Cuba’s socialist planned economy and the decades-long US embargo have left their mark, with limited supplies of products, a growing black market, and deteriorating buildings. But, as a result of the government’s economic reforms and rapprochement with the West, the market has become more open.
Obligation to reform
Cuba lost its most important economic partner when the Soviet Union fell apart in 1991. Despite this, the island state initially maintained its planned economy and remained largely isolated from the global market, owing in part to the US embargo.
To this day, essential food supplies remain in short supply, and consumer products are scarcely affordable. The administration was compelled to change in order to provide basic supplies for the population due to the dismal economic position.
The initial steps were the acceptance of private small firms and the loosening of the communist planned economy. For several years, private merchants have been selling their items on the streets of Cuba.
A growing number of Cubans are taking advantage of the chance to work for themselves. The state allows this in around 180 occupations, such as gastronomy, agribusiness, and taxi driving, but only with stringent governmental criteria and hefty tax rates.
For the first time in 50 years, Cubans have been permitted to buy brand-new cars without official approval since January 2014 – but only at exorbitant prices that the average salary earner can hardly afford.
CUC and CUP – the two-currency system
The alternative currency “Peso Cubano Convertible,” or Convertible Peso, is likewise difficult to afford for a state employee without relatives abroad. In 1994, the government launched the Convertible Peso (CUC) in addition to the Cuban Peso (CUP). This was supposed to take the place of the US dollar, which became legal in 1993.
The Cuban peso is used to pay government employees and retirees. They can use money to buy a few necessities like food and services.
As a result, the convertible peso is more appealing. It can be used to purchase practically any product or service. It is tied one-to-one to the value of the US dollar and gives access to foreign exchange, i.e. all foreign means of payment except cash.
Those wishing to convert Cuban pesos to convertible pesos must adhere to the government’s set exchange rate. One CUC costs around 25 CUP for Cubans. The administration claims that the dual currency system would be phased out, although it is unclear when or under what conditions.
Cuba as a vacation destination
Tourism is Cuba’s most important economic sector. Since Fidel Castro declared tourism to be one of the most significant sources of foreign cash in the mid-1990s, tourist destinations like Varadero have exploded, and hotel construction has exploded. The only industry in Cuba that is growing at a steady pace is tourism.
Foreign investors are more interested in investing in Cuban tourism now that the United States has partially lifted its economic sanctions against the country. In 2015, Meliá, a Spanish hotel brand, already owned half of the hotel beds in Cuba. Critics fear that the island will be “sold away” to foreign interests.
The housing market is booming.
For a long time, bartering was the sole option on the Cuban real estate market. For the first time in 2011, the Cuban government legalized the purchase and sale of apartments and houses. This has previously only been available to Cuban nationals. However, residences in downtown Havana are in high demand, and a black market has already emerged in which Cuban stooges sign purchase contracts for foreign buyers in exchange for pay.
Although the privatization of real estate is accelerating long-overdue building renovations, substantially rising residential rents are also predicted. Apartments in the city center will then be prohibitively expensive for low-income Cubans.
Sugar and tobacco
Sugar cane harvests are still vital to Cuba’s economy. Sugar yields, on the other hand, are decreasing. Cuba’s economy began to falter after the Soviet Union collapsed. A reassessment was required because Soviet agriculture subsidies had terminated at that point.
As part of the economic restructuring, a number of sugar factories were shut down. As a result, sugar production dropped dramatically in the 1990s, from 8.4 million tons in 1990 to barely 3.3 million tons in 1998. There are no reliable figures on current crops.
Tobacco is another significant agricultural product. A large portion of the harvest is used to make the world-famous Havana cigars, which are then exported around the world. Although the cigar is one of the most popular export items, sugar overtook it as the primary export commodity as early as the 18th century. Despite their high international price, Cuban cigars can only bring in a small portion of the foreign exchange.