6700 SMEs: A contemporary look at the private sector in Cuba

A year and a half after the law on small and medium-sized enterprises (SMEs) came into force, the island now has more than 6700 new economic players. Researchers from the Cuban Institute for Anthropology, together with the Ministry of Economy, have now developed a detailed insight into the current composition of the private sector in the form of a brochure. Where have most SMEs been founded to date, how big are the companies and in which sectors are they active? “Cuba Today” breaks down.

Small proportion of total employment

SMEs (in Cuba: “Micro, small and medium enterprises“, MSMEs called) can employ up to 100 people and have the legal form of a “Sociedad de responsabilidad limitada” (SRL), which roughly corresponds to a German GmbH. In addition to a significantly more attractive tax system and liability for company property, this also means new opportunities for cooperation with the state sector and foreign investors. In addition, since the new laws of September 2021 came into force, start-ups have been possible in all sectors with the exception of a 112-point negative list. The negative list (PDF) primarily includes traditional government fields of activity such as the military, healthcare, water and energy industries, but also mining, media, the sugar industry and wholesale trade.

The further opening of the private sector is part of the country’s “new economic strategy” launched in 2020, which aims to replace imports with local production and make the economy more efficient through diverse forms of ownership and better integration.

34 percent of SMEs and 44 percent of local development projects are involved in food production (source: Escambray)

At the time the brochure went to press, January 31, a total of 6,704 new economic operators were counted in Cuba. They employed 179,317 people, representing 3.8 percent of all employed people on the island. The new economic players include public and private SMEs also self-employed, cooperatives and local development projects. Agricultural cooperatives are not counted, which is why the share of the non-governmental sector in total employment appears rather low. If one includes agricultural cooperatives, about 1/3 of the labor force is not employed by the state. Before the pandemic, the private sector (excluding agriculture) employed 600,000 people, which was around 13 percent of the workforce in 2019.

62 percent of the new players are located in the western part of the island. The capital Havana is the most represented (40 percent), followed by the eastern province of Granma with 9.2 percent. Why a particularly high density of SMEs and cooperatives has developed in this south-eastern region with 619 new companies is a mystery to the researchers. In terms of its economic power, the province is positioned below average.

97 percent of the new players are private companies, 79 are state SMEs, 61 are cooperatives. 34 percent are in the area of ​​food production and marketing, which also includes gastronomy. If you limit the selection to pure food producers, 15 percent work in this area. Bakeries, canners and dairies fall into the latter category. 21 percent are employed in other productive trades, above all construction and light industry. These often include construction companies of various sizes as well as furniture and textile manufacturers. The relative majority of 45 percent offer services ranging from the operation of beauty salons to various transport and repair services and trade to the programming of complex software.

A look at the statistics

Exactly half (50.5 percent) of SMEs are small businesses with 11 to 35 employees. 27.5 percent are medium-sized companies with 36 to 100 employees. 22.1 percent are micro-enterprises, whose staff does not exceed 10 people. The table shows how SMEs and cooperatives are distributed across the different regions:

KMU-Type: Micro Klein Middle cooperatives PDL
Western Cuba 796 1900 1100 33 399
Central Cuba 230 588 275 5 405
Oskuba 455 894 466 23 276
In total 1481 3382 1841 *61 (474) 1080
New economic actors by region and farm size by January 31, 2023. *Cooperatives: only start-ups, Cuba has a total of 474 non-agricultural cooperatives (CNoA), Source: ICAN report, ONEI 2022

In addition, there are now 1080 so-called in Cuba local development projects („Local development projects“, kurz: PDL). They are intended to create new, closed economic cycles with social objectives at the local level. Imports are to be replaced by local products, while revenue and start-up capital come from a two-percent local development tax that has been levied at provincial level for several years. Most (276) are counted in the capital Havana, followed by the provinces of Villa Clara (202) and Las Tunas (103). 44 percent are primarily dedicated to food production, 31.3 percent are in the service sector. Well-known examples are the state-owned SME “La Quinta” on the grounds of Havana’s botanical gardens, which among other things promotes the inclusion of people with intellectual disabilities in working life, and the bicycle rental company “Ha’Bici”. The latter has a fleet of 600 bikes spread over several stations, with which an inexpensive transport alternative is to be offered, especially for the outskirts of Havana.

“Ha’Bici” has been operating six rental stations in Havana’s Marianao and Boyeros communities since January (Source: Tribuna)

If you look at the development over time in the approval of the new actors, a relatively dynamic development can be seen in the course of 2022: At the first “update” in Cuba today on October 5, 2021, shortly after the new laws came into force, there was just one 35 SMEs. As of January 27, 2022, their number has grown to 1,707. By April 20th there were 3074, on November 23rd 5985 SMEs were counted. The same applies to the local development projects, the number of which has more than doubled from 423 during the country’s first local development fair in March 2022 to 1,080 in the meantime.

Self-employed people with more than three employees had until September 20 to convert to the new legal form. Speculations about a temporary stop of the license issue have not been confirmed so far. Most recently, on February 16, 99 private and one government SME were approved, bringing the total to 6,804. Electrical workshops, construction companies, restaurants, bakeries and transport service providers were among those represented in the last round.

Public-private partnerships as a model?

A persistent problem with any new form of ownership is integration with the rest of the socialist economy, which consists largely of centrally planned state enterprises and budget-funded institutions. With regard to exports, the researchers still see “plentiful unused reserves among the new players”: only 58 companies are regular exporters. A lack of financing, currency distortions (access to foreign exchange and its different exchange rates) and insufficient links with other actors continue to be the greatest obstacles.

Public-private partnerships in Cuba, can it work? The reopening of the ice cream parlor Zapata y 12 (Source: Tribuna)

A recent positive example is the reopened Zapata and 12 complex on the corner of the same name in Havana’s Vedado district. As the local newspaper “Tribuna” reports, the former state institution is now acting as a pilot project for a public-private partnership: “The state provides the facilities, the workforce and the technical infrastructure, while the private company supplies all the imported raw materials and is involved in the manufacturing process is,” according to the report. Both the provincial committee of the Communist Party and Havana’s governor Reinaldo García attended the opening.

Apparently, similar transformations are currently taking place in some shops in Havana. Many state restaurants that have been closed since the pandemic are waking up from their two-year slumber under a new management model. In the commercial center of Miramar, for example, “Grocery”, a kind of private supermarket, has opened in a state property for the first time, with high prices and offers that are otherwise only found in foreign exchange deals and on the black market. A liter of French milk, for example, is available there for 500 pesos, around 4.2 euros. This creates a further legal framework for the use of the import possibilities of SMEs for the peso cycle.

In the case of “Zapata y 12”, the state-private partnership is intended to ensure a socially acceptable price level, since the model of local value creation established there is associated with a cost reduction. A scoop of ice cream there costs 35 pesos (approx. 30 cents), a hamburger 150 pesos (approx. 1.2 euros) – less than in comparable, purely private establishments.

It remains interesting to see if and when the models will also catch on in other sectors and provinces. In any case, the willingness to experiment with the integration of the new players into the economy seems to have slowly awakened in Cuba. It has to, after all, Parliament wants a new company law (“company law’) as announced by Economics Minister Alejandro Gil. It is intended to redefine how state-owned companies work, but also how the various players interact with each other, with the most recent experiences likely to provide enough material for the upcoming debate. The first draft of the law is expected to be presented in the coming months.

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