Havana. The Cuban economy is slowly recovering. As Economy Minister Alejandro Gil explained at the last parliamentary session, the economy of the socialist island is now at a turning point.
After a deep recession in 2020 that lasted a long time last year, Cuba was able to close 2021 with a slight plus of two percent. This year, four percent growth is expected. Many of the planned reforms have already been implemented, starting the second phase of the national development plan by 2030.
The exacerbation of the US blockade and the pandemic have set the country back in recent years, but now the economy has recovered again. In addition to the opening of tourism in mid-November, an increase in services and production also contributed to this. Manufacturing, agriculture, trade, and construction all grew for the first time since the end of 2019. The current recovery is taking place in conditions of greatly diminished external dependence. Due to the lack of foreign currencies, imports have halved since 2018, and the foreign trade deficit has decreased by 50%. over the past three years. Today, for every peso of gross domestic product, only 16 cents would have to be spent on imports. “The goal now is to generate growth through greater efficiency without increasing imports,” says Gil.
Despite the positive signals, a year after the start of the currency reform, the Cuban economy is facing the greatest challenges of the past few decades. More than 500 state-owned companies are reporting losses, and retail inflation has soared to 70 percent by the end of the year. Partial dollarization of the economy is one of the biggest unresolved problems. Many everyday items, including household appliances, are sometimes only available in foreign currencies, such as Euros or US dollars. This met with clear criticism from MPs. At the same time, pesos are not currently exchanged as the state does not have a foreign currency to do so. The only option left to many is illegal but tolerated black market trading at a much worse rate than the official 24: 1.
Gil’s priorities for this year include macroeconomic stabilization of the economy, fighting inflation, and restoring the role of the peso to the heart of Cuba’s financial system. To this end, structural transformation when introducing new economic players, such as small and medium-sized enterprises (SMEs), needs to be deepened. Key elements include strengthening state-owned enterprises, adjusting the relationship between the state and private sectors, land reform and promoting foreign investment. Gil recognized the improvement of power supply and the development of renewable energy sources as further priorities for 2022.
As announced by Foreign Trade Minister Rodrigo Malmierca, numerous barriers for foreign investors in Cuba are to be removed this year. “Despite new initiatives on the ground, the desired results have not yet been achieved,” concluded Malmierca. Not only is the blockade of the US to blame for this, but also the persistent shortcomings in the functioning of its ministry.
Since 2014, 285 foreign-financed projects have been approved in Cuba, 49 of them in the Mariel Special Economic Zone. Currently, 302 companies with foreign investments operate in Cuba: 104 joint ventures, 54 companies wholly owned by foreign entities and 144 international economic partnership agreements. However, annual revenues averaged less than $ 1.5 billion per year, well below expectations of $ 2 billion to $ 2.5 billion for sustained economic growth.
“Failure to prepare tenders, poorly targeted advertising and bureaucratic delays” meant that, despite the new investment law passed in 2014, far too few investment funds have reached the country, says Malmierca, who has been in office since 2009. Thanks to its openness to investors from the emigrant community and the possibility of establishing partnerships with SMEs, the island wants to raise new capital for the development of the economy this year. To achieve this, Malmierca demanded to overcome “the prejudices against foreign investors that still exist” among entrepreneurs, executives and officials.
2021 was a year of profound economic change, President Miguel Díaz-Canel told MPs. In addition to currency reform and opening up the private sector, he also dealt with the reform of state-owned enterprises, which now enjoy greater autonomy and freedom to conduct business. Obstacles from decades ago have been removed to allow new actors and mechanisms to work together. These steps mark important milestones in the reform process that started in 2011 and was implemented last year despite a difficult environment.
Now it is all about consolidating the initial momentum and accelerating growth with the goals of the national development plan in mind, emphasized Economy Minister Gil. “Even in the face of unfavorable circumstances, Cuba will not give up its development goals,” said the minister.