How Cuba’s econ­omy is far­ing un­der its new Pres­i­dent

The ap­point­ment of a new pres­i­dent last April hasn’t yet ush­ered in a new era of lib­eral poli­cies for the colour­ful Caribbean country. But there is some cause for op­ti­mism...

Business Traveller (India) - - CONTENTS - WORDS LY­DIA BELL

Sum­mer in Cuba, and as the fire-red flame trees cas­cade into bloom on sub­ur­ban streets in Ha­vana, a hu­mid, brain-fog­ging heat kicks in. Seen from Ha­vana’s Malecón sea­wall, the sky is a per­fect corn­flower blue. Lean on the wall and gaze across the ocean that stretches to the hori­zon, and there seems to be hardly a rip­ple on it.

But, un­der the sur­face of Cuba’s easy trop­i­calia, there has been suf­fer­ing of late. A brief dé­tente with the US un­der Pres­i­dent Obama saw Ha­vana flooded with Amer­i­can vis­i­tors for a few years, but that more con­vivial phase was hastily tor­pe­doed by Don­ald Trump. The Trump Ad­min­is­tra­tion’s re­stric­tions have ve­toed US cit­i­zens from stay­ing in any mil­i­tary-run ho­tel, re­sult­ing in a tourism lull that has been a sucker-punch for the sec­tor. Tourism has suf­fered a seven per cent drop in the first quar­ter of this year, the first fall in a decade. The al­le­ga­tions of “sonic at­tacks” on US Em­bassy staff in 2016 – still an un­solved mys­tery –re­sulted in 60 per cent of the Amer­i­can diplo­matic staff be­ing dra­mat­i­cally evac­u­ated and Cuban diplo­mats ex­pelled from Wash­ing­ton. Cuba is now back in the old, fa­mil­iar po­si­tion of be­ing bul­lied by its big­ger neigh­bour. (In­deed, it’s a com­fort zone of sorts. Some Cuban of­fi­cials found Barack Obama’s overt friend­li­ness dis­qui­et­ing.)

Then there are the nat­u­ral dis­as­ters, such as Hur­ri­cane Irma in au­tumn last year, which bat­tered the is­land fu­ri­ously and caused many mil­lion pounds worth of dam­age. Re­cent flash flood­ing in Cuba’s cen­tre de­stroyed yet more homes; and there was a hor­rific plane crash in May 2018, which took 112 lives, high­light­ing Cuba’s dilemma with rent­ing age­ing planes from other air­lines to meet in­creas­ing tourist de­mand, and putting off for­eign trav­ellers from fly­ing do­mes­ti­cally. Per­haps it’s no sur­prise then that the econ­omy is in the dol­drums, too.

In part the eco­nomic prob­lems have been in­duced by the far greater prob­lems of Venezuela, which had been pro­vid­ing a sweet oil deal in ex­change for the pro­vi­sion of Cuban health care and fi­nan­cial ser­vices since 2000. With Venezuela’s im­plo­sion in re­cent years, and the drop in oil prices, Venezuela’s abil­ity to con­tinue to ser­vice Cuba’s crude oil needs is now in ques­tion. But there re­mains no other country with whom to forge a mu­tu­ally ben­e­fi­cial re­la­tion­ship. Do­mes­tic pro­duc­tion in Cuba is at a low. Cuba’s gap be­tween rich and poor, a re­sult of wealth gen­er­ated by pri­vate busi­nesses since 2011, is deep­en­ing. (The haves cre­ated start-ups with fam­ily re­mit­tances; the have-nots had no such luck.) State wages still sit at around $20 per month, and wel­fare is be­ing chipped away at through lack of fund­ing. In the last three years, im­ports have plum­meted by one-third, which could ex­plain why there doesn’t seem to be any­thing in the shops. Rev­enue from ex­ports has dropped about 23 per cent since 2014.

Fa­mously, the state pro­vides free uni­ver­sal health care and ed­u­ca­tion since the rev­o­lu­tion in 1959, and the sub­sidised econ­omy in­cludes monthly food-ra­tion al­lowances, ameni­ties such as elec­tric­ity and, bizarrely, ice cream (im­por­tant for Cubans). But Cubans fear these pro­vi­sions are al­ready un­der threat, as qual­ity has been di­min­ish­ing over many years due to lack of funds.

“The whole econ­omy is suf­fer­ing from lack of in­vest­ment; in­vest­ing yearly around

Cuba's gap be­tween rich and poor is deep­en­ing since 2011

10 per cent of GDP is not enough,” says

Dr Os­car Fernán­dez, pro­fes­sor of the

Univer­sity of Ha­vana’s Depart­ment of Eco­nomics. And the cursed US trade em­bargo re­mains.

Still, it’s pos­si­ble the winds – or gen­tle breezes, per­haps – of change are again stir­ring. For there is a new pres­i­dent. For the first time since 1959, some­one who doesn’t have the name Cas­tro is at the top. Raúl Cas­tro, the late Fidel’s younger brother (aged 87) and pres­i­dent from 2008, has handed the reins to Miguel Díaz-Canel, the former vice-pres­i­dent, who is nearly three decades his ju­nior (Raúl will be stay­ing on as head of party un­til 2021). Ob­servers are not clear on whether Díaz-Canel, an en­gi­neer, is go­ing to be more pro­gres­sive eco­nom­i­cally. The cur­rent mes­sage is one of con­ti­nu­ity, os­ten­si­bly to warn off ex­ter­nal threats. But, while the new pres­i­dent re­mains sur­rounded by old-gen­er­a­tion of­fi­cials, his rel­a­tive youth is a “source of hope”, ac­cord­ing to Ri­cardo Tor­res of the Cen­tro de Es­tu­dios de la Economía Cubana. Will Díaz-Canel fol­low in the wake of Viet­nam and China’s elites – so­cial­ist brethren who pri­ori­tised po­lit­i­cal over eco­nomic con­trol, thereby pre­sid­ing over the gen­er­a­tion of wealth? It’s hard to know. The govern­ment, so far, says not. “They do not [even] like to la­bel the changes in Cuba un­der ‘re­forms’ to avoid link­ing Cuba with its Asian peers,” ex­plains Tor­res.

NEW PRES­I­DENT, NEW ERA?

Díaz-Canel cer­tainly has a job on his hands. A sprightly 58, he was 29 when the Ber­lin Wall came down. This sig­nalled the start of Cuba’s Spe­cial Pe­riod, when sub­sidised petroleum and other prod­ucts from the former Soviet Union dried up. A sud­den and huge drop in GDP, black-outs, eco­nomic pri­va­tions and hard­ships de­fined life af­ter the col­lapse of the Soviet bene­fac­tor. The task of con­tin­u­ing the rev­o­lu­tion be­came harder; the gen­er­a­tion be­low Díaz-Canel is con­sumer and not po­lit­i­cally ori­ented – some might say, con­ve­niently po­lit­i­cally ap­a­thetic. The cur­rent gen­er­a­tion seem more fo­cused on so­cial me­dia than so­cial wel­fare, and that’s de­spite the paucity of wifi.

Since Díaz-Canel hit mid­dle age, Cuban so­ci­ety has moved through a se­ries of wait­ing rooms, as if on the verge of some­thing just about to hap­pen. Yet the one-party sys­tem and quasi-Soviet out­look, the cur­tailed free­doms in re­gard to po­lit­i­cal op­po­si­tion or ex­pres­sion, these all re­main.

Díaz-Canel’s ap­point­ment as pres­i­dent does, how­ever, mark the end of an era that be­gan with the death of Fidel in 2015. The Cas­tros dom­i­nated Latin Amer­i­can pol­i­tics for six decades. Re­sis­tance to US hege­mony and laud­ing of the so­cial­ist pop­ulist rev­o­lu­tions in Latin Amer­ica de­fined their out­look. Ed­u­ca­tion and so­cial ser­vices, free health care and near-uni­ver­sal lit­er­acy were their achieve­ments, and these fac­tors re­main un­par­al­leled in Latin Amer­ica.

Of­fi­cially pres­i­dent from 2008, Raúl Cas­tro was a qui­eter pres­i­dent than his brother, not as charis­matic, in­tel­lec­tual or dash­ing. But Raúl ac­qui­esced to global re­al­ity more than un­yield­ing Fidel, al­low­ing the de­vel­op­ment of around 200 small (and le­gal) types of busi­nesses, from nail tech­ni­cians to chil­dren’s party en­ter­tain­ers, burger-bar own­ers to pro­fes­sional pho­to­copiers. This un­leashed a pri­va­tised econ­omy that now oc­cu­pies around 12 per cent of work­ing Cubans. But those changes did not in­duce ma­jor growth, ac­cord­ing to Tor­res. “The un­der­ly­ing phi­los­o­phy of the eco­nomic model has not changed enough,” he says, “be­cause of cen­tral plan­ning, and ma­jor­ity state ownership, which has re­duced the pace and the scope of re­forms.”

Cash cows of the econ­omy have been ring-fenced for the state. In tourism, pri­vate ac­tiv­ity has only been al­lowed around its edges – for ex­am­ple in trans­fers, Airbnb­style rentals (known as casas par­tic­u­lares), and pal­adares, which are small pri­vate restau­rants. In the mid­dle of last year, spooked by the lust for mo­bil­ity tak­ing root on the is­land, the state froze new li­cences for pal­adares and casas. At the end of the year, they then cur­tailed the amount of ac­tiv­i­ties per busi­ness. The of­fi­cial rea­son was tax eva­sion, cer­tainly a prob­lem for busi­ness own­ers in a country where peo­ple rou­tinely steal from the state to make a liv­ing. But that’s not the whole story. “It’s more a mat­ter of the party [not] ac­cept­ing new con­cepts,” ar­gues Fernán­dez. “The last two party con­gresses cleared the path for the pri­vate sec­tor, but cer­tain [parts of of­fi­cial­dom] are un­con­vinced, and are de­lay­ing im­ple­men­ta­tion.”’

To avoid the cre­ation of an eco­nomic elite, the govern­ment is seek­ing for­eign, not do­mes­tic cap­i­tal, pre­fer­ring to ex­tend a huge levy on the lives of Cubans rather than risk­ing home­turf big busi­ness de­vel­op­ing, which could threaten eco­nomic equal­ity and state power. Cubans, though, have had a taste of self­im­prove­ment – the ge­nie is al­ready out of the bot­tle. Ac­tion, the govern­ment is dev­as­tat­ingly aware, needs to be taken.

Thorny is­sues sur­round for­eign in­vest­ment in Cuba. Fo­cusses in­clude tourism (ho­tel projects), in­fra­struc­ture (ports, air­ports and mari­nas), en­ergy (re­new­ables and con­ven­tional, in­clud­ing oil and gas ex­plo­ration), and biotech. Over the last two years Cuba has sought for­eign deals and has signed off about US$3.5bn of pub­lic spend­ing, in­clud­ing air­port and rail­ways up­grades, a gas power plant and mul­ti­ple ho­tel projects. Projects, how­ever, tend to get passed with alacrity, and are then cur­dled by cold feet and bu­reau­cracy. Four green­lit golf projects go­ing back a few years for a bud­get of $2bn have still not bro­ken ground.

Díaz-Canel is tasked with speed­ing up these projects, and Cuba’s na­tional assem­bly has just voted to al­ter the con­sti­tu­tion to back the open­ing up of the econ­omy within the “ir­re­vo­ca­ble na­ture of so­cial­ism”. The new con­sti­tu­tion will en­dorse pri­vate prop­erty, self-em­ploy­ment, and other new re­al­i­ties for Cuba. It will also af­firm that pres­i­dents will be elected for five years, and can only be re-elected for five more.

Cash cows of the econ­omy have been ring-fenced for the state

Díaz-Canel will also be the man to han­dle the uni­fi­ca­tion of the country’s bizarre sys­tem of two of­fi­cial cur­ren­cies, in which the Cuban peso is worth 25 times less than the con­vert­ible peso. The lat­ter was cre­ated in 1994 to erase the cir­cu­la­tion of US dol­lars, but al­low a cur­rency for spend­ing the size­able re­mit­tances that flow in from the Cuban di­as­pora. Switch­ing to a sin­gle cur­rency and ex­change rate, and ditch­ing the con­vert­ible peso, is im­mi­nent; but again, no one knows when. In­ef­fi­cient state firms cur­rently propped up by the in­flated ex­change rate will go un­der. There will be in­evitable re­dun­dan­cies, hope­fully saved in part by the pri­vate sec­tor.

“In the short term, there could be in­fla­tion­ary pres­sures, af­fect­ing pur­chas­ing power in house­holds al­ready un­der stress. That’s why the govern­ment is pro­ceed­ing very care­fully,” says Tor­res.

“Cur­rency uni­fi­ca­tion is go­ing to be the most tran­scen­den­tal process of Cuba’s cur­rent his­tory,” says Fernán­dez. “It is an ur­gent task to elim­i­nate huge dis­tor­tions in the ac­coun­tancy of Cuban en­ter­prises, though in my view, now is not the right mo­ment. In the medium to long term, it will be hard to avoid neg­a­tive in­fla­tion and so­cial im­pacts. I would in­crease for­eign in­vest­ment as a di­rect pri­or­ity, in­stead.”

On the home cap­i­tal­ism front, when busi­ness li­cences will be reis­sued is any­body’s guess. This is not a state known for its trans­parency, and could be a fac­tor in the ten­dency of Cubans to opine on sub­jects they know noth­ing about, grow­ing up in a cul­ture in which in­for­ma­tion is dis­sem­i­nated through hearsay and ru­mour.

TOURIST DE­LIGHT

The cur­rent holy grail of re­demp­tion is tourism. De­spite the re­cent drop, over the last decade tourism fig­ures have dou­bled, and the Cubans are in­vest­ing in the pre­sump­tion of a solid fu­ture. There are four new five-star ho­tels un­der con­struc­tion in Ha­vana – all owned by mil­i­tary-run Gaviota (the state tourism group), but to be man­aged by for­eign­ers.

The dis­ap­point­ing as­pects of tourism in Cuba, which in­clude ap­palling wifi, dra­mat­i­cally hit-or-miss food and an­noy­ingly per­sis­tent taxi driv­ers, are more than com­pen­sated for by un­spoiled na­ture, an open-hearted and bright pop­u­la­tion, and a re­fined cul­ture that ex­cels no mat­ter what: these things are eter­nally Cuban.

If you step out­side Ha­vana, there are de­lights to be had. As state tourism ever shifts to more lux­ury ho­tels, city tourism, and golf cour­ses, there is qui­eter magic off the beaten track. A re­cent launch is Wild Cuba, which spe­cialises in the less ex­plored Cuba, “far beyond the nar­row tourist foot­print of Ha­vana, the colo­nial towns along the is­land’s spine and the keys”, ac­cord­ing to its Ir­ish-born cre­ator, Johnny Con­si­dine, of Cuba Pri­vate Travel, cubapri­vate­travel.com. The idea, he says, is to ex­plore the rus­tic beauty of Cuba’s na­tional parks, and the ex­per­tise of Cuba’s myr­iad nat­u­ral­ists. “The govern­ment’s much more open to the idea of na­ture tourism these days,” he says, “so we’re pro­mot­ing wild camp­ing, long-range horse trips, farm stays, re­mote div­ing and out-there beaches.” And over the next few months, that’s where I in­tend to be.

THIS PAGE: Cuba's street art scene; Ha­vana Cuba Capi­tol build­ing, and the country pro­vides free health care and ed­u­ca­tion

TOP: Cuba is home to many Span­ish colo­nial-style build­ingsLEFT: Ex­plore the lo­cal lake­side in Cuba

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