September 15, 2021

CUBAN ECONOMY

Throughout this chapter on Cuban economy we aim to provide the reader with a set of tools to analyze the current economic conjuncture of Cuba.  For this purpose, we will first present a brief introduction to the economic history of the island, outlining the most important economic milestones in Cuban economic development since the Spanish […]

Throughout this chapter on Cuban economy we aim to provide the reader with a set of tools to analyze the current economic conjuncture of Cuba.  For this purpose, we will first present a brief introduction to the economic history of the island, outlining the most important economic milestones in Cuban economic development since the Spanish colony. From there we will proceed to explore the current economic system of the island. Throughout this section we will briefly summarize the main economic sectors and the most significant economic relations of present-day Cuba.  Thirdly, it is our attempt to discuss some important aspects of the daily life of Cuban citizens. We will do this with a brief analysis of the daily expenses of ordinary citizens . All in all, rather than describing the current situation, it is our goal that the reader finds in this text a helpful tool for understanding the trends triggering the profound systemic transformation that is taking place currently in Cuba.

Publishers comment: The author of this article did not work with quote notes. The last pages provide the reader with a list of sources on which this article refers.

Brief economic history of cuba

From the spanish colony to the special period During the first two centuries of Spanish colonial rule, the economy of Cuba relied almost exclusively on overseas commercial exchange. Due to the geo-strategic position of the island, the Cuban ports of Havana and Santiago de Cuba articulated the Iberian Peninsula with the rest of the colonies of the Spanish crown in the Americas. The ships loaded with silver and gold coming from Lima, Buenos Aires, Cartagena, Trujillo, Portobelo and Veracruz travelled back to Spain over Havana, bringing significant wealth to the colonial elites in the harbour cities.    Further, since very early in the 16th century, Havana became a main market for the trade of enslaved people. The enslaved people were transported in very precarious conditions from West Africa to the Lesser Antilles and from there to Havana. In Havana enslaved people were bought by merchants and colonial lords and taken to the mainland. Thus, until approximately 1750, the exchange of minerals and enslaved people were the economic sectors that brought the most economic revenues to Cuba, which had no significant reserves of metals. Therefore, the Cuban hinterlands were scarcely populated.  However, from the mid-18th century, Cuba became a large-scale agricultural production economy of sugar cane and tobacco leaf. Thereby, the ‘haciendas’ spread over large parts of rural Cuba and large quantities of sugar and tobacco were exported to Europe. Nonetheless, the value-generating processes, such as rum and cigar production, took place mainly outside the island. Only since the second half of the 19th century part of the value-adding processes started to take place in Cuba. An example of the Cuban economic spirit of those times is ‘Bacardi’, a high quality rum that was produced in Santiago de Cuba from 1862 to the 1970s.  Nonetheless, the end of the 19th century was also a very belligerent time. Two wars of independence were fought in Cuba causing a strong economic and political instability that triggered the relocation of the rum and cigar from Cuba to the Florida peninsula and the first Cuban migration waves to the United States. Finally Cuba’s independence from Spain was achieved in 1898 with the decisive support of the US government. Thus,  the independence was followed by a period of strong North American influence in the economic, political and cultural spheres of the island. In order to boost trade with Cuba, the United States built an extensive network of rail and road infrastructure connecting New York to Miami and Key West, only 150 km away from Havana. From Havana, numerous ferry frequencies and commercial flights crossed daily to Key West and Miami, which guaranteed a very close commercial exchange between the two countries. Consequently, the vast majority of the tobacco and sugar export was redirected to the United States.  During the first two decades of the 20th century sugar and tobacco trade flourished. However, after the First World War there was a big drop in prices as the United States began to produce their own beet based sugar. The rise of sugar offer in the market led to a high drop in international sugar prices, which had severe consequences for Cuba. As a result, the sugar crisis and the new infrastructures connecting Cuba with the US triggered a  diversification of Cuban economy in the beginning of the 20th century.  A decisive factor for the economic diversification in the island of Cuba was the US alcohol prohibition [1920-1933]. Due to its proximity and the tie economic bonds, Cuba became a place for celebration and night-life. Thus, North-American tourism travelled to  Cuba massively from the  1920s onwards. This gave birth to a new sector in the Cuban national economy: the tourism. Thus, Cuban economy made a big turn towards the service sector after WW1. Nevertheless, during the Second World War tourism profits decreased significantly. In the quest of overcoming the crisis, Cuba began to mine nickel and cobalt in the year 1942. However, with the post-war economic abundance, the tourism sector soon recovered and in the 1950s Cuba flourished again as a tourist paradise. However, Cuba was living a political turmoil during the 1950s under the rule of the dictatorship of Fulgencio Batista. There were significant corruption claims, the country was highly unequal and Cuban economy was strongly oriented to favour the US economy. This led to the triumph of Cuban revolution that promised to reduce the economic disparities, improve the education and health systems and renew the political class.  The revolution brought with it a major political and economical shift to the island. Soon after the triumph, the revolutionary government imposed an economic model of socialist planning after the soviet model. Thereby, the state became a paternalistic state and the majority of enterprises were nationalized and put on the service of the public interest. This radical change in the political and economic model in Cuba led to a breakdown in relations with the United States. The expropriation of numerous US-companies in Cuba led to the imposition of an economic embargo in 1960 which has not been lifted to the day of writing this paper. As a consequence, the embargo has reduced the trade operation between the two countries to a minimum. However, since the beginning of the revolution, the government established strong ties of dependence with the Soviet Union and its satellite states. Cuba exported sugar, minerals and tobacco to the Soviet Union in exchange of oil, agricultural products and food supplies.  Thus, Cuba went into a third period of heavy economic dependence. First [1500-1898], Cuban economy depended strongly on the Spanish crown, then [1902-1960] on the United States and after the Embargo [1960] on the USSR. The revolutionary government concentrated its efforts on greatly increasing and industrialising the sugar sector, the so called ‘zafra’, which kept the sugar cane plantations steadily growing until late in the 1970s. From the revenues of sugar, the Cuban government invested great resources on building a strong educational and health system for Cuban population as a whole. To this day, Cuba is the Latin American country with the highest percentage of professionally educated people and one of the longest life expectancies.  However, the Cuban revolution had very strong implications in all fields of Cuban society, but were particularly severe in the economic sphere. The following are some of the most significant economic repercussions of the  Cuban Revolution: 1] A massive exodus of Cubans took place in the 60s: large sectors of the wealthy classes disagreeing with the proposal of the revolution migrated to the United States, other countries in Latin America and Spain. In economic terms, this left the country with a considerable gap in skilled labour, which led to major economic hardships during the first years of the revolution.  2] The embargo not only led to the rupture of trade relations with the United States, but also with most of the neighbouring countries. This situation caused a redirection of the Cuban market towards the Soviet Union.  3] As Cuba became isolated from its neighbours, the tourist sector was greatly reduced and was no longer an important revenue source for the country. When the USSR collapsed in 1990, Cuba suffered serious economic consequences. The island stopped receiving supplies of food, oil and its derivatives. In addition, the USSR stopped buying Cuban products, leaving the country without powerful economic partners. The period of economic emergency that began back then was called the ‘Special Period’ in times of peace. During this period Cuba entered a process of economic readjustment. The country gradually opened up to its neighbouring countries and to tourism, which gradually regained a prominent role in Cuba’s incomes. The ‘Special Period’ lasted until 2000. Since then, Cuba has found new economic allies in Latin America. The “turn to the left” that took place in the continent in the first decade of this century enabled Cuba to secure a market in the region.
ECONOMIC SYSTEM
Cuba’s economy is based on a socialist planned economy model controlled by a bureaucratic authoritarian state  that owning state-run enterprises. Cuba’s economy is, in many ways, difficult to compare with other countries in the presence. Cuba and Laos, are the only countries of the former soviet influence sphere that continue to follow this economic model, after China and Vietnam clearly opened their economies to the world market in the 1970s and 1990s respectively.

cuba‘s current ECONOMIC SITUATION

SECTORS OF CUBAN ECONOMY
The main sectors of  Cuban economy are the exports of raw materials, agricultural products, as well as industrial products and services. Among the raw materials, Nickel brings the greatest profits. Cuba has large reserves of this metal and has consolidated itself as the 9th largest producer of nickel in worldwide. In agricultural terms, Cuba still has a significant sugar sector. Nonetheless, the sector has lost prominence in recent decades. Cuba was once the 1st producer of sugar in the world and its economy was almost exclusively oriented to this product, today Cuba is in place 14th. However, Cuba is highly insufficient in food matters, importing 85 to 90 % of the food that is consumed in the country. In the industrial sector, Cuba produces agricultural fertilizers and medical implements. This is due to the fact that Cuba has an important scientific innovation sector. However, the country’s main income is in the service sector. With the economic opening of the country, the remittances from relatives abroad have become a major source of revenues. Besides that, tourism continues to be of great economic value, along with the export of health professionals. Lastly, it is important to note (Fig. 10) that tourism earnings   have decreased significantly in recent years and the professional  export has become indispensable for Cuban government earning more the 13 Mio. USD a year.
CURRENCY
As mentioned in the last chapter, Cuba faced harsh economical difficulties in the 1990s that forced the government to open to new markets during the so called ‘Special Period’. As a result, a high dollar influx overrun the  Cuban market. In order to prevent the ‘dollarization’ of the country and keep the economy of the country competitive with low production costs and high incomes from the tourism and exporting sector, a bi-monetarial system was implemented in 1994.  Since then, two different currencies are functioning in Cuba, the CUP ‘Pesos Cubano’ and the CUC ‘Pesos Cubano Convertible’. While the CUP kept circulating since the beginning of the revolution, the CUC was introduced as a dollar aligned currency oriented to the private and international market. Thus, the value of the CUC has always been set 1:1 with the US-dollar. However 1 CUC is the equivalent of 26,5 CUP. The CUP is still the currency used for the exchange of goods in the internal market. 1 CUC = 1,00 USD 1 CUC = 26,5 CUP Due to the economical disparities caused by the currency duality, since 2018 it is being discussed if the CUC should disappear. It is also important to mention that Cuban population is highly ‘unbanked’, being most of the economic exchanges realized with cash. Until recently, using the dollar and US credit cards was illegal for locals, which is no longer the case. Currently, growing sectors of population have access to dollar bank accounts.
ECONOMIC INDICATORS
As seen in fig. 15, Cuban economy hasn’t grown much since the 1960s. This is due to the US economic embargo on the one side, but on the other side, Cuban economy is still based principally on the extractive practices and agriculture. Contrastingly, the national GDP increased remarkably since the fall of the USSR in the 1990s.  Without the soviet support, the economic forces of the international market have forced a slow transit from the Cuban socialist economic system towards a capitalistic economy. Further, the rise in national GDP is a result of the steady growth of two ‘new’ sectors in the country’s revenues: international tourism and family remittances from the exterior. From year 2000 onwards, the Cuban’s principal revenue source shifted from agriculture to the service sector with tourism on the top. Adding to that, the Cuban market has opened more and more to private investments, which has also involved a growing sector of Cuban society. Similarly to the national GDP, the GDP per capita has also grown significantly since the 1990s. However, the overall economic situation of much of the Cuban population hasn’t improved much. The costs of living have risen significantly during the last decades and a society of economic disparities is emerging: citizens linked to the government elites, the private and service sector, as well as families receiving remittances from the exterior have a much higher standard of living. 
SALARY
 After the nationalization in the 60s, all properties came in hands of the state. In the socialist economy, the state manages, controls, and distributes the properties and resources. In Cuba, the state is also in charge of covering many of the basic needs. Every citizen has the right to access a house, which citizens ‘own’, but don’t pay any rents or taxes. Further costs as water, electricity or gas take around 2$. In addition, there is a free access to healthcare, education and culture for all Cuban citizens, as well as to a minimally subsidized living expenses. The so called ‘Libreta de racionamiento’ provides the residents with basic associated food products, that are meant to last the whole month. However it usually only covers one week.  Similarly, the salary amount is stipulated centrally, and there is a range of differentiation depending on the labor sector. Nevertheless, the average middle state salary is around 700 CUP per month or 30$. To grasp it closely, this means 20 cent/ hour. In reality, it takes much more than salary income to cover all monthly expenses. In the Graphic shown below, the reader can appreciate that at least a three times greater amount would be needed to afford the common monthly expenses. Indeed the prices in the market are constantly raising and some products are only found in CUC. As a consequence of scarce internal production, most of the goods need to be imported and the external market prices are not accessible for a person with a common acquisitive power. This sets a great barrier for most of the citizens. Moreover, some products of first need are out of the reach in the Cuban market, which again is very conflictive when having to access them.

living standard

OCCUPATION
 However, in order to afford that huge gap between the salary and the actual costs of living, the Cuban citizens found other jobs besides the formal job offer. In recent years about a half-million have become ‘cuentapropistas’, which is a Cuban term for a person who lives from his own business and is a „non-state“ worker“. Since 2010, in a period of political and economical transition, the government legitimized a self-employed sector, whereas private businesses have been always prohibited during regime. This accounts for a sector impulsed by tourism like restaurants, transport or private residences. However, this workers have to pay taxes on their profits. In the course of time, a major population sector has left the occupations related to agriculture and industry and construction, because they have acknowledged the possibility of being more productive in the tertiary sector (commerce, culture, services). Even though Cuba belongs to one of the little countries where all local inhabitants have the access to some of the vital pillars for a dignified life as education and health, which in many Global South countries are not guaranteed, other essential qualities for a prosperous life are highly problematic. One of this complexities  related to economy can be even found on education. When a Cuban citizen achieves a professional degree, this person is aware that their standard of living will be lower than the standard of someone working on tourism. This sets a major difficulty on the life planning of many Cubans: the boundaries of the system tend to be way too tight.

conclusion  and perspective

Due to the current political situation in Cuba, the economic changes that the country is experiencing are gigantic. Talking with Cuban friends and family we noticed that it is difficult to give a status quo to the Cuban economy at present, since the economic framework of the country is changing rapidly. This is the result of a renewal of the political class and the constitution of 2019, as well as other changing vectors explained along this chapter. During the last months, for example, forms of private property have returned to the market and self-employment is becoming a possibility again. In addition, the Cuban economy is marked by a constant rate of immigration and a considerable decline in the birth rate. This has created a strong demographic barrier to economic growth since the 1990s. Finally, it is also important to observe how Cuban economy will react to the current situation of pandemic. The tourism sector has been greatly affected and the pandemic has brought back questions of food sovereignty, as the supply chains have been re-figured during the last months. In our view, this two issues might trigger further transformations in Cuban economy in the long term.

 
article written by Guarrotxena, Nere &  Orduz, Alejandro

   

Sources

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