Cuba is expanding the ways private enterprises can operate as the socialist government launches new efforts to revive the island's moribund economy amid the worst crisis since the collapse of the Soviet Union.
The latest measure, an authorization in principle for small and medium enterprises to expand and operate in several sectors, could create a more fertile environment for investment and stimulate momentum for engagement with the United States. Details are sparse and it's unclear how soon any real change will take place, considering past moves to revitalize the economy never got off the ground. But the signal that the regime is working to make the economy more dynamic at such a painful moment is enough to create some hope for economic growth.
"That's the sort of foundation for an economic takeoff for private enterprises in Cuba," said Pedro Freyre, a Cuban American attorney with Akerman LLP who advises companies doing business in the island. "These are the basis for entrepreneurial activity: You got to be able to form a company, to raise capital, protect yourself against liability and be able to sell shares.
"It also begs the question, shouldn't the Biden administration consider issuing a general license to allow Cuban Americans and Americans to invest in those little companies? Because now it appears there will be a vehicle," he added.
When Cuban leader Miguel Díaz-Canel announced the reform last week, he said the new rules would provide a legal framework for small businesses to operate, rather than simply recognize them as part of Cuba's economy. Some of these businesses, like self-employed entrepreneurs in the tourism sector, for instance, have been operating for decades and could potentially expand under the new rules. Micro, small and medium-sized private enterprises will be allowed to operate in more of Cuba's non-strategic sectors including restaurants, beauty parlors and pet grooming and veterinary services.
The decision still has to be written into law and doesn't change the basic premise that state-run companies are the foundation of the island's economy. Prime Minister Manuel Marrero said private enterprises won't be allowed in strategic sectors like health, telecommunications, education, energy and defense. Industries long under state control, like tobacco and sugar production, likewise will remain solely in government hands. Marrero said none of the changes will lead to any privatizations, but are meant to "recognize, diversify and strengthen the management of Cuba's economic actors."
The piecemeal expansion of Cuba's private sector has been plagued by the island's suffocating bureaucracy. The expansion of the island's private sector and economic reforms to make Cuba more market friendly were first proposed a decade ago, when the biggest shake-up of the island's state-run economy was drafted during the 2011 Communist Party Congress. More than 300 reforms were announced back then, and subsequent congresses didn't advance much on an implementation plan.
But the sharp deterioration in Cuba's quality of life in recent months, including severe food and medicine shortages and a spike in COVID-19 cases, is likely pressuring Díaz-Canel to act more decisively and speed up economic activity after he was appointed the all-powerful chief of the island's Communist Party in April. While he's been busy traveling the country to assert his leadership as the first person without the last name Castro to take the party's reins, Díaz-Canel has also criticized the state sector's inefficiencies.
"We need the state sector to be more proactive, to be more efficient, we need it to shake off some of the inertia, so it can be more innovative," he said on June 2 while commenting on the recent actions. He also said it's important to refine the interaction of the state and private sectors to boost productivity and better make use of the nation's human resources.
"The process will be gradual, but doing it gradually doesn't mean that we will take long to start implementing it," he said.
Cuba is going through one of its most trying moments in years. The island is in the throes of a major recession, with a drop of 11% in GDP last year due in part to a collapse in tourism because of the COVID-19 pandemic. Painful currency reforms have sent inflation soaring. Long lines for food have again become commonplace. Trump-era sanctions have reduced access to vital economic lifelines like remittances. And a nascent but increasingly vocal social movement is channeling mounting frustration.
To make matters worse, the island has seen a spike in COVID-19 cases after it reopened its borders to some flights in November. Cuba registered more than 35,000 confirmed cases and 311 deaths from COVID-19 in May, a record, compared with just over 12,200 cases in all of 2020. The nation developed its own vaccines and started an immunization campaign just after finishing the phase 3 of clinical trials three weeks ago.
The short-term outlook remains challenging, as the Biden administration hasn't made Cuba a foreign policy priority. U.S. policies toward Cuba have been under review since January.
But if the current administration is looking for signs of positive movements in Cuba as a rationale for why it should relax some of the Trump-era restrictions, the new measures supporting the private sector might just do the trick, said John Kavulich, the president of the U.S.-Cuba Trade and Economic Council.
"Empowering the Cuban private sector legitimizes the commercial process," Kavulich said. "It can't just be friends and families in South Florida giving donations to their friends and families in Cuba to start a business; the country needs to build a commercial foundation and focus on really supporting the private sector."
Kavulich and other analysts said they are looking out for details on how small and medium enterprises will be allowed to operate: how many employees; how will they engage with self-employed professionals and other small enterprises; what sourcing and exporting capabilities; how much foreign investment they will be allowed to receive, etc.
What is clear is that now that Díaz-Canel signaled a sense of urgency in implementing these reforms, it will be hard to walk it back, Kavulich said.
"On the scale of importance for the United States business community, the Díaz-Canel administration has delivered a significant decision which can rekindle the interest in Cuba by United States companies," he added.
