Home > Iván García > Cuba: Private Sector Entrepreneurs Feel Smothered by the Government / Ivan Garcia

Cuba: Private Sector Entrepreneurs Feel Smothered by the Government / Ivan Garcia

June 24, 2015
Havana seller of

Santería religious items for sale at a stall in Havana. From El Nuevo Herald.

 

Iván García, 17 June 2015 — Amid spider webs and musty smells, in a corner of his garage where things that no longer work go to retire, Leonardo has stacked molds for making candies and desserts.

There are also three rolling pins, an electric oven outfitted with parts lifted from a state-owned factory, two chrome sandwich makers and a microwave still in its original box. Everything is now for sale.

“I didn’t realize what I was myself getting into. A relative of my wife who lives in Miami gave us $5,000 in 2012 to start a business selling pizzas, desserts and lunches on our front porch. We had to close last year because of losses. I still owe $1,500. I was never able to make the numbers add up,” says Leonardo.

Just as in sports, in any given field of business there are winners and losers. Leonardo’s frustrations stem from the Machiavellian system for private businesses designed by Cuba’s military strongmen.

They tolerate private businesses but they do not love them. The conservative state sector continues to view them as potential criminals. They are considered dangerous types. Restrictions such as high taxes, excessive regulation and corrupt inspectors make doing business an expensive proposition.

“First, the government’s rules make it very difficult to generate profits. Secondly, there is ignorance. They know absolutely nothing about marketing or publicity. The only ones who do well are those who have access to government funds or good contacts in the black market,” argues Leonardo.

According to statistics from the ONAT (National Tax Administration Office), close to seventy thousand people in recent years have forfeited their private business licenses. But if you were to ask the owners of those businesses, 90% say they are just getting by.

“You live better than working for the state. The fact is you have to work like a dog. I drive a cooperative taxi for twelve or thirteen hours a day. I earn 550 to 700 pesos a day, but the high cost of living and inflation eat up all my earnings. With what I make on the side, I can buy food for my family and own a car in good condition,” says a Havana taxi driver.

The most profitable businesses are in food, lodging and taxis. Armando, the owner of a private bar in the town of 10 de Octubre, claims that only a few have been able to make a lot of money.

“There are some who are probably millionaires, like the artists Kcho and Colomé Ibarra, the son of the interior minister. Because of their relationships with people in power, they have a clear path. Others succeed through talent, such as the owner of La Guarida or La Fontana. But most have to rely on illegalities and tricks to get ahead,” says Armando.

Nevertheless, one can detect among small business owners the emergence of a future middle class. On June 6 several travel agencies were introducing a special all-inclusive summer rate at the Havana Libre hotel.

“There was a line and most of the people in it were Cubans,” notes a public relations agent for the military-run Gaviota hotel chain. “It’s widely believed that many overseas relatives are paying for these stays in tourist resorts. But I’ve noticed that there has been a tremendous increase in the number of Cubans paying for these vacations out of their own pockets. A couple of years ago they were spending a weekend in two and three-star hotels. But now they prefer week-long stays in high-end hotels.”

From the end of 2008 — when Raul Castro decided to put an end to tourism apartheid — until 2014, roughly 127,000 Cuban tourists spent their vacations in tourist hotels across the island, spending more than ten million convertible pesos. And the numbers keep growing.

While thousands of overburdened senior citizens sell peanuts, periodicals and cigars on Havana’s streets — making a few pesos that barely allows them to eat — an elite group of private sector entrepreneurs makes money hand over fist.

Meanwhile, fear and distrust continue. Very few have faith in the banking system or in the rules of the game created by the regime.

In 2014 only 658 cuentapropistas — the government’s term for self-employed  workers — applied for loans through state banking branches. Seventy-five were from Havana and the remaining 538 were from the rest of the country according to the magazine Bohemia. This represents 0.1% of the more than four-hundred thousand registered private sector workers.

The total loan amount comes to only 13,000,000 pesos (some $520,000 US). According to conservative estimates by Onelio, an economist, the amount of capital flowing to private businesses exceeds $3,000,000.

“Investments in high-end private restaurants and luxury home rentals start at $20,000. My theory is that part of this money comes from the exile community but the sources of the rest are sketchy. It could be from workplace theft, white collar crime, high-level political corruption or Medicare fraud in the United States. The money might later be laundered through private businesses in Cuba,” he speculates.

Behind the glamor and success of private restaurants where stars like Rihana and Beyoncé or U.S. senators passing through Havana dine, there are thousands of businesses on the verge of collapse.

The roadmap drafted by Obama on December 17 opened up a new political landscape between Cuba and the United States. Six months later, however, the proposals that were supposed to benefit the owners of private businesses are still a mirage.

The Castro dictatorship has not enacted a law allowing private farmers and entrepreneurs access to microcredit or to imported foodstuffs and other goods. These businesspeople must then try their luck with loans from relatives living abroad and must work more than twelve hours a day to try to achieve minimal gains.

For entrepreneurs like Leonardo things did not go well. Four years after opening a cafe with high hopes, he had to close due to losses. He has not been able to sell off the equipment he bought for the business, even at reduced prices. And he still owes money to a relative in Miami.

 

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