Atabey previously said:

A bit dated.

The Cuban economy in the next five years Economic slowdown or take-off? Feb 2008
by: Emily Morris



With the fortunes of the global economy now looking more uncertain than before, and the outcome of Cuba´s broad internal debate on economic policy still unknown, it is not easy to forecast the Cuban economy in the next five years. In this context, the Economist Intelligence Unit´s annual publication, Country Forecast: Cuba, is hedged with more provisos than usual. However, the exercise provides a basis for assessing the likelihood of a set of different scenarios, and their impact on the forecast. This article sets out and explains the central scenario, then considers some alternatives.

First, the headline figures: the Economist Intelligence Unit predicts that Cuba´s GDP will grow by an average of 5.3% a year in 2008–09, and slip back to 4.7% in 2010–12. Not bad, but a slowdown compared with the five year period from 2002–07 when average growth (according to our estimates) reached nearly 7%. The forecast is above the Latin American regional and global averages for the period of 3.9% and 4.5% respectively, but lags Chinese growth of 8.5%.

Cuban growth, according to this forecast, will be driven by domestic demand–that is, investment and, to a lesser extent, household consumption. The past three years have seen exceptional externally–driven growth, which is not likely to be repeated. Unlike the 2004–06 period, the external balance will not make a net positive contribution to GDP growth, as import demand will outpace export expansion. In terms of output, the pattern will also alter: where services have been leading in the past five years, lagged by relatively subdued growth of industry and a contraction in the agricultural sector, we expect the next five years to see more balanced growth. However, given the low levels of production compared with potential, and chronic productivity problems, the upturn in industry and agriculture will be relatively modest.

The assumptions upon which the forecast rest are, first, the fundamental political one: that there is no change of government. This is based on an assessment of the current balance of political and social forces within Cuba, and on the assumption that there will be no intervention from outside. We consider that a response by the existing government to pressures for “adjustment” of the existing system is more likely than a change of government. This view seems to be borne out by the process of broad discussion launched by Raúl Castro, which will lead to new steps to reform the system in the coming year.

The second assumption concerns the overall orientation of economic management. At present it is unclear how far–reaching any measures in response to the debate will be, but our central scenario envisages significant but not radical change. Initiatives might include measures such as wage and price adjustments that improve incentives, some changes in the way that agriculture and food distribution are organised, and an increase in the accountability of enterprise managers. Efficiency gains arising from these adjustments are included in our forecast, and are tied to the acceleration in real wage growth.

Our third assumption is about macro–economic stability. We consider that the Central Bank, which has been keeping a close eye on financial regulation and monetary management, will continue its cautious approach. We assume only a slight revaluation of the Cuban peso, given the risks to price stability and sharp impact on relative incomes of any radical adjustment. This will help to avoid price instability and keep real household spending from rising by more than around 6% a year.

The forecast also rests on assumptions about external conditions. The Economist Intelligence Unit´s global forecast envisages a slight slowdown in global economic growth, which implies that commodity prices will fall from current high levels. The impact of lower nickel prices on export revenue will be offset by a similar moderation in oil import prices. (Fluctuations in the sugar price will have relatively little effect on Cuban performance.)

We assume that economic ties with Venezuela will continue to flourish, and that the supply of capital goods and new credits from China will not wane.

The most dramatic risks are obvious: political collapse, a US invasion or a political upset in Venezuela would all cause severe economic upheaval. But the risk of any of these occurring is low. A radical reduction of US economic sanctions is also relatively distant, although it may be more likely. But the assumptions that need most careful consideration, because alternatives are much more probable, concern economic policy. What would be the impact if the government were to introduce more far–reaching reforms following the debates? And how might sudden changes in prices or the exchange rate affect economic performance?

Cuban growth is currently being held back by relatively limited inflows of foreign capital (despite the recent increase in credits from China and Venezuela) and lack of dynamism of the domestic economy. In recent months there have been indications that the opening to foreign investment may be widened. The overall framework, in which each potential investor has to gain explicit government approval, does not seem to be under review, but the range of types of partnership may be about to grow. This could bring a new wave of investment in tourism and infrastructure. More importantly, it has the potential to lead to a broader insertion of the Cuban economy into the global market. It suggests that whereas current links are restricted to a few sectors, a much broader range of goods and services might become more internationally integrated. The impact of such a reorientation of foreign investment policy might be felt first in export growth, past experience has shown that the secondary effects, in terms of technology transfer and diversification from the initial activity, could be greater.

Within the domestic economy, the debates have clearly revealed an appetite for experimentation with new forms of business activity, with greater autonomy and more use of market signals to provide incentives. While privatisation is not on the agenda, price adjustments could be used to encourage more efficient use of resources and to improve the link between wages and productivity.
A change in the way the food chain is organised could transform the agricultural and food retail sectors. Other sectors, including services, might also be reanimated by broad price and enterprise reforms.



An important barrier to the using prices, wages and profit as drivers to improve productivity has been the dual currency system. Our forecast assumes that it will remain in place for the next five years, but this scenario is looking increasingly unlikely. The distortions created by the use of two currencies not only hamper economic efficiency but also account for much of the income inequality and contribute to corruption. It seems that the balance in the calculation of risk and benefit is shifting, making it possible that the monetary authorities might take a radical step. The economic consequences would depend on the manner of the reform. At best, unification could provide a strong boost to economic dynamism. If coupled with realignment (and possibly some liberalisation) of prices, it would lift the real incomes of peso earners and stimulate a strong supply response with little impact on inflation or the external balance.

The Economist Intelligence Unit´s forecast is constantly under review. It aims to present the most likely scenario, and at the moment it envisages a slowdown in growth over the next five years. But conditions and prospects will change even in the absence of radical political upheaval. In the coming months, economic policy debates will need to be watched carefully for signs of new initiatives. With its highly educated workforce and improving infrastructure, Cuban growth potential is strong. It is possible that, with bold policy measures to remove some of the obstacles, a new economic take–off could be approaching.

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Atabey previously said:

New entrepreneurs in Cuba get mixed results
AP



In this photo taken April 1, 2011, Giselle de la Noval attends to a client at a pizzeria she and her boyfriend Julio Cesar Hidalgo operate from their AP – In this photo taken April 1, 2011, Giselle de la Noval attends to a client at a pizzeria she and her …

Cuban Ex-CIA Agent Posada Acquitted In Texas Perjury Case Play Video Cuba Video:Cuban Ex-CIA Agent Posada Acquitted In Texas Perjury Case CBS4 Miami

By PAUL HAVEN, Associated Press – 1 hr 22 mins ago

HAVANA – There was no colorful bunting to mark the grand opening, and no way to advertise in the local press. There was not even money to hand out fliers in this decaying Havana neighborhood of potholed streets and crumbling one-story homes.

So when the freshly painted front window of the tiny pizzeria swung open on the most important afternoon in Julio Cesar Hidalgo's life, nobody noticed at first.

Hidalgo and his girlfriend Gisselle de la Noval waited for half an hour, then another, and another. Finally, 92-year-old Estrella Soto shuffled up to the takeout counter and ordered a medium pizza with onion toppings.

"I love it," she declared, and Hidalgo and de la Noval have barely sat down since.

They sold seven more pizzas in the next 15 minutes, and a total of 30 on their March 8 opening day. The following Saturday they had their best afternoon yet, churning out 60 pies from a used gas oven that looks too narrow even for a small family's needs.

It has been six months since President Raul Castro opened the most significant change to its economy in decades.

By March 8, according to state-run media, more than two-thirds of the 250,000 goal for all of 2011.

As Cuba's new business class journeys cautiously forth, some are enjoying the first fruits of success. Others say the terrain has been rockier than anticipated. Some have already closed the door on their entrepreneurial dreams.

The Associated Press began following the fortunes of a group of would-be small business owners in December. Four months later, their experiences seem to reflect the sweep of Cuba's grand fiscal experiment, as well as the sometimes cruel vicissitudes of the free market.

There is Javier Acosta, who is struggling to get customers into his upscale Havana restaurant. And Yusdany Simpson, a young single mother making a modest income selling coffee and sandwiches from her front yard, a humble venture that resembles a child's lemonade stand.

Then there is Danilo Perez, a 21-year-old bookkeeper who got a license to sell pirated DVDs, only to give up bitterly after authorities suddenly quadrupled his taxes.

"Cubans are entrepreneurial people and to the extent they are allowed to work and make some money, they will," said Lorenzo Perez, a former IMF economist and member of the Association of the Study of the Cuban Economy, a nonpartisan Washington, D.C.-based think tank.

But he added the new enterprises face stiff challenges in a country where few have business acumen, raw materials are hard to find, tax rates can be exorbitant and myriad government regulations still restrict basic activities.

"All over the world, the percentage of small businesses that succeed is very small, even in the United States," Perez said. "In Cuba, the difficulties are enormous, because the environment is not very conducive yet to business ... but that doesn't mean it can't be done."

Dozens of restaurants have opened, some of them remarkably chic for an island of 11 million people where it can be hard to find such basics as matching tables and chairs, and an explosion of private apartments have been put on the rental market.

Those who have sought out licenses say the process is fast and straightforward. Fears that government inspectors — some looking for kickbacks — would undo the free market drive have not materialized, perhaps because there are not yet enough to check in regularly on the unexpectedly large number of new businesses.

Meanwhile, the government has pushed back indefinitely plans to lay off 500,000 state workers, acknowledging the move was extremely difficult and had to be handled with the utmost delicacy. More details are likely to be announced at a key Communist Party Congress slated to begin April 16.

But it has not all been smooth sailing for the entrepreneurs.

Perez, the DVD seller, threw in the towel two weeks ago. He said when he went to get a license in December, officials told him he needed to pay $2.50 a month to operate a streetside kiosk. But when he went back in March, they told him the rates had gone up to $10.50 a month, with an extra month's taxes in advance.

"There were many people protesting — some even crying — because they didn't have the money to pay," said Perez, who is unemployed and getting help from his parents to make ends meet.

Javier Acosta, the owner of a new restaurant in the Playa neighborhood, said he did not make enough in his first month to even cover the monthly tax of $458, and so had to dip into his savings to pay the government and his employees. The next month Acosta did cover his costs, barely, and he is hoping nervously the trend continues.

"There are days when nobody has come, absolutely nobody," Acosta said. "Sometimes I've had one table, or two, but I know how this works. ... One must go slowly, little by little, and build a reputation through word of mouth."

Simpson, the single mother, has had more success, albeit with far more modest goals. Before she opened her kiosk in Havana's Vedado neighborhood, she was unemployed and dependent on remittances sent from abroad to raise her 2-year-old son. Now, she makes about $25 a month selling coffee, soft drinks and mayonnaise sandwiches for pennies apiece, a little more than the average Cuban monthly salary.

"This isn't going to make me rich, but I make enough to get by," she said.

Back at Hidalgo's pizza parlor, the strains of business ownership were evident. Hidalgo has spent more than $1,000 to get the pizzeria off the ground, much of it a gift from a cousin in the United States.

Now that it is open, he spends hours standing up each day next to the hot oven, and hours more each week lugging sacks of flour and large cans of tomato sauce back on his bicycle. He has been able to find all the ingredients he needs in official shops, a sign, he says, that the government is making good on promises to increase access to raw materials.

Hidalgo said he has had no time to contemplate success because he falls asleep at the end of each long day before his head hits the pillow.

He said his lowest moment came when a housing inspector turned up to fine him because he did not have a permit for carving out the pizzeria at the front of his house.

At first, it looked like he would have to pay the equivalent of $75, but in the end he was told the fine would be forgiven if he got an architect to retroactively draw up plans for the building work — something that will cost him just $4.

Hidalgo said no inspectors have been by to check his books or demand copies of his receipts, a major change from his experience opening another pizzeria with his cousin in the 1990s. Then, inspectors paid them weekly visits, and drove the venture out of business when they discovered the pair were buying ingredients on the black market.

This time around, Hidalgo had planned to take a leave of absence from his $11-a-month job at a state-owned bakery, but he quickly realized his heart was in his new venture and quit outright.

He said there are still slow days, particularly at the end of the month when many people run short of cash, but he reckoned he averages selling 20 pies a day. On a good afternoon, he can easily make more than in an entire month at his old job, though profits are split with de la Noval and Hidalgo's aunt, the owner of the house.

Hidalgo charges from 50 cents for a small cheese pizza to $3 for a family-size pie piled high with toppings, a small fortune on an island where the average salary is just $20 a month.

Some Cuban economists have warned that the fiscal changes might not work in part because islanders won't have enough spending money to support the new ventures. But many Cubans receive money from abroad, and almost everyone makes cash on the side, either stealing items from their government workplace or doing odd jobs.

When asked where his clients get the cash for his pizzas, Hidalgo smiled.

"There are people who live off their salary or pension, but there's always money that comes in in other ways," he said, pulling another pie out of the oven and wiping the sweat from his brow. "If it were only for the salaries, people would be living on the street in loincloths."

Hidalgo and his girlfriend say the business has changed their outlook on the country.

A year ago, both were looking to emigrate: her through a quickie marriage to a Cuban-American, him to live in Atlanta with the cousin who was once his business partner.

"We took a risk. We believed in the country and the changes they are making," said de la Noval. "We are hoping that things are only going to get better."

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Associated Press writers Anne-Marie Garcia and Andrea Rodriguez contributed to this report.