Cuba’s Economic Reforms Allow Small Entrepreneurs to Dream Big
President Miguel Diaz-Canel has finally decided to lift the ban on private businesses, resulting in an upsurge in the country's entrepreneurial ambition. Come check out our article to learn more.
Cuba is a communist country in which the government controls the majority of the economy (70 %), including industries. In August 2020, President Miguel Diaz-Canel’s government decided to lift its ban on private companies, a ban that had been in place since 1968. The lifting of the ban has also resulted in an increase in entrepreneurial ambition in the country. According to the economy ministry, it has registered more than 1,000 small and medium-sized businesses since the ban was lifted. Many enterprises did operate under the ban, but they were in legal limbo.
The State of the Cuban Economy
The Cuban government is reforming in an effort to boost its economy. Cuba’s economy has heavy headwinds, including the COVID-19 pandemic, soaring inflation, and crippling US sanctions heaped on top of the Cold War-era embargo. Cuba’s economy has shrunk by 13% over the two years of the pandemic.
As a result, it is no surprise that the Cuban economy has been struggling. There are fewer goods on the shelves, and incomes are shrinking. Cuba had a GDP growth of 2% in 2021, and inflation was 70%. Cubans took to the streets to protest the dire circumstances.
Reforms for Small Businesses
The reforms make it possible for a private Cuban company to establish and engage in the official economy. Private companies will be able to participate in the state wholesale system, partner with state-run firms, and seek loans and investors.
Although the reforms are a giant leap forward for the country, there are still heavy restrictions. According to the regulations, companies can only engage in international trade through the government, entrepreneurs can’t own more than one company, and a company can’t have more than 100 employees.
The new regulations also decentralize small and medium-sized state firms, with the aim of making them profitable or closing them down, like in the food sector, where the government operates subsidized eateries. Under the reforms, they will close, become cooperatives, or turn into small businesses. The eateries the government decides to keep will become small and medium-sized state-owned businesses that compete with them.
The private sector in Cuba has expanded since reforms in the 1990s to more than 600,000 self-employed license holders in multiple sectors. The number includes business owners and their employees, tradespeople, and taxi drivers.
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