• The objective of this Blog is to facilitate access to research resources and analyses from all relevant and useful sources, mainly on the economy of Cuba. It includes analyses and observations of the author, Arch Ritter, as well as hyper-links, abstracts, summaries, and commentaries relating to other research works from academic, governmental, media, non-governmental organizations and international institutions.
    Commentary, critique and discussion on any of the postings is most welcome.
    This Blog on The Cuban Economy is dedicated to Cuba's Generation "A". Although inspired by Yoani Sánchez' original blog "Generation Y" this is not dedicated to those with names starting with the letter "A". Instead, it draws from Douglas Coupland's novel Generation A which begins with a quotation from Kurt Vonnegut at a University Commencement:
    "... I hereby declare you Generation A, as much as the beginning of a series of astounding triumphs and failures as Adam and Eve were so long ago."

The Havana Genius Bar, Cuba’s Underground Economy: Going Strong and High-Tech!

By Elien Blue Becque; Bloomberg Businessweek; September 13, 2012

Original Essay Here: The Havana Genius Bar

When my iPhone slipped from the back of the tank and into the toilet, I snatched it out immediately. Though at first all seemed fine, it soon switched off and remained unresponsive.

“It’s toast,” was the verdict from Grant, an Apple (AAPL) store Genius. “We don’t deem it really, like, worth it to replace the inner components of the shell of a broken phone. I’ll throw that guy away and get you a brand new one.” Grant said I’d have to buy a new phone for $649 (or a refurbished one for $150). I was about to leave on a trip to Cuba, where my phone wasn’t going to work anyway. So I thanked him and left.

On my second day in Havana I pass a small electronics store in the once-upscale Vedado neighborhood and stop in. Fishing the useless slab from my bag, I ask, “Is there anyone who might know how to fix this?” The woman at the counter heads to the back and returns with a thin slip of paper bearing an address in the Miramar neighborhood.

A kid wearing white-framed Ray-Bans nods when I knock on the green plywood door at the destination. His name is Andy, and he’s confident he can fix my problem. Removing the tiny screws that hold the glass cover in place, he begins a rapid disassembly. I have to admit Andy seems less impressed with my fancy phone than I might have expected. “How often do you fix an iPhone?” I ask. “Daily,” he replies.

“In the last two or three years I’ve noticed [iPhones] popping up,” says Philip Peters, a Cuba expert at the Lexington Institute. Raúl Castro’s reforms have jolted the mobile market. “In 2008, when he lifted the prohibition on Cubans’ having cell phones in their own name, that led to an explosion in the number of subscribers.” Like many products in Cuba, iPhones are often brought in by tourists or citizens allowed to travel abroad.

Andy extracts the motherboard with a dental pick, puts it in a green tank, adds alcohol from a Fanta bottle, and presses power. The contraption shakes vigorously. Abelito, his partner, says they learned most of what they know via an illegal Web connection. After 20 minutes of careful prodding and scrubbing, Andy has miraculously resuscitated my phone, but the battery holds little charge. I try to pay. He refuses. “We usually only accept payment when we’ve fixed the problem.” “But you did!” I argue. He won’t be swayed.

A day later, at Hotel Saratoga in Old Havana, I notice the porter swiping at his iPhone 3. I tell him about my battery, and he points to a thin, carefully dressed young man hanging around the bar. Ten minutes later, Roberto and I are making our way down a muddy street behind the impressive, decaying Capitol Building modeled exactly after the rather better-kept one in Washington.

We stop in front of a dark entryway. Roberto asks me to wait and bounds up a set of concrete stairs. Minutes later he returns with a new iPhone battery in its black plastic wrapper. As payment, he accepts an 8-gigabyte flash drive I’ve been carrying. Flash drives are valuable here, where Internet use is restricted and monitored. Roberto, an architecture student, explains that while “tuition here is free, you have to buy lesson books, paper, pens, your food, your transportation.” All that costs money.

Just as their fathers learned to fix obsolete Detroit cars, Andy and Roberto have learned to make a living with Palo Alto technology to which they have no official access. The healthy cell-phone repair market here is the latest example of Cuban ingenuity that locals call sobreviviendo. It’s small-scale capitalism working around a 50-year embargo and an anemic, centrally planned economy.

Two months later my phone works perfectly. The next time an Apple Genius tells you there’s no hope, consider it an excuse to visit Havana.

 

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Espacio Laical: “Por un consenso para la democracia”

A document entitled Towards a Concensus for Democracy” has just been published by Espacio Laical, a project of the Centro Cultural Padre Félix Varela of the Archdiocese  of Havana. The editor is Lenier Gonzalez.

The complete document is available here: Espacio Laical, Por un consenso para la democracia

Table of Contents

 – Cuba está viva. 6
– En torno a la democracia en Cuba. Por Roberto Veiga González 8
– ¿Es rentable ser libres? Por Julio César Guanche 14
– Hacia una democracia de los consensos. Por Roberto Veiga González 21
– Por un consenso para la democracia. Por Julio César Guanche 27
– Compartir la búsqueda de nuestro destino. Por Roberto
Veiga González 32
– Cuba hoy: compatibilidad entre cambios reales y el panorama constitucional. Por Monseñor Carlos Manuel de Céspedes 36
– Dossier sobre los desafíos constitucionales de la República de Cuba. Por Jorge I.  Domínguez, Julio A. Fernández Estrada, Dmitri Prieto Samsónov y Roberto Veiga González 47
– Fuerza por la unión, no unión por la fuerza. Por Mario Castillo 69
– Apuntes para una reforma del Poder Popular en Cuba. Por Roberto Veiga González 73
– Sobre la democracia y los partidos políticos: contribución a un debate impostergable. Por Armando Chaguaceda 80
– Dossier sobre la necesaria reforma al Partido Comunista de Cuba. Por Víctor Fowler, Orlando Márquez, Ovidio D’Angelo, Alexis Pestano, Arial Dacal y Lenier González 84

Lenier González

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The Economist: “Cuba, Indecision time: Never rapid, Raúl Castro’s reforms seem to be stalling”

From The Economist: September 14, 2012.

The original article in The Economist is here: “Cuba, Indecision time: Never rapid, Raúl Castro’s reforms seem to be stalling”

Sep 14th 2012,

WHEN Raúl Castro, Cuba’s president, gave his latest big speech, to a meeting of the National Assembly in July, he repeated his stock response to those who urge him to move faster with reforms to his country’s stagnant state-run economy. Change, he said, would progress “without haste, but without pause”. But many on the island are questioning whether the reforms—officially called “updating”—have indeed paused.

The changes Raúl has instigated since taking over from his ailing brother, Fidel Castro, in 2006 are significant. Many restrictions on private business, some of which had been in place since the 1960s, have been lifted. Cubans can now buy and sell houses and cars, and employ people. Over 200,000 of them have become self-employed since October 2010. Farmers can lease idle land from the state. Private eateries are now free to serve what they like to as many diners as they like, leading to hundreds of new restaurant openings. Havana’s wealthier residents are rediscovering a long-forgotten pleasure: trying out a new place to eat.

But there are plenty of catches. Cubans can only buy second-hand cars; no new-car dealerships have been allowed. The rules on house purchases are proving so complicated that many people are still doing what they have always done: swap homes and pay each other under the table. Perhaps the biggest stumbling block is that private wholesale markets, long-promised, have yet to be authorised. So restaurants and other businesses have to buy their supplies at retail prices from supermarkets or, more often, the black market. The 181 permitted categories of self-employment include trades, such as plumbing, but still exclude professions. The state remains the sole importer of food. Agricultural output remains below its level of 2007. Flagship projects involving foreign investment, such as several much-touted golf resorts, have been quietly put on hold.

In addition, there have been some seeming U-turns on the road towards a freer economy. A particularly unpopular measure, imposed on September 3rd, dramatically raised the duty payable on excess baggage (above a limit of 30kg per person). This tax used to be paid in the local Cuban peso. Now it must be paid in the “convertible” peso, which is worth 24 times more. So the cost of bringing in goods such as televisions and music systems has soared from a few dollars, to hundreds of dollars.

The government said the change was to reduce queues and increase efficiency. Certainly, since President Barack Obama in 2009 removed almost all restrictions on visits to the island by Cuban-Americans, Havana airport has struggled to cope with the half-a-dozen daily flights that now arrive from the United States. Baggage carousels creak under the weight of everything Cuba lacks: flat-pack furniture, children’s toys, LCD televisions, computer games and the like. Many of the imports are brought in by professional “mules”, usually Cuban-Americans who travel back and forth from Florida several times a week. It is—or was—a profitable business.

The rise in duty will hurt private businesses, whose owners had been assured by state media that, unlike under Fidel Castro’s watch, they are a welcome part of Cuba’s new economy. Many depend on imports. “Nothing is available in Cuba, so what are we supposed to do?” complains Walter, who obtained a licence to be a “car electrician” last year, and runs a flourishing business installing imported music systems in cars. He says he will try to find a way round the increased duties, but if he fails, he will hand back his licence.

“Everything seems on hold,” says a Havana-based European businessman. One theory behind the impasse is that Raúl Castro, who is 81, lacks the energy to overcome resistance to change within the ruling Communist Party. The ghostly presence of Fidel Castro remains an obstacle to reform. And Fidel’s health is again the subject of distracting speculation. His previously verbose “Reflections” on current affairs published in state media fell away to a few, somewhat tangential, sentences before petering out completely in June. He has not been seen in public since March.

Raúl Castro’s crackdown on corruption is another dampener. Malpractice and fraud have been discovered in every industry examined by investigators. Dozens of Cubans and several foreigners have been jailed. The latest probe, in which the president’s son, Alejandro Castro, played a role, concerned a project to expand a nickel-processing plant, a joint-venture with Canada’s Sherritt International. After a brief trial, 12 officials, including three deputy ministers, were jailed last month. In their defence, the officials said that all their talks with foreign partners were held openly. As evidence, Sherritt provided contracts, some signed by Fidel Castro.

One of the defendants, Antonio Orizón de Los Reyes, who served as a deputy minister of industry for 19 years, gave an impassioned speech to the court arguing that he was a scapegoat, and that it was inconceivable that his superiors did not know the details of all deals. His speech was met with impromptu applause. He was sentenced to eight years in jail. “In this atmosphere, everyone is lying low,” says the foreign businessman. “No one is making decisions.” But raising hopes of change only to dash them may prove a dangerous business for the regime.

 

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Camila Piñeiro Harnecker May 2012, “Non-state enterprises in Cuba : current situation and prospects”

Below is a Power Point Presentation on  “Non-state enterprises in Cuba current situation and prospects” by Camila Piñeiro Harneck erof the Centro de Estudios sobre la Economia Cubana, Universidad de la Habana. It was presented at the Seminar on Prospects for Cuba’s Economyat the Bildner Center, City University of New York, on May 21, 2012.

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The complete original Presentation is located here: “Non-State Enterprises in Cuba”, Camila Piniero Harnecker, 2011 .

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Environmental Defense Fund (EDF), “Bridging the Gulf: Finding Common Ground on Environmental and Safety Preparedness for Offshore Oil and Gas in Cuba

A new comprehensive and well-researched examination of  U.S.-Cuba cooperati9n in petroleum exploration and development  in the Gulf of Mexico has just been published.

The original document has not yet been posted on the Environmental Defense Fund web site (as of September 10, 2012) but it is available here on the Cuba Central site under the heading Not Like Oil and Water – Cuba and the US Can Cooperate on Drilling. 

Authors: Emily A. Peterson, Daniel J. Whittle, J.D., and Douglas N. Rader, Ph.D.

Table of Contents

 Background on EDF’s involvement in Cuba 1

Cuba: crown jewel of the Caribbean 2

High connectivity and shared resources with the United States 4

Cuba’s energy supply and demand: current and forecasted 5

Energy relationship with Venezuela 7

Cuba’s offshore energy sector 8

Cuba’s offshore energy resources 8

Concessions in Cuba’s EEZ 10

Risks of a spill in Cuban waters 12

Projected trajectory of a spill 12

Shared environmental resources at risk 13

Economic assets at risk 15

Oil spill preparedness and response 16

International Offshore Drilling Response Plan 19

Model international agreements on oil spill response 20

Lessons from the Deepwater Horizon spill 21

Environmental impacts 22

Economic costs 23

Technical and regulatory capabilities 23

Public communications 24

National Commission findings and recommendations 25

State of U.S.-Cuba environmental cooperation 26

Current collaborations 26

Constraints on collaborations 28

Path forward: policy recommendations 29

Unilateral actions 29

Bi-lateral engagement 30

 

Executive Summary

 In May 2012, the Spanish oil company Repsol announced it had drilled a dry hole during its deepwater exploration in Cuba. After having spent roughly $150 million on two failed wells in Cuba’s waters (the first being in 2004), the company revealed it would likely exit the island and explore more profitable fields such as those in Angola and Brazil. In August 2012, Cuba’s state oil company announced that the latest offshore exploration project—a well drilled by Malaysia’s state-owned Petronas on Cuba’s northwest coast—was also unsuccessful.

To some, the outcome of three failed wells out of three attempts in Cuban waters may suggest that the threat of a catastrophic offshore spill impacting U.S. waters and the shared ecosystems of the Gulf of Mexico is now moot. To the contrary, the issue is salient now more than ever. Cuba has an existing near-coastal oil industry on its north coast near Matanzas, a near- single-source dependency on imported petroleum from Venezuela, and has exhibited continued strong interest in developing its own offshore capacity. Several additional foreign oil companies are slated to conduct exploratory deepwater drilling in Cuba at least through 2013.

Current U.S. foreign policy on Cuba creates a conspicuous blind spot that is detrimental to the interests of both countries. The United States government enacted stricter regulations governing deepwater drilling in U.S. waters in the aftermath of the Deepwater Horizon oil spill, and has publicly acknowledged a need to better prepare for a potential major spill in neighboring Cuban waters of the Gulf of Mexico. Yet U.S. policy still does not do enough to lessen the likelihood of such a spill or to ensure that sufficient resources will be at the ready to respond to a spill in a timely and effective manner. Beyond their geographical proximity, Cuba and the United States are tightly interconnected by ocean currents and share ecosystems such that a spill in either country could have profound impacts on fisheries, tourism, and recreation in the entire region. Yet, due to longstanding U.S. economic sanctions, international operators working in Cuba are unable to turn northward to the United States to freely access equipment and expertise in the event of an oil disaster.

The purpose of this report is to present EDF’s position that direct dialogue and cooperation between the United States and Cuba on environmental and safety matters associated with  offshore oil and gas development is the only effective pathway to protect valuable environmental and economic interests in both countries. Cooperation now on safety and environmental  preparedness surrounding offshore oil can also lay a foundation for broader constructive engagement on environmental protection and natural resources management in the future.

Principally, this report addresses U.S. policy toward Cuba and makes recommendations for improving environmental and safety preparedness related to offshore oil exploration and development in Cuba. This report is not intended nor does it purport to serve as a comprehensive analysis of Cuba’s domestic energy strategy, policies, laws, or regulations.

Deepwater drilling off the northern coast of Cuba and in many other areas of the Gulf of Mexico poses a potential threat to sensitive and vulnerable marine and coastal ecosystems and to coastal communities. Cuba has a sovereign right to determine whether to exploit oil and gas resources within its Exclusive Economic Zone (EEZ), in the same way other nations do, including Cuba’s neighbors in the Gulf of Mexico, the United States and Mexico. Other Caribbean countries, such as the Bahamas, are also considering offshore oil and gas operations in the future. The underlying reality is that the Cuban government will continue with its drilling activities, with or without the acquiescence of U.S. policymakers.

Therefore, EDF proposes policy recommendations along two dimensions: those that the U.S. government should take unilaterally and those that require the U.S. government to engage in meaningful dialogue and cooperation with the Cuban government. In this report, we recommend the following:

  • Unilaterally, the United States should revise its licensing process to ensure that the resources of U.S. private companies and personnel could be deployed in a timely and comprehensive manner should an oil spill occur in Cuba.
  • On a bilateral level, the U.S. and Cuban governments should create a written agreement similar  to existing agreements with neighbors like Mexico and Canada. Such an agreement should stipulate proactive joint planning aimed at maximizing preparedness and response to prevent or mitigate the consequences of an offshore oil spill. (This agreement would supplement any regional, multi-lateral agreement that may result from ongoing discussions described in this report.)
  • U.S. and Cuban government agencies should fund and facilitate collaborative research on baseline science of shared marine resources in the Western Caribbean and Gulf of Mexico. The high level of connectivity between the two countries underscores that developing baseline science is an imperative that should not wait for a disaster to occur.

These and other recommendations in this report are pragmatic and fully consistent with those put forth by the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling. The co-chair of the commission and former U.S. Environmental Protection Agency (EPA) Administrator, William K. Reilly, concurs that environmental cooperation is as critical to U.S. interests as it is to Cuba’s. “Our priority with Cuba should be to make safety and environmental response the equivalent of drug interdiction and weather exchange information, both of which we have very open, cooperative policies with the Cuban government,” Reilly said.

Finally, we are hopeful that the Cuban government will continue to expand its promising energy efficiency and renewable energy programs, so as to minimize fossil fuel reliance and to mitigate environmental threats on the island and beyond.

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Emilio Morales and Joseph L. Scarpaci, “Bring on the [Cuban] college graduates!”

Original Essay from the Morales Scarpaci  Havana Consulting Group web site here: “Bring on the [Cuban] college graduates!”

The Cuban government slammed on the brakes when it recently scrapped plans to allow private wholesaling and let skilled workers strike out on their own.

 Vice-Minister of Work and Social Security, José Barreiro’s announcement last week signals a strong reversal of reforms that began in 2010. He also stated that jobs that had been previously off limits to private workers –auto-body repairers, floor polishers, aluminum product vendors, rust removers, welders, and confectioners—are now legal trades.

But what about software engineers, tutors and teachers, and other skilled workers?

The new announcement shows resistance to change and the lack of a strategic plan. Both moves are intolerant of free-market competition among the island’s emerging private sector.

President Raúl Castro’s recent trips to China and Vietnam show concern about adapting the magic formula from these two key allies. The Asian answer was simple but it is only part of a recipe for success: open up to foreign capital, liberalize all economic sectors, and let skilled, professional workers earn a living either on their own or in small enterprises.

Vice Minister Barreiro described the ‘new’ changes this way: “[they] are designed for urban cooperatives, a different kind of organization compared to self-employment, [but the cooperatives] will have greater flexibility and work like the state-run beauty shops did where the shops were passed on to its workers.”

We argue that this move is bound to fail. The track record speaks for itself: the classic failures of both the sugar-cane and non-sugar cane UBPCs (a type of cooperative) should not be forgotten by the Cuban government.

Unexplainable contradictions.

A priority two years ago was the plan to shed 2 million workers from public payrolls over the course of five years.  One hundred eighty-three private trades were approved by the Cuban Communist Party to absorb downsized workers. However, the limitations of private-sector work, inflexible laws, high taxes, the continuation of a dual currency system (pesos and CUCs), and poor conditions to acquire inputs have thwarted these efforts.  So how can the government send layoff notices to 2 million workers if it cannot nurture a private sector to employ them? The Nanny State is unwilling to cede economic space that it has dominated for more than 50 years.

A work break in a private sector barber shop, Havana, March 2011, photo by Arch Ritter

How can you build a private sector without private wholesalers?

This is a major weakness of the Cuban model. No country can develop a sustained private sector without wholesalers. Failure to do so will further the pattern of stealing from public institutions and stimulate the black market.

While the mindset of Cuban workers needs to change to adapt to these new measures, both the laws and thinking of the Cuban governments must also adjust if real reform is to take root.

We suspect these observations are not lost on the Cuban leadership because in recent years, hundreds of high-level Cuban scholars have been traveling around the United States, Asia and Europe to gather first-hand observations about what constitutes successful development. They file reports to myriad agencies when they return. Are the polítcos and decision makers reading these reports?

Economic reforms without professionals and technology: Mission Impossible The National Statistics Office (ONE) in Havana claims there are 6.8 million working-age Cubans, of which, about one-fifth are college graduates. So why doesn’t the state allow them (about 1.5 million workers) to work in trades that maximize their skills and training? White-collar and skilled workers drive economic development, and failure to engage them will doom the Cuban economic model.

Remember the fiber-optic cable laid between Cuba and Venezuela? Well, it has been idle for over a year even though it –along with other infrastructure and reforms—could play a key role in creating high-tech work and jump-starting the economy.

Cuban college graduates are needed in housing construction, agriculture, selling automobiles, supply-chain management and distribution channels, tourism development, the food industry, and a plethora of service-sector jobs.

Tapping into college-trained workers will require a change in the mindset of the Cuban leadership. Triggering this new thinking is the main dilemma in changing the economic model. Failure to do so will only produce a “light” version of the economic reforms spelled out in last year’s VI Cuban Communist Party meetings and attendant laws that have been approved in recent years.

Let the college grads work!

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The authors are principals at The Havana Consulting Group LLC and authored Marketing without Advertising: Brand Preference and Consumer Choice in Cuba. Scarpaci chairs the Marketing and Management Department in the West College of Business at West Liberty University, West Liberty, WV.

 

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An Up-Date on Cuba’s Small Enterprise Reforms: “Ups and Downs of Self-Employment”

August 14, 2012 . Fernando Ravsberg. HAVANA TIMES

Original: Avances y vicisitudes de los trabajadores autónomos en Cuba

he Deputy Minister of Labor and Social Security, Jose Barreiro, explained to us that self-employment in Cuba is a “measure adopted while thinking of people coming from the overly staffed government sector as well as others who are not occupationally engaged.”

He was referring to those people who are laid off or are currently unemployed, though government officials always avoid using those terms. Nor do they like to deal with the issue of low wages, even though most people and President Raul Castro consider this a crucial issue.

Barreiro talked about greater flexibility in permitting activities that were previously banned and new approaches, such as urban cooperatives, but he confirmed that self-employment by university graduates will continue to be prohibited.

The deputy minister recognizes that the lack of products and supplies for the self-employed leads to black marketing and theft from the state. This is why he assures that supplies will continue to grow in stores, though they still haven’t opened wholesale markets – which he believes “would be ideal.”

According to Barreiro, the labor market structure will change over the coming years to an economy with “fewer government employees as they feed into the ranks of the non-state sector (as members of cooperatives, independent tenant farmers and self-employed workers).”

Slow growth

Deputy Minister Barreiro explains that “the main object (of self-employment) is that this becomes an employment alternative,” adding that “since October 2010 this sector has grown by 240,000 workers, bringing the total to 390,000.”

According to Barreiro, the growth in the number of autonomous workers is due mainly to “new permits being issued and the hiring of employees; currently there are 62,747 such employees,” a figure that indicates the success of some “self-employed workers.”

Among the independent workers, “Sixty-nine percent had no employment relationship at the time of applying for a license,” with that figure including the unemployed, pensioners and self-employed workers who exercised their trades illegally when those activities were prohibited.

The deputy minister said that though they lack reliable statistics, the fact is that only 31 percent of the self-employed come from government businesses or institutions. This situation is slowing the rate of layoffs, which needs to eventually lay off one million workers.

Barreiro asks for caution when people look at “the number of reduced personnel (layoffs), because in the ministry we believe that it is a sustained, attentive and organized process. Sometimes downsizing is associated only with the availability of workers (the number of laid off/unemployed workers) but this can also happen through increasing production without increasing personnel.”

More reforms

Barreiro agrees that the absolute number of self-employed workers “has not stopped growing, but the rate of growth is less” than in the beginning. He added that because of this, “self-employment will continue to become more flexible, within the country’s legal, zoning and health standards.”

“Now we’re working on designing structures for urban cooperatives, a form of organization that is different from that of the one for self-employed individuals (…) it will have much more flexibility (…) adopting a similar approach to that of the beauty parlors and barbershops that were transferred over to workers management.”

“There are many services that are currently provided by the state but that could be much more profitable if they were run by cooperatives, they would have much more room for success. We see a place for them in the economy,” explained Barreiro. But then he cautioned that this could not happen right away because “first you have to experiment so that when you advance you’re doing things right.”

He assured us that soon new models of independent work would also be initiated, ones that were previously prohibited. Among those authorized will be “sheet metal workers, iron workers, floor polishers, vendors of aluminum articles, flame-cutters, founders and marble masons.”

Scarcity and crime

The issue of the materials and supplies is the most serious one for self-employment. Authorization was given for independent carpenters, but wood isn’t sold to them. Sheet metal workers work without permission in front of everyone, despite it being known that they use oxygen and acetylene stolen from the government.

Barreiro maintains that “we must end this situation of illegal operations by creating legal mechanisms for purchasing products – for example, the types of gas used by sheet metal workers. Still, he insists that there will be no wholesale markets, though he recognizes that this would be ideal.

He claims that, “We’re clear that the solution is to increase supply,” adding that “now there are materials and inputs in stores; though these are not everything that people need, the supply is increasing. This will continue until the conditions exist for the transition to wholesale markets.”

The other major obstacle that’s confronted is the lack of start-up capital, since banks hardly ever make loans to stimulate business development. According to Barreiro, the main problem is that they still haven’t found ways to ensure that people will pay back their loans.

(*) An authorized translation by Havana Times from the Spanish original published by Cartas Desde Cuba

Bicitaxis

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Foreign Business in Cuba: Beware the Dangerous Embrace: Havana is at the same time attracting and terrifying entrepreneurs

by Nancy Macdonald and Gabriela Perdomo

Original Article is located here: Maclean’s Magazine, August 8, 2012

Until this spring, Stephen Purvis had it all. The British architect, who’d helped launch the Saratoga, Cuba’s poshest hotel, was one of the more prominent figures in Havana’s business community. As chief operating officer of Coral Capital, one of Cuba’s biggest private investors, he was overseeing a planned $500-million resort in the sleepy fishing village of Guanabo. The Bellomonte resort, which would allow foreigners to buy Cuban property for the first time, was part of Havana’s ambitious, multi-billion-dollar plan to attract high-end tourists and badly needed foreign exchange. Everything he touched seemed to turn to gold. The musical Purvis produced in his spare time, Havana Rakatan, had a run at the Sydney Opera House last year before moving on to London’s West End. But in April, the 51-year-old was arrested on suspicion of corruption as he prepared to walk his kids to school in Havana.

Purvis’s arrest could have been anticipated. Coral Capital’s British-born CEO, Amado Fakhre, has been held without charges ever since his arrest in a dawn raid last fall. The investment firm is being liquidated, and both men have faced questioning at Villa Marista, Cuba’s notorious counter-intelligence headquarters. They are not alone. Since last summer, dozens of senior Cuban managers and foreign executives, including two Canadians, have been jailed in an investigation that has shocked and terrified foreigners who do business in the country.

Since replacing his brother Fidel as president in 2008, Raúl Castro has painted himself as a reformer, and Cuba as a place where foreign businesses can thrive. Over the last year, he has relaxed property rights, expanded land leases and licensed a broad, if random, list of businesses—everything from pizza joints to private gyms. And he’s endorsed joint venture golf courses, marinas and new manufacturing projects. Canadians are chief among those heeding Raúl’s call to do business with Havana. Hundreds have expressed interest in the Cuban market in the last year alone, according to Canada’s Trade Commissioner Service. Flattering reports in Canadian media have praised Raúl’s efforts. Yet they seem to overlook troubling signs that Cuba appears to be moving backwards.

Raúl’s sweeping changes were meant to pave the way for massive foreign investment in Cuba. The country, which was forced to lay off 20 per cent of its public workforce last year, is barely as developed as Haiti, and will need an influx of foreign cash to stay afloat. There is urgency to the project. Time is running out for Venezuelan President Hugo Chávez, Cuba’s benefactor, who funds the country to the tune of $10 billion a year, says José Azel, a University of Miami research associate. At home, Chávez, who is sick with cancer, is also fighting off a tough challenge from Henrique Capriles in presidential elections slated for October. His successor will almost certainly cut Cuba’s generous aid package to deal with Venezuela’s own needs.

So a strange incongruity exists in Cuba today: Havana is bending over backwards to attract foreign currency at the same time it is imprisoning some of its biggest Western investors. For all Cuba’s reforms, this Castro appears to be as intent on maintaining an iron grip on the country as the last one.

Few are more keenly aware of the pitfalls of doing business in the new Cuba as a pair of Canadians sitting in jail in Havana. It has been more than a year since Sarkis Yacoubian, the president of Tri-Star Caribbean, a trading firm with headquarters in Nova Scotia, was detained in the Cuban capital. And September will be the one-year anniversary of the arrest of Cy Tokmakjian, the president of a trading company based in Concord, Ont. He and Yacoubian have both been imprisoned without charges. Their assets now belong to Cuba. No trial date has been announced.

Both Yacoubian and Tokmakjian ran well-established businesses in Cuba, had years of experience in the country, and multi-million-dollar contracts with several government ministries. Yacoubian imported the presidential fleet of BMWs. Tokmakjian, who’d been in Cuba for more than 20 years and did $80 million in annual business there, had the rights to Hyundai and Suzuki, which are used by the country’s police.

So far, Raúl has scared off more joint ventures than he has attracted, jeopardizing the investment Cuba needs to succeed. Spanish oil giant Repsol quit the country in May. Canada’s Pizza Nova, which had six Cuban locations, packed its bags, as did Telecom Italia. The country’s biggest citrus exporter, BM Group, backed by Israeli investors, is gone. A Chilean who set up one of Cuba’s first joint enterprises, a fruit juice company, fled after being charged with corruption last year. He was convicted in absentia. Shipping investors are pulling out, even as Cuba prepares to open a new terminal on the island’s north coast.

Experts say Raúl’s crackdown is an attempt to reassert control. By targeting the biggest names in the business community, he’s sending a message, says Azel. “Raúl doesn’t want to be Gorbachev,” the Soviet statesman who brought down Communism in the former Soviet Union. “He wants to be the guy who makes socialism work.”

Yet as detentions pile up it remains unclear what exactly the jailed Canadians and Britons have done, or what the regime means by clamping down on corruption. “Cuba’s version of what is legal and proper is different from the rest of the world,” says Ted Henken, president of the Washington-based Association for the Study of the Cuban Economy. Even sales commissions are viewed as corrupt, says Yoani Sánchez, a Havana-based journalist. Foreign companies can’t pay their Cuban employees any more than the standard wage, about $20 a month, says Sánchez—barely enough for two weeks’ living in poor conditions with a poor diet. Many foreign bosses routinely top up pay with bonuses and commissions, which Havana considers bribery. For years, says Henken, corruption was the grease that made wheels turns. “You got what you needed to live from what was thrown off the back of the truck.”

It is not clear whether the detained Canadians are facing charges for salary top-ups, for example, or for legitimate corruption allegations. Canada’s Foreign Affairs department would only confirm that “consular services are being provided to two Canadian citizens detained in Cuba.” Executives at Tri-Star Caribbean and members of the Tokmakjian family declined comment, citing the “extremely sensitive” nature of the situation.

Azel’s advice to potential Canadian investors? Stay away. “You’re defenceless. There’s no independent judiciary to adjudicate any kind of claim,” he says. “Doing business with Cuba is a very risky proposition.”

So then why all the new resorts and planned golf courses? Why do so many Brits and Canadians take the personal and business risk? Because it’s widely believed that the days are numbered for the U.S. travel ban on Cuba, which has barred Americans from visiting the island for almost three decades. Predictions for tourism growth are off the charts—up to six million annual visitors, from two million today, says Gregory Biniowsky, a Canadian consultant who’s lived in Cuba for two decades. Cuba’s boosters believe the country, with its vast, undeveloped white sand beaches, just 45 minutes by plane from Florida, could come to rival Jamaica or the Dominican Republic as a tourist draw. “It’s just a matter of time before things boom here,” says Biniowsky. Five billion barrels of oil lie under Cuba’s waters, according to the U.S. Geological Survey. To some, getting in on the ground floor is worth the risk. But foreign investors who lose sight of the dangers could find themselves in serious trouble.

The old Royal Bank of Canada Building in Havana. The interior of the building is below.

Photos by Arch Ritter, April 2012

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Pavel Vidal Alejandro: “Microfinance in Cuba”

Below is a Power Point Presentation on Cuba’s rapidly evolving microfinance system prepared for the “Seminar on Prospects for Cuba’s Economy” at the Bildner Center, City University of New York, on May 21, 2012 by Pavel Vidal Alejandro. To my knowledge this is the first such analysis to appear for the Cuban case.

Unfortunately for the Centro de Estudios de la Economía Cubana (CEEC) de la Universidad de La Habana, Dr. Vidal has just left for Pontificia Universidad Javeriana of Cali, Colombia, where he will be a professor of macroeconomics. He apparently left on good terms with CEEC and, fortunately,  will continue his work on the Cuban economy. \

The full presentation can be found here:   Pavel Vidal: Microfinance in Cuba

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Cuba: When Bureaucrats Attack

Cuba: When bureaucrats attack

The abrupt closing of a popular Havana business tests Raul Castro reforms.

Ulises Aquino

Original here:  Cuba: When Bureaucrats Attack

Nick Miroff, July 31, 2012 08:44

HAVANA, Cuba— In the new Cuba, the one President Raul Castro and his team of reformers say they’re building, the hard-working entrepreneur is a patriotic figure, a job-creator who’s helping to lift up the island’s feeble economy.

That’s the Cuba where Ulises Aquino thought it would be a good idea to start a business.

With funds earned abroad as an award-winning opera singer, Aquino opened a restaurant and cabaret last year where the company he founded, Opera de la Calle (Opera of the Street) could perform.

He called it “El Cabildo” (roughly, the “meeting place”), transforming a trash-strewn lot into a lively entertainment venue, with an open-air stage, restaurant and bar. Aquino offered free children’s theater and other community activities on weekend mornings, and kept his prices low, charging $2 admission to Opera of the Street shows that feature as many as 80 singing-and-dancing performers.

Aquino was a good socialist businessman too, sharing profits with his 130 employees and paying wages that were three or four times the $20 average monthly Cuban government salary.

More from GlobalPost: Cuba mute in the time of cholera

El Cabildo was so innovative that Aquino and his new model of socialist enterprise were featured in a July 12 Reuters article titled “In Cuba, an opera singer builds an empire.”

And that’s when the bureaucrats attacked.

“It may have been the last straw,” said Aquino, of the article. “But they had their eye on me for a while.”

The following Saturday night, on July 21, a team of city government inspectors arrived at El Cabildo and interrupted the show, “like a team of commandos,” said Aquino, a barrel-chested bulldog of a man, who trembled with anger as he re-told the story.

 

The inspectors ordered Aquino off the stage as the audience looked on in shock. Then they shut down the kitchen and froze the cash register for a four-hour inspection.

By the following Monday El Cabildo was closed and Aquino had an order from local Havana officials stripping him of his business license for two years.

The inspectors had determined El Cabildo to be in possession of “more chairs than the permitted number,” and “products whose origin could not be determined” – ie lacking receipts. Two prep cooks who Aquino says were there on a trial basis were found to be “illegal workers.”

Worst of all, Aquino was accused of “enrichment” because he was charging a $2 cover “for personal benefit,” something he was not specifically authorized to do—even though entertainment venues all over Havana routinely charge $5 to $10 at the door.

There was no fine, no appeals process, no legal recourse. It didn’t seem to matter that Aquino had more than $100,000 of his savings invested in the business, or that 130 families would lose their income.

This was the old way in Cuba, where bureaucrats rule.

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Aquino, for one, doesn’t blame Raul Castro. “This goes completely against everything that the government has been telling us,” he said.

“The people who are behind this are the mid-level bureaucrats who know the status quo is endangered by all these new opportunities that offer a change from all the old taboos and prohibitions,” said Aquino.

On Monday, officials from Cuba’s Ministry of Culture issued a statement offering their support for Aquino’s Opera company and its ability to continuing performing at El Cabildo. But they said nothing about his dispute with city authorities and the fate of the businesses that make Opera of the Street possible.

“This place is dead right now,” said Ruben Rodriguez, the opera company’s choreographer, covering up the sound board and lighting controls opposite an empty stage. “Everything’s paralyzed.”

The fate of El Cabildo will be closely watched in Cuba, where Raul Castro’s economic reform process has lost momentum in recent months and Cubans’ initial enthusiasm for starting small businesses has faded.

Officials announced a new pilot program last week that will convert state-run companies into employee-run cooperatives, but the experiment will be limited to just 222 firms.

Meanwhile, a vast state apparatus of government officials who produce nothing of value remain ready to prey upon those who do.

Castro and other Cuban officials have repeatedly said that recalcitrant bureaucrats will not be allowed to stand in the way of economic change. If they intervene to help re-open El Cabildo, they will send a clear signal that Cuba’s new small businesses deserve encouragement, not strangulation.

But if El Cabildo stays closed, it can send a different message about Cuba’s incipient capitalism in Cuba: that new entrepreneurs here should not be too ambitious with their plans or too proud of their success. And any business, no matter how big, can be shut down on a whim, if a local official orders it so.

In that case, Aquino said, “the loser here won’t be me. It’ll be our country.”

Opera de la Calle

See also Havana Times July 27, 2012,  Cuba Closes ‘Street Opera’ Project

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