In Cuba, Cash Trickles In for Budding Capitalists

In Cuba, Cash Trickles In for Budding Capitalists
Obama administration's removal of U.S. limits on money transfers is
helping small, private businesses get started or expand
By DUDLEY ALTHAUS And JOSÉ DE CÓRDOBA
Jan. 9, 2016 5:33 a.m. ET

HAVANA—U.S. citizens still aren't allowed to invest in Cuba, but
American cash has been nurturing the Communist-ruled island's nascent
capitalists, a few dollars at a time.

The Obama administration removed U.S. limits on money transfers to the
island in September, encouraging the use of person-to-person remittances
to support private businesses on the island.

Cubans such as retired teacher Rafaela Suarez are the beneficiaries.
With money wired by a brother-in-law in Miami, Ms. Suarez, 68 years old,
has built a cafe inside her tiny first-floor apartment in Havana's once
swanky Vedado neighborhood not far from the Cuban capital's Plaza of the
Revolution.

"That's what helped me get started," Ms. Suarez said of the wired
cash—$40 in one transfer, perhaps $100 the next—as she swept the small
kitchen that serves as a dining room for customers and off-hours parlor
for her. "It was crucial for me."

She is now clearing $8 a day, Ms. Suarez said, in a country where the
average paycheck at jobs controlled by the government—90% of the
total—is little more than $20 a month.

"In Cuba, remittances are disguised investment," said Ted Henken, a
Cuban economy specialist at Baruch College in New York. "This makes it
completely legal to pump money in. It's like finally giving oxygen to
something that has been going on a long time."

Big U.S. money won't roll in unless Congress lifts the 54-year economic
embargo on the former Cold War enemy. Few Cuban or U.S. officials expect
that to happen quickly, if at all, despite the re-establishment of
diplomatic relations.

Cuba´s leaders have publicly dismissed the changes made by the Obama
administration, including the lifting of remittance restrictions.

"There won´t be any normalization with the blockade in place," Cuban
Foreign Minister Bruno Rodriguez told reporters at the U.N. in
September. "There won't be substantial progress in normalization without
substantial changes in the application of the blockade."

Despite increases in tourism and remittances expected in 2016, Cuban
President Raúl Castro warned countrymen to expect more economic hardship
this year. In a Dec. 30 speech, Mr. Castro said the island expected to
expand 2% this year, half of last year's growth. He emphasized the
economic turmoil in Venezuela, Cuba's main ally and trading partner, on
whose subsidies the island depends.

Remittances add up to an important source of capital for a number of
developing countries around the world. Estimates of how much cash is
being sent to Cuban families vary widely. Manuel Orozco, who studies
remittances at the Inter-American Dialogue, a Washington think tank,
figures that about 550,000 people send an average $1,250 a year to the
island, or about $770 million annually.

The United Nations' Economic Commission for Latin America puts the total
much higher, estimating it would reach some $1.8 billion in 2015.
Another study pegs the total at more than double that when noncash
contributions of merchandise are included.

Calculating the growth rate of the transfers remains guesswork as well,
Mr. Orozco said. Based on surveys of those sending money and receiving
it—and figuring in the tens of thousands of Cubans who continue to
migrate to the U.S.—he believes remittances can double or more in coming
years, rising by as much as $1 billion.

Western Union, a major conduit of the remittance flow, was "tracking
strong double-digit growth" in 2015 amid the easing of U.S.
restrictions, said Odilon Almeida, the firm's executive vice president
for the Americas and European Union.

While much of that money will buy necessities and perhaps a few luxuries
for recipients, a small percentage will be devoted to investments in
businesses such as Ms. Suarez's cafe.

Some $250 million sent to the island in the next three to five years
could provide financing for as many as 35,000 new and existing small
businesses, Mr. Orozco said.

About half a million Cubans, one-tenth of the island's workforce,
already either own a small business or work for one. Cuban officials
intend for that to climb to 40% of the working population within a few
years.

In the first 11 months of 2015, tourism increased 18%, to 3.1 million
visitors, compared with 2.7 million in the same period of 2014,
according to Cuban government statistics.

The flood of new money could be poured into the restaurants, bed and
breakfasts, and shops in Havana and other cities that serve the U.S. and
other foreign tourists rushing to the island, observers said.

Such businesses are the most lucrative of the 201 endeavors the Cuban
government allows its citizens to operate for their own profit. Others
run the gamut from street vendors and taxi drivers to event planners,
party clowns and hairdressers.

Professionals such as doctors and dentists, lawyers and architects can't
operate a private practice. Most retail business and trade remains
firmly in government hands.

Few private businesses produce more than scrape-by earnings. Many
startups fail altogether because of red tape, high taxes, insufficient
capital or lack of business know-how, observers said.

But optimists believe more remittance cash might change that reality.

"The new rules will get much more money into the hands of the emerging
private sector," said Richard Feinberg, a former U.S. diplomat who
studies the Cuban economy at the University of California, San Diego,
and the Brookings Institution in Washington. "That's very much in line
with the Obama administration's policy."

—William Mauldin in Washington contributed to this article.

Write to Dudley Althaus at Dudley.Althaus@wsj.com and José de Córdoba at
jose.decordoba@wsj.com

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