As the philosopher Desiderius Erasmus said about women, the government of the Republic of Cuba views the re-emerging private sector from the perspective.... "Can't live with them, can't live without them."
Micro, Small, and Medium-Size Enterprises (MSMEs) may be “state-owned, private, mixed, or owned by political, mass, and social organizations.”
Miami Herald
Miami, Florida
20 August 2024
New restrictions on wholesalers spark fears about Cuban private sector’s future
By Nora Gámez Torres
The Cuban government has announced new measures, including limiting wholesale trade by the private sector, that officials say would “correct economic distortions” but will likely exacerbate shortages and worsen inflation in the midst of a severe economic crisis.
In a 167-page document published Monday in the official Cuban gazette, the government issued several laws and regulations imposing new taxes, protracted bureaucratic requirements and restrictions on the activities of small and medium enterprises, non-agricultural cooperatives and the self-employed, which comprise the island’s nascent private sector.
LINK TO 167-PAGE DOCUMENT IN PDF FORMAT
According to the new rules, which Prime Minister Manuel Marrero hinted at during a National Assembly session last month, small and medium private enterprises, known in Spanish as mipymes, and cooperatives will still be able to import goods from abroad for their business.
However, they can only import and sell goods in the wholesale market if that is their stated “main activity” as a company and only “through contracts involving state entities.” In an official list of 11,288 existing private enterprises and cooperatives compiled by the Ministry of Economy, only one private enterprise has “wholesale trade” stated as its principal activity.
The measures could disrupt supply chains in the private sector, because many private enterprises have found it profitable to buy goods abroad to supply not just their own businesses but also to sell to others, including the self-employed. Many self-employed workers have also made fast cash by buying and selling wholesale, but the new regulations, which kick off in 30 days, prohibit that as well. Official figures reveal that the private sector imported food and other goods valued at $1.3 billion in 2023, and another $936 million this year until June, providing a lifeline to the Cuban population during the country’s worst economic crisis in many decades.
The regulations come after the government imposed price controls last month on some food products sold by the private sector, which is already causing shortages. The government is not even able to pay for the food distributed through rationing cards, but Cuban leaders, who that insist state-owned “socialist enterprises” should be predominant in the economy, have become hostile to the rapid growth of the private sector. Marrero has accused business owners of tax evasion and pledged to enforce stricter controls, sparking concerns about the island’s economic future.
The private sector has become a formidable competitor to the conglomerate known as GAESA, which is run by the military and which controls large sectors of the Cuban economy. GAESA used to control the foreign currency entering the country in the form of remittances — money sent by Cubans abroad to families on the island. But the Trump administration sanctioned the military company handling remittances, and Cubans in Miami found other informal channels to send money to relatives, which ended up helping finance private businesses. Government stores, including military-run chains such as TRD, are struggling to fill their shelves, while private stores are increasing nationwide.
By limiting which companies can be involved in wholesale and ensuring state participation, the government may be trying to ensure that goods bought by the private sector are sold in government stores or used to revitalize state industries. Cuban economist Pedro Monreal, who lives in Spain, said on X that the restrictions on wholesale trade could favor big private sector players with connections to the government. However, the impact of the restrictions is not yet fully understood because the Ministry of Domestic Trade has yet to issue its regulations to implement them. Crisis in Cuba Cuba’s economic crisis is worsening. The country lost 10% of its population to migration, but the government announced a crackdown on the private sector.
The new laws also state that private businesses must use their Cuban checking bank accounts for “all” their business transactions and use only the local currency, the Cuban peso, a measure first announced by Marrero last month that has generated uncertainty among Cuban entrepreneurs. If enforced, this requirement would hinder private businesses’ ability to pay providers abroad. Currently, many use bank accounts in third countries to pay for supplies because Cuban banks do not have dollars to support such operations and do not allow such transfers.
Many business owners have resisted rules imposing electronic payments as the only way to get paid by clients and customers for goods and services because they need cash to buy dollars in the black market to pay for supplies abroad. “At first glance, these new laws represent another major step backward for the Cuban economy,” said Ric Herrero, the executive director of the Washington-based Cuba Study Group, a Cuban-American organization that supports the island’s private sector. “They generate a lot of uncertainty but do make it clear that their goal is neither economic nor developmental growth. Instead, they appear primarily designed to hinder the growth of the Cuban private sector and protect the interests of under-performing state-owned companies.”
Herrero also believes the new regulations send the wrong message at a time when the United States and even Cuban allies like Russia and China would like to see the government moving forward with economic reforms. Resisting calls to open the private sector to foreign investment, the new government decree requires that company owners be Cubans with “effective” permanent residence on the island, ruling out that Cubans living abroad can legally own such businesses.
Some Cuban Americans have tried to bypass such prohibitions — and U.S. embargo restrictions as well — by setting up businesses in Cuba under the name of relatives and friends. But that is also prohibited under new rules that ban company owners from representing someone else’s interests. For the first time, the government will allow foreigners to own private businesses in Cuba, but they must also be permanent residents of the country.
More significantly, the rules do not even address the possibility that these businesses may receive foreign investment, which most economists agree is essential for the island’s economic development. “These laws also show little concern for the negative impact they will have on the foreign relations of a bankrupt country that should be prioritizing its integration into the global economy,” Herrero said.
The new regulations increase the number of activities that are prohibited to the private sector, from 112 to 125. Most professions, tourism, banking and anything related to telecommunications or the media remain off-limits. Still, the rationale for some new prohibitions, like a ban on making orthopedic footwear, is unclear. Other rules, like requiring honey producers to sell only to the state, seem designed to stifle competition from the private sector. Other rules will immediately put some companies out of business. For example, the new rules prohibit teachers of languages, music and other arts from forming academies, which many have already done.
The new legal framework also adds red tape to opening a business, requiring multiple authorizations, including first approval by municipal authorities, which Herrero fears might exacerbate corruption at the local level.
The government also eliminated tax incentives and imposed an additional 5% workforce tax for self-employed workers, who are allowed to hire up to three employees. Oniel Díaz Castellanos, a Cuban entrepreneur who runs a business helping set up private enterprises, said many regulations are not new and maintain “absurd, regrettable and counterproductive prohibitions.” He believes not much will change for business owners in the upcoming months because many rules come with a 180-day implementation window. Even if not “catastrophic” for the private sector in the short term, the regulations ran counter to the government’s stated goals to improve the economy, he said: “We are going in the wrong direction.”
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Cubaheadlines.com: “The Cuban government, through the Council of Ministers, announced on Monday the publication of Decree 107, which establishes new restrictions on micro, small, and medium-sized private enterprises (MSMEs), non-agricultural cooperatives, and self-employed workers.
This decree nullifies and replaces Decree 49 of 2021 and identifies a total of 125 activities that these economic actors are not allowed to perform. Among the most notable activities now banned for the private sector are the manufacturing of pharmaceutical products, financial intermediation, book publishing and layout, television programming and broadcasting, telecommunications activities, and various forms of transportation and storage.
Additionally, sensitive sectors such as defense, public security, and the administration of social services are also off-limits. Decree 107 reflects the regime’s strategy to maintain centralized control over key economic sectors, but it could have adverse effects on economic growth, job creation, and social well-being. According to prominent economist Pedro Monreal, the decree "confirms the squeezing out of private activity and the market as part of state measures to allegedly 'correct distortions and boost the economy’.”
The implementation of this decree represents a significant challenge for the development of the private sector in Cuba, as it limits the diversification and growth of new economic initiatives in strategic areas. In a context where the state sector faces significant limitations, preventing private actors from accessing these sectors could perpetuate the lack of competitiveness, innovation, and efficiency in the Cuban economy. The decree also imposes restrictions on sectors that could have directly benefited local development and employment, such as the production of audiovisual media, transport management, and the provision of technology services. This could result in a lower supply of services and products, negatively impacting the population's well-being.
The tightening of restrictions could also discourage foreign investment and the participation of Cubans in the diaspora in the national economy, thereby limiting opportunities for financing and the much-needed inflow of foreign currency.
“It’s time to take action!” With this phrase, Cuban leader Miguel Díaz-Canel confirmed the regime’s shift in its policy of timid economic openness and reiterated his intention to subject the activities of the “new economic actors” to state guidelines and centralized economic planning. “It’s time to move beyond diagnoses and take action,” said Díaz-Canel at the end of July, during his closing speech of the third regular session of the X Legislature of the National Assembly of People's Power (ANPP).
The process of “debate and exchange” with the owners of MSMEs to convince them of the need to cap prices of essential products that the state cannot sell through the regulated family basket has ended. The result is another example of the repressive and coercive nature of the Cuban totalitarian regime. Despite insisting that the government has not started a “witch hunt” against MSMEs, Díaz-Canel emphasized the intention to rein in the commercial activities of the “new actors” that he himself promoted.
“Regarding our responsibilities in the uncertain and complex realm of the economy, it is necessary to recognize that in the effort to comply with the economic and social policy guidelines of the VIII Congress of the Party, by unblocking processes and promoting the formation of MSMEs, there was not enough firmness in the requirement to create sufficiently robust and comprehensive normative bases to guide the functioning of this form of management that was already operating in the economy but without formal recognition,” he pointed out.
The lack of regulation of MSMEs, according to the leader, caused chaos in the Cuban economy, driving inflation and accentuating inequality in the country. “Therefore, we must ensure that what has been approved is fulfilled, clearly defining the objectives, better preparing the executors of each measure, providing political, communicational, material, and financial assurance, and organizing actions with an implementation schedule so that they do not remain just rhetoric. And above all, exert control over corrections and adjustments with the necessary feedback.”
“Post-controls have shown that many of these businesses did not respond to the state’s trust with the honesty and transparency demanded and required by a minimally organized society. Consequently, no violator of the tax system and legality in general can question the demands arising from the analysis of the errors and distortions of the process. As has been said at this time, the law and order must prevail if we want all forms of economic management to succeed and strengthen,” he added. “It’s time to take action” is the new slogan of the regime that has been in power for 65 years, but Díaz-Canel does not want to scare the emerging entrepreneurs. “I want to reiterate that there is no and will not be a witch hunt against private MSMEs, as some claim, manipulate, or suggest.”
According to the also First Secretary of the Communist Party of Cuba (PCC), “the confrontation will be against lack of control, illegalities, tax evasion, speculation, and fraud, whether they come from non-state or state companies.”
“This is a battle against illegality and not against forms of property and management,” concluded the leader appointed by General Raúl Castro to steer the “continuity” and implement the economic measures emanating from the VIII Congress of the PCC, which led to the failed “ordering.”
“Remember that we are all here to save the Revolution and socialism,” Díaz-Canel warned at the beginning of July during a meeting of the Council of Ministers, reaffirming once again the centrality of the socialist model in Cuba’s economy. Recently, during his report to the Economic Commission of the ANPP, the Cuban leader announced an "ordering" plan for the private and state sectors, due to the "irresponsible manner" in which some of these institutions are conducting themselves, he noted.
In this regard, he insisted that it is not a “witch hunt” against any specific form of management or property. However, the official discourse has been attacking MSMEs for months, especially those that import finished products or do not comply with price caps. “What we are proposing here is an order so that there is the greatest amount of goods and services available at appropriate prices for the population, and that everyone contributes everything they have to contribute,” he stated.
For now, the “step to action” has resulted in the withdrawal of import licenses from almost a third of the private businesses authorized to do so. According to Prime Minister Manuel Marrero Cruz, “it was decided to close this faculty to 24 of the 73 approved companies for importing, due to low activity levels and poor performance.”
“In the analysis we conducted, there were many blunders, errors...,” said Marrero Cruz days ago before ANPP deputies. “The resulting document from the work done by MINCEX allowed us to conclude that we had to close this faculty to 24 companies, due to low activity levels and poor performance,” emphasized the prime minister, announcing significant changes in regulations for MSMEs and self-employed work (TCP).
There is no “witch hunt,” but recently the Minister of Finance and Prices in Cuba, Vladimir Regueiro Ale, warned MSME owners that hiding merchandise and not selling it to the population is a “serious crime.” The official appeared on Cuban television to explain the initial control actions the regime has agreed upon following the recent implementation of Resolution 225, which imposes a price cap on six essential products in the country.
Regueiro highlighted that hiding merchandise and obstructing commerce can be considered serious crimes or infringements. “We are warning, and where we have identified these cases, we have summoned the municipal governments to the economic actors who are the owners,” he said. MSME owners are summoned to government headquarters to receive guidance on the measures to follow in each situation.
“In many cases, we have had to order the forced sale of merchandise. As of July 13, we had ordered 151 forced sale actions of products,” he said. He also specified that the most significant violations are in the commercialization of chicken and oil.
In an intensive operation conducted between July 12 and 13, the Cuban government shut down 53 private businesses after carrying out 891 inspections across the country. Marrero Cruz reported that during these inspections, more than 4,000 violations were detected, and fines exceeding 13 million pesos were imposed on MSMEs. Among the main infractions detected were the concealment of products following the government-imposed price caps and the sale of goods at unregulated prices.”
HAVANA, Cuba, Aug 19 (ACN) The Official Gazette number 78 published Monday, with its complementary resolutions, six decree-laws and two decrees aimed at the country's non-state economic actors, as part of the actions aimed at correcting distortions and reviving the economy.
The new legal provisions will enter into force in 30 days and are Decree-Laws 88 “On micro, small and medium-sized enterprises” (MSMEs), 89 “On non-agricultural cooperatives” (CNA), 90 “On the exercise of self-employment” (TCP) and 91 “On contraventions in these three modalities”.
There are also Decree-Laws 92 “On the special social security regime for self-employed workers, members of CNAs and private MSMEs and the owners of local development projects”, and 93 Modifying Law 113 “On the tax system”, all issued by the Council of State.
In turn, the Official Gazette publishes the Decrees of the Council of Ministers 107 “On the activities not authorized to be carried out by micro, small and medium private enterprises, non-agricultural cooperatives and self-employed workers”, and 108 “On the creation of the National Institute of Non-State Economic Actors, to be headed by Mercedes Lopez Acea.
Its creation was announced before the National Assembly of People's Power (ANPP) last July by Manuel Marrero Cruz, member of the Political Bureau and Prime Minister of the Republic, when he updated the Government's projections for correcting distortions and boosting the economy in 2024, with the incorporation of other actions.
At a press conference today in Havana, the president of the new institute and senior officials of the main agencies involved in these forms of management gave details of the importance and necessity of such provisions.
These regulations, aimed at ordering the actions of non-state actors and making them become true complements of the Cuban economy, are not the only ones that apply to them, nor were they conceived now, because since 2021, when the first ones were approved, it was decided to update them every two years.
This was said at the press conference given by Lopez Acea and by Johana Odriozola Guitart, deputy minister of economy and planning; first deputy ministers Maritza Cruz Garcia, of finances and prices, and Yosvany Pupo Otero, of domestic trade, and by Carmen Rosa Lopez Rodriguez, director of non-state employment of the ministry of labor and social security. They explained that the six decree-laws, the two decrees and the complementary resolutions are the result of an extensive process of consultations and analysis at all levels, initiated in 2023, with the provincial governments and representatives of those and other agencies and MSMEs, which led to several versions until their recent approval by the country's leadership.
According to the president of the institute, they are a response to distortions or gaps, largely caused by the lack of control, they mark the organization of the non-state activity, in addition to underlining that all the modalities of economic actors are maintained. In other words, she said, it is a matter of these figures acting within a legal framework, contributing to the treasury and to the welfare not only of themselves but also of society.
In his closing speech at the last ordinary session of the ANPP in July, Miguel Diaz-Canel Bermudez, first secretary of the Party's Central Committee and president of the country, pointed out that law and order must prevail if we want all forms of economic management to triumph and be strengthened.
