What we know about Cuba’s economy

What we know about Cuba's economy
BY DREW DESILVERLEAVE A COMMENT

Two-thirds of Americans favor an end to the decades-long U.S. trade
embargo on Cuba, a January Pew Research Center study found, and the two
nations reportedly are making progress on re-establishing diplomatic
relations. As the communist government continues to slowly reform Cuba's
economy, American businesses – from airlines to law firms – are
exploring commercial opportunities on the island nation. But even if the
embargo were to be lifted, it's not clear just what sort of Cuban
economy those businesses would find.

Getting a handle on even basic information about Cuba's economy is
difficult, for a number of reasons. The government still dominates
economic activity on the island, both directly and through heavily
subsidized state-owned enterprises. National statistics are not always
complete or reliable. And Cuba's system of two parallel currencies – one
peso for everyday transactions among ordinary Cubans, and a "convertible
peso" for the tourism industry, foreign trade and the private sector –
combined with multiple exchange rates complicates any international
comparisons or discussions about the relative size of different parts of
the economy.

According to a survey conducted in March and published in The Washington
Post, 79% of Cubans said they were dissatisfied with the country's
economic system; 70% said they wanted to start their own business.
Nearly two-thirds of Cubans (64%) said normalizing relations with the
U.S. would change the economic system, though only 37% thought the
political system would change.

With so much change in the air, we decided to work our way as best we
could through the data difficulties to put together a primer on what we
know, and don't know, about the Cuban economy.

1 Despite the embargo, the U.S. does do business with Cuba. Last year,
according to the Census Bureau, the U.S. exported nearly $300 million
worth of products to Cuba; nearly all (96.2%) of that was in the form of
meat and poultry, soybeans, corn, animal feed and other foodstuffs. The
exports are permitted under a 2000 law that modified, but did not
repeal, the U.S. embargo; under it, Cuba can buy certain agricultural
products, medicines and medical devices from the U.S., but must pay in cash.


2 Growth has slowed sharply in recent years. According to Cuba's
national statistical agency, the country's gross domestic product in
2013 was 77.2 billion pesos – which, depending on which exchange rate
one uses, could equate to anything from $77.2 billion (at the official
rate of 1 convertible peso to $1) to $3.2 billion (at the internal rate
of 24 regular pesos to 1 convertible peso). But either way, growth has
slowed dramatically from the mid-2000s: The CIA estimates that Cuba's
GDP grew just 1.3% last year in real (inflation-adjusted) terms – 177th
out of 222 countries ranked. One big reason: With global oil prices
still well below their pre-recession highs, the heavily discounted oil
that Venezuela sends Cuba – some of which Cuba re-exports – is less
valuable.

3 Despite economic reforms, the state still dominates. In a paper
published last year by the Association for the Study of the Cuban
Economy, former International Monetary Fund economist Ernesto
Hernandez-Cata estimated that Cuba's private and cooperative sector
generated 25.3% of GDP in 2012, compared with just 5% in 1989. But the
government, both directly and through state-owned enterprises, was still
the source of more than three-quarters of Cuba's economic activity.
Government investment represented just 9.1% of GDP in 2012, versus 14.2%
in 1989, which Hernandez-Cata said "reveals one of the most disturbing
aspects of Cuba's recent economic history: the weakness of capital
formation." (Official government figures put economy-wide fixed capital
investment, from all sources, at 8.3% of GDP in 2013, considered low by
international standards.)

4 More Cubans are working for themselves. In 2013, according to state
figures, more than 424,000 Cubans (8.6% of all workers) were classified
as self-employed; as recently as 2009, fewer than 144,000 Cubans (2.8%)
were.

The "microenterprise" sector may be even bigger due to the hiring of
unregistered full- and part-time workers. Ted Henken and Archibald
Ritter, researchers at Baruch College and Carleton University,
respectively, estimate that as many as half of small enterprises employ
at least one unregistered worker.

5 Cuba mostly imports goods and exports services. Getting a clear read
on Cuban trade is especially tricky, not least because exports and
imports are effectively valued using different exchange rates. As The
Economist recently explained, state-owned firms and foreign joint
ventures value each ordinary peso at one convertible peso – that is, at
$1: "The massively overvalued rate … creates huge distortions in the
economy, allowing importers to buy a dollar's-worth of goods for one
peso." While most of Cuba's exports are in the form of services (such as
doctors and teacher working overseas), nearly all of its imports are
goods (petroleum, foodstuffs, machinery and equipment, and chemicals).

Source: What we know about Cuba's economy | Pew Research Center -
http://www.pewresearch.org/fact-tank/2015/05/28/what-we-know-about-cubas-economy/