by Lisa Reynolds Wolfe

Cuba's economy

Economies all over the world are in distress and Cuba’s economy is no exception. You will want to know what’s going on before you plan your Cuba trip.¬†Here are some selected FACTOIDS about the situation in Cuba today. The information is drawn from economic experts who support the Cuban government as well as from those who oppose the regime. It is certainly not comprehensive, and it’s presented in no particular order.

Cuba is facing a very significant challenge at this point. The global recession has hit the island hard, and the country has not been immune from worldwide economic forces.

External factors impacting Cuba’s economy include the following:

  • the world financial crisis
  • the destructive hurricanes of 2008
  • a rise in the cost of food
  • a drop in tourism revenue
  • a fall in the price of nickel.

Cuba showed a high rate of economic growth from 2001-2008. Growth was based on:

  • income generated by the export of professional services — especially medical doctors
  • recuperation of investment in construction and transportation
  • a rise in energy production.

Growth slowed in 2009, and remains low. In addition, there is an acute and growing deficit in the balance of payments.

Factors contributing to Cuba’s worsening economic performance include:

  • the disproportionate dependence on the service sector (the service sector accounts for over 75% of Cuban GDP and programs depend on events outside of the control of Cuban authorities)
  • a high dependence on imported food
  • a highly intensive use of imported energy and imported intermediate inputs
  • low productivity in state enterprises
  • industrial output in 2010 was down to about one half of its 1989 level.

Social factors are also negatively impacting the economy. These include:

  • a very low birth rate
  • a rapidly aging population
  • the emigration of many young people leading to a net decline in the labor force.

In the past, sugar and tourism were the two most important sources of domestic activity. Now:

  • the sugar industry has practically disappeared
  • tourism has stagnated.

Sugar production, which used to be the mainstay of the Cuban economy, declined from roughly 7 million tons in the 1980s to only one million tons per year at present. This is due, in part, to shortages in needed inputs.

The number of tourist arrivals has increased. However, receipts from Cuba trips have declined. This can be partly explained by the fact that most, if not all, of the increase in volume is a reflection of family visits by Cubans living abroad, especially in the US. These visitors bring gifts to their families but spend little time or money in hotels or other tourist attractions while they are on their Cuba trip.

The average nominal monthly salary for Cubans has risen, increasing to between $17 – $20 US.

  • wage increases have been offset by increases in prices, resulting in a decline in real terms.
  • the official wage rate remains at about 25% of its 1989 level.

Cuba has two domestic currencies.

  • most Cuban salaries are paid in “the ordinary Cuban peso”
  • the “convertible peso” — worth 25 ordinary Cuban pesos — is required to buy certain goods sold in government owned stores.

In recent years there have been positive results in the extraction of petroleum and gas.

State enterprises are grappling with the need to reduce their expenditures.

During 2009, there was some growth in trade with Venezuela, China, Russia, Angola, Vietnam, and Iran.

Here are a few comments on agricultural production:

  • municipal enterprises have been given a greater say in agriculture
  • there has been a decrease in the degree of centralized control
  • there has been some land distribution to small farmers
  • private producers have been allowed to raise some cattle
  • the government has raised the prices it pays for milk, meat, and some other agricultural products
  • the government makes most decisions about what is to be produced
  • the government controls distribution of the inputs of production
  • the government determines the prices at which most products are sold.

Cuba’s small domestic market is dependent on imports. Currently, ¬†imported goods are scarce throughout the whole range of retail and wholesale domestic markets.

Lack of foreign exchange has led to substantial delays in the availability of funds to make payments abroad for imports and other remittances. Lack of foreign exchange has also created pressure on domestic commercial bank balances. The government has taken steps to:

  • lower travel expenses
  • suspend some imports
  • postpone investments
  • reduce budgetary expenses
  • limit the ability to withdraw funds in cash from the bank accounts of foreign enterprises and individuals operating in Cuba.

The government now allows Cubans to access and stay in  hotels that were previously restricted to foreign tourists on a holiday or business Cuba trip.

Cubans are now allowed to own cellphones.

State stores are now permitted to sell formerly forbidden goods: computers, DVRs, motorized bicycles, and electronics for domestic use.

Cubans will soon be able to buy houses and cars.

Photograph by Lisa Reynolds Wolfe.

For detailed information on Havana (Cuba) after the Cuban Revolution and before the end of the Cold War, see Cold War Studies.

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