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    What we know about Cuba’s economy

    What we know about Cuba’s economy
    BY DREW DESILVERLEAVE A COMMENT

    Two-thirds of Americans favor an end to the decades-long U.S. trade
    embargo on Cuba, a January Pew Research Center study found, and the two
    nations reportedly are making progress on re-establishing diplomatic
    relations. As the communist government continues to slowly reform Cuba’s
    economy, American businesses – from airlines to law firms – are
    exploring commercial opportunities on the island nation. But even if the
    embargo were to be lifted, it’s not clear just what sort of Cuban
    economy those businesses would find.

    Getting a handle on even basic information about Cuba’s economy is
    difficult, for a number of reasons. The government still dominates
    economic activity on the island, both directly and through heavily
    subsidized state-owned enterprises. National statistics are not always
    complete or reliable. And Cuba’s system of two parallel currencies – one
    peso for everyday transactions among ordinary Cubans, and a “convertible
    peso” for the tourism industry, foreign trade and the private sector –
    combined with multiple exchange rates complicates any international
    comparisons or discussions about the relative size of different parts of
    the economy.

    According to a survey conducted in March and published in The Washington
    Post, 79% of Cubans said they were dissatisfied with the country’s
    economic system; 70% said they wanted to start their own business.
    Nearly two-thirds of Cubans (64%) said normalizing relations with the
    U.S. would change the economic system, though only 37% thought the
    political system would change.

    With so much change in the air, we decided to work our way as best we
    could through the data difficulties to put together a primer on what we
    know, and don’t know, about the Cuban economy.

    1 Despite the embargo, the U.S. does do business with Cuba. Last year,
    according to the Census Bureau, the U.S. exported nearly $300 million
    worth of products to Cuba; nearly all (96.2%) of that was in the form of
    meat and poultry, soybeans, corn, animal feed and other foodstuffs. The
    exports are permitted under a 2000 law that modified, but did not
    repeal, the U.S. embargo; under it, Cuba can buy certain agricultural
    products, medicines and medical devices from the U.S., but must pay in cash.

    2 Growth has slowed sharply in recent years. According to Cuba’s
    national statistical agency, the country’s gross domestic product in
    2013 was 77.2 billion pesos – which, depending on which exchange rate
    one uses, could equate to anything from $77.2 billion (at the official
    rate of 1 convertible peso to $1) to $3.2 billion (at the internal rate
    of 24 regular pesos to 1 convertible peso). But either way, growth has
    slowed dramatically from the mid-2000s: The CIA estimates that Cuba’s
    GDP grew just 1.3% last year in real (inflation-adjusted) terms – 177th
    out of 222 countries ranked. One big reason: With global oil prices
    still well below their pre-recession highs, the heavily discounted oil
    that Venezuela sends Cuba – some of which Cuba re-exports – is less
    valuable.

    3 Despite economic reforms, the state still dominates. In a paper
    published last year by the Association for the Study of the Cuban
    Economy, former International Monetary Fund economist Ernesto
    Hernandez-Cata estimated that Cuba’s private and cooperative sector
    generated 25.3% of GDP in 2012, compared with just 5% in 1989. But the
    government, both directly and through state-owned enterprises, was still
    the source of more than three-quarters of Cuba’s economic activity.
    Government investment represented just 9.1% of GDP in 2012, versus 14.2%
    in 1989, which Hernandez-Cata said “reveals one of the most disturbing
    aspects of Cuba’s recent economic history: the weakness of capital
    formation.” (Official government figures put economy-wide fixed capital
    investment, from all sources, at 8.3% of GDP in 2013, considered low by
    international standards.)

    4 More Cubans are working for themselves. In 2013, according to state
    figures, more than 424,000 Cubans (8.6% of all workers) were classified
    as self-employed; as recently as 2009, fewer than 144,000 Cubans (2.8%)
    were.

    The “microenterprise” sector may be even bigger due to the hiring of
    unregistered full- and part-time workers. Ted Henken and Archibald
    Ritter, researchers at Baruch College and Carleton University,
    respectively, estimate that as many as half of small enterprises employ
    at least one unregistered worker.

    5 Cuba mostly imports goods and exports services. Getting a clear read
    on Cuban trade is especially tricky, not least because exports and
    imports are effectively valued using different exchange rates. As The
    Economist recently explained, state-owned firms and foreign joint
    ventures value each ordinary peso at one convertible peso – that is, at
    $1: “The massively overvalued rate … creates huge distortions in the
    economy, allowing importers to buy a dollar’s-worth of goods for one
    peso.” While most of Cuba’s exports are in the form of services (such as
    doctors and teacher working overseas), nearly all of its imports are
    goods (petroleum, foodstuffs, machinery and equipment, and chemicals).

    Source: What we know about Cuba’s economy | Pew Research Center –
    http://www.pewresearch.org/fact-tank/2015/05/28/what-we-know-about-cubas-economy/