Cuba must grow: it is difficult, but not impossible

The history of development has shown that a strong economic structure is a strength for any country, at least for the following reasons:

• It has a positive impact on the complementarity of the economic system,
• It contributes to increasing competition between companies, which also leads to stimulating innovation,
• It ensures improvements in the competitiveness of companies.

And while in almost all countries one of the strategic tasks of all governments, both national and local, is to promote the growth of their business community, in Cuba in the second half of 2024 we will be implementing policies that limit and hinder business growth.

The results for 2023 and those of this first semester show not only that the current situation is very difficult, but also that resources are still very scarce and that the internal economy and the ENTIRE business system are not able to provide them in the short term.

On the other hand, the sources of obtaining these resources are smaller and in some cases more expensive, while the international environment may become more restrictive in political terms, with special dependence on the results of the elections in Venezuela and the United States.

Some data in the report of the Minister of Economy to the National Assembly a few days ago helps to illustrate what has been stated above. Such as its presentation is public and accessible to everyone ― something we need to include in the good practices of the ministry and extend to others ― I will summarise some of them below:

• It doesn’t look like the planned GDP growth the pace will be reached in 2024. While it is true that sectors such as education and health have an important weight in the structure of GDP, almost most branches within the primary and secondary sectors of the economy are not achieving the planned results. Financial constraints and energy austerity have a negative impact on that behavior. The weak performance of national production and the decline in imports make it very difficult to achieve the expected growth target.
• Agricultural production that is decisive for feeding the population is not met; beans, root vegetables, corn, eggs, beef. Vegetables and milk.
• Export of goods grow by 24% (249 million) compared to the first half of 2023, but represent 88% (222 million) of the 2024 plan for the first half.
• Services export growth compared to the first half of 2024, which is positive. Medical services stand out, growing by 12% compared to the plan and also by 9% compared to 2023. Telecommunications services, however, remain at 95% of the plan for 2024 and are down by 17% compared to the same period in 2023. The tourism sector, which has concentrated the largest volume of investments in the country, continues to show a slow recovery (growth of 1.8% compared to 2023) and is 51.6% of what was achieved in 2019.
• Importsan essential item in the dynamics of the economy and in the behavior of inflation due to its impact on global supply, reach 58% of the planned year and are 22% less than in the first half of 2023. Imports by non-state management forms reach $900 million, of which 70% (622 million) are imported by SMEs.
• Foreign investments grows in 12 new companies. There is no public information about the capital involved. The new companies are: 4 in food production; tourism, 3; trade, 2; logistics, 1; industry, 1; advertising services, 1.
• The national electrical energy system is unable to meet demand and continues to face both disruption and fuel availability issues. Investments in photovoltaic energy are being developed that could contribute to relative improvement in the future.
• Inflation indicators improve compared to the same period in 2023. In the case of interannual inflation, it decreased from 45.48 in May 2023 to 31.11 in May 2024. However, products continue to high pricesmany of which are far beyond the reach of the majority of the population.
• A sustained effort can be demonstrated in caring for disadvantaged people, families and communities; however, this has not resulted in an increase in inequality and poverty.

In short, the economy is not reaching the growth target, such determinants as the performance of the national productive sector, as well as exports and imports, are not reaching the dynamics that the country needs. There is no public data on the budget deficit in the first half of the year. The target for 2024 was revised downwards from the originally conceived 18.5% to about 15%. At the same time, official figures show the moderation of inflation dynamics.

The second half of the year will be under these conditions. The report of the Ministry of Economy defines 9 aspects as components of its strategy; some of these will require a substantial change in the allocation of resources, such as stimulating productive activity, especially food production and the maintenance of the national electrical energy system or increasing foreign exchange earnings, fundamentally because the accumulated deterioration is substantial. This is shown in the graph below:

Other proposals, such as cutting expenditure and postponing investments, adjusting the plan and budget, continuing work to increase discipline and end corruption and illegality, decentralising powers and improving social care, while requiring fewer resources, do require adjustments to related public policies and their coordination.

Some of the announced measures strengthen the role of the dollar in the national economy, including:

• All transactions within the economy are conducted in Cuban pesos, except for the Mariel Special Development Zoneauthorized retail and wholesale foreign exchange companies, foreign companies and other companies that have been approved.
• The foreign currency accounts of state entities are being restructured.
• Closed financing arrangements are approved for exporters.
• A system is being introduced for levying import duties in foreign currency on imports from the non-governmental sector.
• Foreign exchange charges for port services are being introduced gradually and selectively.
• Cash in foreign currencies is accepted in certain sectors and activities, such as tourism.

An expected effect should be an increase in the demand for dollars for these operations, with an impact on the exchange rate between the peso and the dollar.

Another expected effect could be the decline in the activities of SMEs and self-employed. These companies are an important driving force in the economy and have contributed significantly to the supply of goods. Today, they contribute to the country’s tax revenues, with 9% of total income and 15% of tax revenues.

Among the measures for the reorganization of foreign trade, the implementation of collection and payment operations of non-state management forms of accounts in Cuban banks stands out.

Can Cuban banks give these new companies sufficient guarantees that their money will be available when they need it to meet their obligations? Will it be possible to find foreign banks willing to do business with Cuban banks, taking into account that the compliance offices of these banks ensure that they have the United States extraterritorial regulations against Cuba?

If we look at the performance of the first semester and the combination of some approved measures and other measures put into practice, it is possible to expect a very difficult second semester, a probable reduction in the import of goods due to forms of non-state management with significant negative consequences in the reduction of the supply of some goods whose correlate — given the inability of the state sector to increase the supply — could be a revival of inflationary dynamics. This will lead to a reduction in the purchasing power of the Cuban peso.

Cuba must grow, because sustainable development is not possible without economic growth. The growth rate for the period 2018-2023 is -1.5% annual average; if we remove the year 2020 from the series, that rate is 0.4%. With either of these two rates, it would take us more than 120 years to double the income per capita.

We need to add to grow, we need to stimulate the growth and density of business. This growth needs to be encouraged so that all Cubans find new opportunities and are encouraged to try to contribute.

Dr. C Juan Triana Cordoví