Cuba is moving towards a mixed economy by legalizing small businesses
Reuters. – Thousands of small and medium-sized Cuban companies, both private and state, will be incorporated in the coming months in one of the most significant reforms to the Soviet-style local economy after its closure since the late 1960s.
The reform, details of which emerged this week, would allow small and medium-sized businesses for the first time since 1968, ending a legal stalemate that had existed for years in the Soviet economy.
The law will allow state-owned companies to operate as small and medium-sized enterprises, implying significant decentralization of some activities that will force them to make subsidized operations profitable or destined to close, according to Cuban economists.
In the food service sector, thousands of subsidized restaurants will have to close their doors, becoming cooperatives or small businesses, according to a mid-level manager involved in the operation who spoke on condition of anonymity. If maintained, they would become small and medium-sized state-owned enterprises competing with each other.
The new measures are a key part of Cuban President Miguel Diaz-Canel’s economic reforms, which he signed into law in 2020, when the pandemic and US sanctions pushed the already precarious domestic economy into a state of collapse, amid food and medicine shortages. And other basic commodities have reached alarming proportions.
“It is a starting point for a new phase in the diversification and development of the economy in order to make the most of its potential,” Economy Minister Alejandro Gil said on Wednesday.
The Caribbean country is highly dependent on tourism and imports. Gill said the measure is aimed at increasing employment and the use of local inputs in times of crisis, but especially recovery.
The Minister of Economy spoke on television about the new regulations for the creation of small and medium enterprises (MIPYMES) for the first time since the 1959 revolution as well as about the promotion of cooperatives.
Gill said the measure puts all companies, government and private, on an equal footing to compete and work together and create joint companies, as in capitalist countries, although it is limited to no more than 100 employees and company owners. one company.
mixed economic model
The process of setting up MSMEs has accelerated after it was approved in May by the Cuban Council of Ministers.
Among the new rules, companies can access the government’s wholesale system, import and export, set prices and attract foreign investment, but only within a business environment that remains state-controlled, where these activities remain heavily regulated.
However, many businessmen and economists have long demanded reform.
“Cuba is moving towards a mixed economic model, at least in terms of employment,” said Pavel Vidal, a former economist at the Central Bank of Cuba who teaches classes at Pontificia Universidad Gafriana Cali in Colombia.
“I have no doubt that with this opening in a few years, the non-governmental sector will represent more than 50% of the total employment in the economy,” Vidal said. “There is still a lot to do,” he added.
The Cuban economy, which has been stagnant for years, contracted in 2020 to 10.9% and fell by another 2% in the six months to June, compared to the first six months of last year. The economy is still highly dependent on tourism and imports.
Thousands of people in cities across the Caribbean island took to the streets on July 11 to protest living conditions in what were the largest demonstrations after the 1959 revolution.
Diaz-Canel blamed the United States for the events, stating that the protesters were manipulated through social media campaigns organized by the United States.
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While there have always been private farms and agricultural cooperatives in Cuba, the rest of the economy was in state hands until the 1990s, when it allowed small, heavily regulated businesses in some areas under the rubric of self-employment, limiting their legitimacy and legal status.
The private sector has gradually expanded since then to include more than 600,000 self-employed license holders in many sectors, and includes entrepreneurs and their employees, merchants and taxi drivers.
The so-called non-governmental sector, including agriculture, provides employment for a third of 4.9 million formal workers, and the rest work for the state.
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