state-run peso stores has declined, Cubans have turned increasingly to the black market to obtain needed food, clothing, and household items. Pilferage of items from the workplace to sell on the black market or illegally offering services on the sidelines of official employment is common. Recognizing that Cubans must engage in such activity to make ends meet and that attempts to shut the informal economy down would be futile, the government concentrates its control efforts on ideological appeals against theft and shutting down large organized operations. Acknowledging the importance of informal economy in the daily lives of Cubans, the government took black market prices into account when calculating the 1998 consumer price index. Although the government claimed zero inflation in the peso markets in 1999, many goods are simply no longer available in this market and must be purchased in the more expensive dollar stores.

Cuba's precarious economic position is complicated by the high price it must pay for foreign financing. The Cuban Government defaulted on most of its international debt in 1986 and does not have access to credit from international financial institutions like the World Bank, which means Havana must rely heavily on short-term loans to finance imports, chiefly food and fuel. Because of its poor credit rating, an $11 billion hard currency debt, and the risks associated with Cuban investment, interest rates have reportedly been as high as 22 percent.

GDP: purchasing power parity - $18.6 billion (1999 est.)

GDP - real growth rate: 6.2% (1999 est.)

GDP - per capita: purchasing power parity - $1,700 (1999 est.)

GDP - composition by sector:
agriculture: 7.4%
industry: 36.5%
services: 56.1% (1997 est.)

Population below poverty line: NA%

Household income or consumption by percentage share:
lowest 10%: NA%
highest 10%: NA%

Inflation rate (consumer prices): 0.3% (1999 est.)

Labor force: 4.5 million economically active population
note: state sector 76%, non-state sector 24% (1996 est.)

Labor force - by occupation: agriculture 23%, industry 24%, services 53%

Unemployment rate: 6% (December 1999 est.)

Budget:
revenues: $13.5 billion
expenditures: $14.3 billion, including capital expenditures of $NA (2000 est.)

Industries: sugar, petroleum, food, tobacco, textiles, chemicals, paper and wood products, metals (particularly nickel), cement, fertilizers, consumer goods, agricultural machinery

Industrial production growth rate: 6% (1995 est.)

Electricity - production: 15.274 billion kWh (1998)

Electricity - production by source:
fossil fuel: 89.52%
hydro: 0.65%
nuclear: 0%
other: 9.83% (1998)

Electricity - consumption: 14.205 billion kWh (1998)

Electricity - exports: 0 kWh (1998)

Electricity - imports: 0 kWh (1998)

Agriculture - products: sugarcane, tobacco, citrus, coffee, rice, potatoes, beans; livestock

Exports: $1.4 billion (f.o.b., 1999 est.)

Exports - commodities: sugar, nickel, tobacco, shellfish, medical products, citrus, coffee

Exports - partners: Russia 25%, Netherlands 23%, Canada 16% (1999 est.)

Imports: $3.2 billion (c.i.f., 1999 est.)

Imports - commodities: petroleum, food, machinery, chemicals

Imports - partners: Spain 16%, Venezuela 15%, Mexico 7% (1999 est.)

Debt - external: $11.2 billion (convertible currency, 1998); another $20 billion owed to Russia (1998)

Economic aid - recipient: $68.2 million (1997 est.)

Currency: 1 Cuban peso (Cu$) = 100 centavos

Exchange rates: Cuban pesos (Cu$) per US$1 - 1.0000 (nonconvertible, official rate, linked to the US dollar)

Fiscal year: calendar year

See also : Cuba