Thursday, September 23, 2010

U.S. relatives could spur new Cuba businesses

U.S. relatives could spur new Cuba businesses
By Esteban Israel

HAVANA (Reuters) - Rolando has very big plans for the little gym he runs
informally out of a garage in Havana. First he wants to legalize it,
then buy new equipment and - why not? - even build a sauna.

But in order to become one of the 250,000 new business owners Cuba has
said it will approve, he needs start-up capital and, in a communist-led
country short on financial services, that usually means turning to
relatives in the United States, home to 1.5 million Cuban emigres.

"My cousin recently came from Miami and took pictures of the gym. He
said I could count on him for whatever I needed. I think the time has
come to call him and let him know it is time to expand the business," he

Rolando says he would need about $1,000 to revamp his gym, where for the
equivalent of between $5 and $15 a month he makes his clients sweat on
ingenious home-made machines such as a treadmill made of metal pipes.

President Raul Castro's recent decision to almost triple the size of
Cuba's legal private sector from the current number of 143,000
self-employed is expected to accelerate cash flows from Cubans living
abroad, experts say.

His plan to stimulate Cuba's troubled economy calls for laying off
500,000 workers from state jobs and, among other things, creating small
businesses to help take up the slack.

Despite decades of enmity between Cuba's communist leaders and
U.S.-based exiles, cash remittances by Cuban Americans are already a
major source of foreign income in the country. The government has for
years allowed those remittances and in its current financial straits is
likely to continue doing so.

A foreign businessman with years of experience in Cuba, said the country
has long seen the Cuban diaspora as a "strategic reserve" for times of

At least $1.2 billion in remittances are believed to have flowed into
Cuba last year, with more than half the money coming from Cubans in the
United States.

"Liberalizing the economy could lead to 10 percent of Cubans receiving
remittances to invest in small businesses," said Manuel Orozco, a
remittances expert at the Washington-based think tank Inter-American

He said 750,000 Cuban households currently receive money from abroad
and, of those, 75,000 to 100,000 Cubans are likely to invest in small
businesses, with an average investment of $2,500.


Capital flows from immigrants were key for modernizing other socialist
economies such as Vietnam's in the 1980s, said a Cuban economist who
asked not to be named.

"We know that here it would be the same. How much money are we talking
about? Well, that's something not even a magician will be able to tell,"
the economist told Reuters.

Paolo Spadoni, an expert on Cuban economic issues at Augusta State
University in Georgia, said remittances will rise as Cubans abroad see
that new businesses are successful.

"It is not a potential increase of remittances from the United States
that will determine the success of the new Cuban model, but the other
way around," he said, adding that much will depend on how the small
businesses are regulated.

"The keys for the success of these reforms are the incentives,
procedures and restrictions that will apply to the development of small

The small print of Raul Castro's reforms is still largely unknown, but a
leaked Communist Party document suggests the new business class will
have access to credit, be allowed to rent commercial real estate and
even hire workers for the first time since small businesses were
nationalized in 1968.

The document also says the new businesses will pay an average 35 percent
tax on their gross income, which some experts consider a difficult
burden for Cuba's still flimsy private sector.

During the financial crisis of the 1990s, Cuba enacted similar reforms,
only to backtrack from them when the economy improved.

That experience has made Rolando cautious about his big dreams.

"I even have the sign for my gym ready, but I am going to wait and see
if this is all for real," he said. "Only then I will hang it on the
front door."

(Editing by Jeff Franks and Kieran Murray)

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