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Cuba’s Economy – An Overview

Cuba’s Economy: An Overview
By Greg McFarlane | January 09, 2015

It only took five-plus decades, but Cuba has begun intermittent steps
toward joining the world community and putting a dent in the
collectivism that turned one of the Caribbean’s most vibrant economies
into a static charity case of historic duration.

Before La Revolución, Cuba was as developed a nation as any in the
Caribbean. Sugar and tourism were the major industries, an influx of
easy dollars coming from rich Americans with a penchant for gambling in
an exotic but nearby nation with a welcoming government. The incoming
Castro regime then preached equality over growth. Cuba’s communist
dictatorship came close to achieving the elusive goal of all employment
being provided by the government (it was as high as 91% at one point),
albeit without the “withering away of the state” that Friedrich Engels
naïvely predicted.

In light of a recent thaw in relations between Cuba and the United
States, things are improving. It’s hard for them not to, given the
baseline. By the grace of the island’s ruling class, Cubans have
recently been granted permission to buy consumer electronics, stay in
hotels and even buy and sell the Studebakers and Nash Ramblers that have
been traversing the nation’s streets since Chuck Berry learned to duck
walk. (For more, see: Countries Sanctioned By the U.S. – And Why).

WORKFORCE
One illustrative indicator of an economy’s robustness is the ratio of
the workforce that’s employed in agriculture. The most profound
demographic shift in world history occurred in the early 20th century,
when rapid technological advances in farm equipment increased yields and
enabled far fewer people than ever to feed far more people than ever, in
the process freeing the masses to do something other than spend their
days growing food. (For related reading, see: China’s Economic Indicators).

More than anything else, the move away from subsistence farming is what
distinguishes affluent nations from poor ones. Yet even today, much of
the world – including Cuba – has yet to catch up. Case in point, one out
of every 300 Luxembourgers tills the soil for a living. In Cuba, the
comparable figure is one in five. Software engineers are rare in Cuba
because, well, before you can design IT systems, you have to eat. (For
more, see: Socialist Economies: How China, Cuba And North Korea Work).

Despite a workforce employed heavily in agriculture, the nation still
can’t come close to feeding itself. Some 80% of food is imported, while
square mile after square mile of arable land sits dormant. The
government hasn’t deigned to allot it for growing crops, and of course
no private farming operations could take it over anyway.

MARKET REFORM
Since Fidel Castro transferred the reins of power to his brother Raul a
few years ago, market reform has been slow. Ordinary Cubans are now
permitted to engage in taxi operation, home remodeling for profit,
private hairstyling and other rudimentary lines of work. To North
American sensibilities, it’s hard to conceive of such ventures as being
noteworthy, let alone being so important that they require the
permission of federal bureaucrats. (For more, see: China’s GDP Examined:
A Service-Sector Surge).

But Cuban culture has much to unlearn. A country so unsophisticated that
it only recently permitted its citizens to buy and sell each other’s
houses (as opposed to merely bartering them, my bungalow straight-up for
your cottage) isn’t going to be vying for domination with the likes of
Japan or Germany anytime soon. These days you can open a restaurant in
Cuba, but you can seat only a dozen people and hire only family members.
That’s a handicap out of the gate that makes it impossible for Cuba to
ever develop the next Ray Kroc or Bobby Flay. (For more, see:
McDonald’s: A History of Innovation).

In 2010, Cuba set the goal of having 35% of its labor force in the
private sector or as the regime officially calls it, “non-state
employment” within five years. But again, it’s not a case of simply
getting a business license and hanging out a shingle or walking down Via
Monumental with an armful of résumés. If you want a non-government job
in today’s Cuba, your search starts with applying to the government for
permission. Cuba is still several percentage points away from achieving
that lofty but eminently achievable labor force goal. (For more, see:
Countries with the Highest Government Spending-to-GDP Ratio).

IT’S NOT ALL BLEAK
The news isn’t all bleak. Rising global sugar prices have stimulated
corresponding investment, but a future reduction in sugar prices will
likely wipe out any gains. Tourism remains a more stable sector of the
economy, less susceptible to market swings, given that climate and
beaches are more or less permanently attractive to consumers. Even Fidel
Castro himself acknowledged that “We live in a warm country. That is
wealth.”

Cuba welcomes millions of visitors a year. That number even includes a
few adventurous Americans, who typically have to travel via Canada and
be less than forthcoming with border agents. Service jobs that cater
directly to foreigners are among the most desirable and best paying in
all of Cuba.

Foreign currency should always be welcome, particularly when said
currency is being spent on replenishable services. A nation that once
forbade foreign investment now searches it out, which is a welcome
development if a long overdue one.

THE BOTTOM LINE
The past half-century (and more) of highly centralized control and
economic sanctions means that Cuba has a long way to go to rebuild its
economy. On the upside, it has rising sugar prices and tourism to help
its balance sheet. And while it’s promising that Cuba counts Venezuela
and Canada among its largest trading partners (top importer and
exporter, respectively), one can only wonder at how quickly things will
transform once Cuba regains full trade status with the economic
superpower only 90 miles to its north.

Source: Cuba’s Economy: An Overview –
http://www.investopedia.com/articles/investing/010915/cubas-economy-overview.asp?partner=mediafed

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