May 28, 2015

What we know about Cuba’s economy

Two-thirds of Americans favor an end to the decades-long U.S. trade embargo on Cuba, a January Pew Research Center study found, and the two nations reportedly are making progress on re-establishing diplomatic relations. As the communist government continues to slowly reform Cuba’s economy, American businesses – from airlines to law firms – are exploring commercial opportunities on the island nation. But even if the embargo were to be lifted, it’s not clear just what sort of Cuban economy those businesses would find.

Getting a handle on even basic information about Cuba’s economy is difficult, for a number of reasons. The government still dominates economic activity on the island, both directly and through heavily subsidized state-owned enterprises. National statistics are not always complete or reliable. And Cuba’s system of two parallel currencies – one peso for everyday transactions among ordinary Cubans, and a “convertible peso” for the tourism industry, foreign trade and the private sector – combined with multiple exchange rates complicates any international comparisons or discussions about the relative size of different parts of the economy.

According to a survey conducted in March and published in The Washington Post, 79% of Cubans said they were dissatisfied with the country’s economic system; 70% said they wanted to start their own business. Nearly two-thirds of Cubans (64%) said normalizing relations with the U.S. would change the economic system, though only 37% thought the political system would change.

With so much change in the air, we decided to work our way as best we could through the data difficulties to put together a primer on what we know, and don’t know, about the Cuban economy.

1Despite the embargo, the U.S. does do business with Cuba. Last year, according to the Census Bureau, the U.S. exported nearly $300 million worth of products to Cuba; nearly all (96.2%) of that was in the form of meat and poultry, soybeans, corn, animal feed and other foodstuffs. The exports are permitted under a 2000 law that modified, but did not repeal, the U.S. embargo; under it, Cuba can buy certain agricultural products, medicines and medical devices from the U.S., but must pay in cash.

Cuba;s GDP slows

2Growth has slowed sharply in recent years. According to Cuba’s national statistical agency, the country’s gross domestic product in 2013 was 77.2 billion pesos – which, depending on which exchange rate one uses, could equate to anything from $77.2 billion (at the official rate of 1 convertible peso to $1) to $3.2 billion (at the internal rate of 24 regular pesos to 1 convertible peso). But either way, growth has slowed dramatically from the mid-2000s: The CIA estimates that Cuba’s GDP grew just 1.3% last year in real (inflation-adjusted) terms – 177th out of 222 countries ranked. One big reason: With global oil prices still well below their pre-recession highs, the heavily discounted oil that Venezuela sends Cuba – some of which Cuba re-exports – is less valuable.

Cuban GDP by sector3Despite economic reforms, the state still dominates. In a paper published last year by the Association for the Study of the Cuban Economy, former International Monetary Fund economist Ernesto Hernandez-Cata estimated that Cuba’s private and cooperative sector generated 25.3% of GDP in 2012, compared with just 5% in 1989. But the government, both directly and through state-owned enterprises, was still the source of more than three-quarters of Cuba’s economic activity. Government investment represented just 9.1% of GDP in 2012, versus 14.2% in 1989, which Hernandez-Cata said “reveals one of the most disturbing aspects of Cuba’s recent economic history: the weakness of capital formation.” (Official government figures put economy-wide fixed capital investment, from all sources, at 8.3% of GDP in 2013, considered low by international standards.)

Despite Reforms, Most Cubans Still Work for the State4More Cubans are working for themselves. In 2013, according to state figures, more than 424,000 Cubans (8.6% of all workers) were classified as self-employed; as recently as 2009, fewer than 144,000 Cubans (2.8%) were.

The “microenterprise” sector may be even bigger due to the hiring of unregistered full- and part-time workers. Ted Henken and Archibald Ritter, researchers at Baruch College and Carleton University, respectively, estimate that as many as half of small enterprises employ at least one unregistered worker.

5Cuban imports and exportsCuba mostly imports goods and exports services. Getting a clear read on Cuban trade is especially tricky, not least because exports and imports are effectively valued using different exchange rates. As The Economist recently explained, state-owned firms and foreign joint ventures value each ordinary peso at one convertible peso – that is, at $1: “The massively overvalued rate … creates huge distortions in the economy, allowing importers to buy a dollar’s-worth of goods for one peso.” While most of Cuba’s exports are in the form of services (such as doctors and teacher working overseas), nearly all of its imports are goods (petroleum, foodstuffs, machinery and equipment, and chemicals).

Category: 5 Facts

Topics: Globalization and Trade, Latin America, World Economies

  1. Photo of Drew DeSilver

    is a senior writer at Pew Research Center.

8 Comments

  1. Coco11 months ago

    What I know is that the Castro’s do not want the embargo lifted, that would be a tremendous threat to their control, and would easily expose to the world the corruption that could not easily exist in an open competitive world market.

  2. Josè Federico Rodrìguez-Paùl Lorenzana1 year ago

    The article is from all points of view a complete information on the economy facts up to date in Cuba. But there is only one question that comes to my mind while finding that Pew Reseach has found that two thirds of americans could vote to supress the long lasting embargo as well as re-establishing diplomatic relations with the island: ¿Which International court of human rights or of any other kind has authorized a president of the United States of America to proceed in this adventure of incorporating Castro´s regime, with no punishment or justice of any kind into the community of nations. How many Americans can consider it to be fare that no commission of any kind from the United Nations undertakes the revision of all the violations to human rights, as well as murder of thousands of people since the “revolution” took over? Because if this is so ¿Under what kind of justice could have been that pretended to be civilized countries ever had to take the judgement of ex-presidents of Latin America countries such as Chile and Guatemala who belonging to the legitimate armies had to defend their countries from the Castro´s sponsored guerrillas, a legitimate action that has taken them to courts under charges even of “genocide” while from the generic definition of such criminal act in any case only the Castro regime could be directly responsible of such “genocide” committed on the members of the national armies of the Latin American countries for the sole reason of being soldiers who belonged to those armies? ¿Those the Obama administration really thinks that coming up in this advanced days of law development all over the world which such violation of elementary justice will not provoke the growth of even more people in the world who dislike the behavior of the USA governments and their people? Anybody should expect that cubans persecuted, expropiated and killed by Castro´s revolution today represented in members of the Senate of the United States of America, do somenthing before letting Obama advance in such tremendous injustice and mistake his administration pretends.

  3. r nunez1 year ago

    Does the US Gov. team negotiating with Cuba know this numbers? If so how can they be subjected to Castro remark regarding loss of revenue and demanding compensations.
    I would like to know what Castro did with the original reserve that the Cuban National bank had in gold and silver as well as the different notes in US currency.
    If they transfer these reserves to the past USSR on the Chinese what responsibility we have over that large amount of monies that the Cuban Gov. just wasted.

  4. C.Strickland1 year ago

    Canada never ended its diplomatic relations with Cuba but trade has always been compromised by the US embargo. Canadian companies with US owners were in a difficult situation and by and large did not choose to trade while many Canadian companies did considerable trade with Cuba and Cuba is a very popular, long standing vacation destination with considerable Canadian investment in hotels, It is a unique destination particularly because there really are no Americans there. Lots of Europeans and others make for a very different feel to the place. State owned enterprises are not so unusual for Canadians and Europeans so a mixed economy is not so remarkable. Cubans remain proud of their country and its modern history. That they are industrious and creative is obvious. The Cubans in America will need to understand what has go on in the last couple of decades. Family ties are strong. Business is another matter altogether.

  5. John Sanchez1 year ago

    I feel the Cuban people need to speak out on these issues .

  6. Joseph Dates-Bardo1 year ago

    I have a personal history and familial like to Cuba. I have been to Cuba as an adult and have dealt with local currency and its Byzantine web.
    I am of the opinion that Raul Castro-Ruz and the Ministries of Economy and Foreign Affairs are avoiding the catastrophic changes which occurred in eastern Europe and the USSR.
    The greater mass of the Cuban population survive on 20 to 50 CUC, a fact that is well documented. A Cuban offered U$S100 or a gallon of olive oil will happily go for the later. North American firms need to understand a mind set that values a new sewing machine or set of wrenches over a Buick or a smart TV.

    1. Jose1 year ago

      However, if you offered a Cuban the opportunity to stay on the island and live off of 20-50 CUC or risk their lives crossing the Florida straits it appears they may very well choose the latter as these desperate crossings are at an all time high: goo.gl/covIqi.

  7. josh brahinsky1 year ago

    the odd thing about this report is that without saying it explicitly it suggests that there is something carte blanche good about GDP growth and carte blanch bad about government employment. It does not show any of the statistics around health care or inequality or anything else – this is not to say anything definitive about cuba, but simply to point out that this report is oddly ideological in that it imputes problems without any data as support.