Almost two years following the new laws on the establishment of small and medium-sized enterprises (SMEs) came into force in Cuba, the government is planning changes to the existing regulations. “It is now up to us to propose the necessary changes to ensure their effective integration into the economy and tangible benefits for the population,” Economy Minister Alejandro Gil told a Council of Ministers meeting on Wednesday. For the upcoming reform, the most important “results, shortcomings and obstacles” of the past two years would be evaluated. In addition, a created a new institutewhich is dedicated to the control and coordination of the new players, the minister announced.
In September 2021, Cuba allowed the creation of SMEs in all sectors of the economy except for a 112-item negative list and reduced taxes. This enabled purely private companies with up to 100 employees in the socialist country to constitute their own legal entities for the first time, which observers perceived as a turning point in the reform process. The aim of the “new economic strategy” announced in 2020 is to create comparable framework conditions for all economic actors so that they can interlock with each other and create synergies. To date, around 7,000 SMEs have been set up, employing 180,000 people across the country. Numerous sectors are represented, from construction and industry to services and IT.
A major problem is still the partial dollarization of the economy and the existence of two exchange rates. The currency distortions made it difficult to implement the desired cooperation between the various sectors, Gil admitted. Contracts between the state and the private sector are currently mainly in foreign currency, which most private companies hardly have at their disposal. The newly created possibility of importing goods and intermediate goods often cannot be used in practice. In addition, there is a lack of start-up financing. Quite a few of the new players are therefore having difficulties implementing their plans under the current framework conditions. Their contribution to economic output – and thus to improving the still precarious supply situation – has so far remained small.
To address the issue, the government plans to implement a macroeconomic stabilization program this year, which will include “changes in the foreign exchange allocation mechanism,” Prime Minister Manuel Marrero explained at the meeting. The program is part of and a prerequisite for a comprehensive reform of state-owned companies, which will result in a new company law at the end of the year. “With the current scheme, we will not succeed in making state-owned companies the main player in the economy. We see abusive prices and speculation. Then we say we need more FX to increase supply – and we’re back in the same cycle. Stabilizing our macro-economy is the key to all further questions,” said the prime minister.
With the new company law, the state-owned companies are to be given significantly more autonomy, and the competence of the provinces is to be strengthened. Topics such as innovation management and digitization should also be included in the law. This, along with the as-yet-unknown changes to private sector laws, should cut the “Gordian knot” of the Cuban economy and start a spiral of growth, according to the government’s plans. “Given the extremely difficult situation of our economy, we have to do things differently to achieve recovery and growth,” Marrero said. Cuba is blocking itself, said the prime minister, who called for an “open war once morest inefficiency and bungling.”
Oniel Díaz from the private consulting agency Auge, which is primarily dedicated to SME development, is cautiously optimistic. “There will be skeptics who interpret this announcement as a cause for concern because there have been reasons for pesism in the past. I, on the other hand, am optimistic,” Díaz said in a Facebook post in response to the conference. He will use the coming time to show the existing obstacles to the development of SMEs in several video streams.
Cuba is planning growth of 3 percent in gross domestic product this year. This can and must be done “in the midst of the global crisis, which is characterized by inflation, rising interest rates and a fall in investment,” said Economy Secretary Gil. In addition, the island economy is suffering from the economic blockade imposed by the United States more than 62 years ago, which has also excluded Cuba from the global financial markets since ex-President Donald Trump listed it once more as a “state sponsor of terrorism” in 2021.
