Cuba Hits Wall in 2-Year Push to Expand the Private Sector

Cuba Hits Wall in 2-Year Push to Expand the Private Sector
By VICTORIA BURNETT
Published: July 16, 2012

HAVANA — Nearly two years into the Cuban government's economic overhaul
aimed at slashing public payrolls and bolstering private enterprise, the
reforms have slowed so much that many Cuban entrepreneurs and
intellectuals are questioning the aging leadership's ability — or will —
to reshape one of the world's last Communist systems and shift nearly
half of the island's output to private hands.

Those awaiting measures to create even more opportunity for private
business got the opposite last week, when news spread of a
little-advertised government decision to charge steep customs duties on
the informal imports, from Miami and elsewhere, that are the lifeblood
of many young businesses.

"This could have a huge impact," said Emilio Morales, president of the
Miami-based Havana Consulting Group, who said state-owned shops in Cuba
were losing business to street vendors. "It shows the state isn't ready
to compete with the private sector."

After the Cuban government began allowing people to open businesses in
late 2010, nearly a quarter of a million of them have opted to work for
themselves over the past 20 months, opening restaurants, snack bars and
makeshift shops, driving taxis and fixing cellphones. Together with
those who took advantage of an earlier experiment with privatization in
the 1990s, about 387,000 Cubans, out of a population of about 11
million, are now self-employed; Cubans are also buying and selling homes
and cars among themselves for the first time in 50 years.

As the private sector has grown, so has the deluge of goods brought to
Cuba each day in suitcases and duffel bags, principally from Panama,
Ecuador, the United States and Spain. With no access to a wholesale
market, Cubans turn to friends, relatives and so-called mules for
everything from food to trinkets to iPhones. This parallel trade has
ballooned to more than $1 billion per year, Mr. Morales estimates, since
the Obama administration began loosening of restrictions on travel and
remittances in 2009.

Yunilka Barrios, who sells sunglasses, hairbands, nail polish and
glittery bra straps from a grimy, narrow doorway, was alarmed by the
prospect of a 100 percent tax on informal imports that the government
indicated would go into effect in September. "Things seem to be
tightening up," she said.

Economists, businesspeople and diplomats believe President Raúl Castro
is treading carefully because of resistance from midlevel functionaries
reluctant to lose their perks, and from conservative officials nervous
about the social and political impact of economic enfranchisement.

The Cuban leader, who has sworn off the "shock therapies" that ruptured
the Soviet Union, said in a speech in December that the government would
proceed "without hurry or improvisation, working to overcome the old
dogmatic mind-set and correcting any mistakes in a timely fashion."

But the pace of change has been too slow for people like Yelena López de
la Paz, who went bust because of competition, lack of experience and low
margins. She opened a snack bar on her block last July, and made about
$100 profit the first month, selling pizzas, juice from her mother's
homegrown mangos and chewing gum sent by her grandmother in Miami. Then
three snack bars opened nearby, and by the time she closed in November,
Ms. de la Paz was taking home a dollar a day.

"I was investing a lot of money and time and earning nothing," she said
in frustration.

Given the lack of progress, the government's pledge in April to move
about 40 percent of the country's output to the nonstate sector in five
years is less and less plausible, experts say.

"At the rate they are going, there is no way they will reach that
figure," said Carmelo Mesa-Lago, a Cuban-born professor emeritus at the
University of Pittsburgh.

With the National Assembly set to meet next Monday, Cubans are
anticipating an expansion of the number of co-ops beyond the existing
agricultural ones.

Separately, the government is turning small, state businesses, including
cafes and watch repair shops, over to employees in some provinces. It
has lifted a $4 ceiling on the value of contracts between state entities
and individuals and is subcontracting work, such as construction, to
independent operators.

"This is the first time since the 1970s or 1980s that the country has a
plan, and this is the first time that there is discipline in
implementing the strategy," said Rafael Betancourt, an economist based
in Havana.

Even some who see the changes as slow remain confident they will happen.
"It may be a little frustrating for a spectator," said Philip Peters, a
Cuba expert at the Lexington Institute in Virginia, "but it's not a
five-alarm fire."

But such caution is at odds with Cubans' urgent needs, some say. Orlando
Márquez Hidalgo, editor of the Catholic magazine Palabra Nueva in Cuba,
said recently that if workers laid off by the public sector failed to
find other jobs, their "discontent and frustration" would grow, as would
"the number of those who dissent or wish to leave."

"Time is vital," he said.

The government aims to trim state payrolls by 170,000 this year and add
240,000 private-sector jobs, a tough goal given that just 24,000 Cubans
took out licenses for self-employment in the first five months of the year.

Esteban Lazo Hernández, a vice president of the Council of State, said
in April that private-sector output would grow to between 40 percent and
45 percent of the gross national product in five years, from about 5
percent now.

Not all the entrepreneurs are struggling. Some restaurants and taxi
services are making profits, and Carlos Saladrigas, a Cuban-American
businessman, said during a visit to Havana in March that he knew of
people "making a lot of money, even by American standards."

In interviews, a dozen Cuban entrepreneurs said they were making much
more than they were in the public sector. However, supplies at state
retail stores were expensive and unreliable, they said, and they often
used the black market to cut their overhead.

The owner of a snack bar, who asked not to be identified because he was
describing illegal activity, said he bought hamburger rolls out of the
back door of a state-run bakery and meat patties from a friend who
filched ground beef from his employer. One man selling hardware said
most of it came from "Roberto," a Cuban euphemism for stolen goods.

For Amarilis Albite Cabezas, a 23-year-old accounting student who runs a
busy snack bar in her home in a Havana suburb, the restrictions stem
from a continued distrust of individual wealth.

"They just haven't gotten things organized," said Ms. Albite, who gave
up on getting a bank loan to buy a $700 refrigerator because she was
asked to provide two guarantors, each of whom would have to leave the
full amount in escrow until she had repaid.

"They opened these businesses so that people could survive and so that
they, too, would survive," she added. "But I don't think anybody is
getting rich. That would be — I don't know — capitalism."

Professor Mesa-Lago said one impetus for reform may be Cuba's dimming
hopes of tapping offshore oil deposits. Repsol, the Spanish oil giant,
decided in May to leave Cuba after its second well came up dry. Other
companies are exploring different sites, but the dry well dented Cuba's
prospects of reducing its dependence on Venezuela, which provides
billions of dollars' worth of oil each year in exchange for a range of
Cuban services.

For the moment, Ms. Barrios is happy in her doorway, taking home $10 to
$15 on a good day, after she pays $2 to the neighbor who shares the
entrance. She has cut prices to compete and frets about rumors that the
government may crack down on stalls in passages and entranceways.

As she fished for change in a pouch at her waist, she said, "I just want
to keep this going."

http://www.nytimes.com/2012/07/17/world/americas/economists-question-cubas-commitment-to-privatizing-businesses.html?pagewanted=all