Supplies, customers, service contracts lost; mobility and connection problems; prices of raw materials and transport going up; maintenance and rental costs, as well as basic bills… these are just some of the obstacles that Cuba’s small business owners are navigating right now.
Like everywhere else in the world, the crisis that has been induced in Cuba by COVID-19, transcends health and is once again challenging politics, society and the economy, like never before.
Still emerging and with just a decade of existence, Cuba’s private sector has filed requests for over 139,000 temporary suspensions of business licenses: 22% of the approximately 605,000 self-employed in the country [which lumps together a shoe repair person, a restaurant owner, a plumber, an Airbnb landlord and a used clothes vender].
The pandemic’s aftershocks have hurt over 26,000 renters, over 500 Airbnb experience hosts and over 52,000 drivers, according to statistics presented by Vladimir Regueiro, first vice-minister of Finances and Prices, on TV, which were cited by a report that AUGE just published.
“Private enterprise in Cuba. A COVID-19 positive patient”,” written up by this consultancy agency (AUGE), which has been offering consultancy services for the creation and management of businesses ever since 2014, explains why Cuban business owners are facing their biggest threat since the government authorized their private ventures in 2010.
In the report, AUGE describes how businesses are trying to adapt to new circumstances. It also proposes concrete measures which policy-makers could take to support the private sector while restrictions persist and, essentially, help take the weight of this crisis off when the economy picks up again with a “new normal”.
Adapt or disappear
The Cuban economy is an “open economy, under severe sanctions, dependent on tourism and remittances” and with zero access to any foreign compensation mechanism in the form of loan contingency from international finance organizations.”
Amidst this landscape, the private sector is sailing through its own perfect stormy sea, seeing their revenue drop or come to a complete standstill. If supply availability was limited before, it is practically zero right now.
Investments in new businesses or the expansion of existing ones has come to a grinding halt, something that “will continue for the rest of this year.” The recovery of which in 2021 “will depend a great deal on how the crisis evolves on a global level, and especially, on when international travel picks up again, the tourism sector recovers and the results of the upcoming US election,” the report explains.
The analysis was written up with information provided by experts, statements from government authorities and 20 business owners were consulted, who work in the most dynamic professions within the sector.
Closed borders are also having an effect because personal trips are being canceled, which was a key source of revenue for the island. Estimates of total purchases for the private import of merchandise were somewhere between 1.5-2 billion USD per year, in recent years.
Business owners consulted for the paper have directed their resistance to the crisis on fighting two fronts: keeping the business running and protecting workers’ jobs.
Where possible, they have adopted working from home and are launching digital campaigns to increase their visibility, which entails increased expenses in Internet connection. Some have set up take-away services and, in some cases, cut prices to encourage sales or retain their customer base.
Deprived of foreign visitors, many are focusing on locals and there will be competition for the national market, where purchasing power is much lower than that of foreign visitors.
“The death of businesses that are not able to adapt” will be high, the report concludes. However, it will be a tough process for the businesses that do manage to survive: it will imply a complete “transformation to simpler and more mass consuming activities.”
Out of the 38 activities that were selected for the mapping exercise, businesses related to basic or essential services are the ones that have reported less of an impact. These include: retail of food, delivery transport, courier services, telecommunication agents and IT programmers, to name a few. In two words: food and communication.
The number of contract workers is expected to fall in June. Many businesses that have managed to carry on running and support their workers by paying wages, won’t be able to do either or both under these limited conditions, which will have been going on for longer than two months.
The pandemic hasn’t been the detonator for all of these problems, though. The private sector and cooperatives have been suffering “unfavorable conditions at home” since 2017.
AUGE explains why: “The imposition of a moratorium on the authorization of new businesses for a year and a half, a reduced flow of foreign visitors, the impact of the US’ latest sanctions and growing shortages of goods to complete supply chains, had already dampened the sector’s dynamic and businesses’ profit margins.
“The response of economic policies should be coherent with the ‘guidelines for updating the Cuban model’,” stated authors Oniel Diaz, a business consultant, and Ricardo Torres, an Economics professor, who identify the digital economy, food production and SMEs as key areas to bear in mind.
They suggest: “The creation of small and medium-sized enterprises by transforming current businesses with food production licenses. (…) These companies should be able to import equipment meant for agroindustry, tax-free,” they propose as a part of their 12 concrete measures series.
Others include: waiving taxes on labor so as to protect jobs; make customs regulations more flexible for importing essential products; preferential prices for the Internet and other technological facilities to encourage interaction between state-led and private services.
They also add that “getting rid of or making the list of authorized independent work activity more flexible” needs to be taken care of urgently, so as to get the national economy going again and “prevent similar services/businesses from (…) ending up in brutal competition, which will affect prices, supplies and the destruction of jobs and kill businesses.”
They propose that a “joint agenda” be agreed upon, to strengthen infrastructure and related services, including ecommerce platforms and delivery services, which different companies have experience in.
Last but not least, there are legal regulations that are scheduled to be passed in 2022, which could be moved forward “and be explored”, as they are “directly linked to production, as well as a law for businesses, and mercantile associations and societies.”