Tuesday, June 21, 2011

Cuba's new entrepreneurs ponder their future

Cuba's new entrepreneurs ponder their future
By Gabriela Garcia
published: June 23, 2011

It's a typical day in Buenavista, a heavily populated neighborhood in
the coastal municipality of Playa, in Havana, Cuba. Along Calle 70,
where a shaded promenade runs down the street, children play baseball
with makeshift bats while couples canoodle on benches and older men slam
dominoes on tables set up on the sidewalk.

The neighborhood's state-run agricultural market, once sparsely stocked
during the difficult days of the Special Period after the loss of Soviet
Union subsidies, is now comparatively brimming with vegetables, flowers,
and cuts of meat. And on either side of the promenade, the streets
resemble a bustling marketplace.

On one corner, all five seats in a barbershop are occupied. A few doors
down, a small line has formed in front of a pizza counter. And on the
next block, three 20-somethings dressed head-to-toe in white are
perusing hand-carved Santería statues of Yemaya and Ochun in a dimly lit
shop, while reggaeton blasts from a nearby house displaying stacks of
CDs for sale.

A little more than a year ago, this scene would have been impossible to
imagine. The only businesses in the residential neighborhood — a few
state-owned bodegas and markets, a couple of cafeterias, a bookstore —
were spaced out among rows of houses. Occasionally you would stumble
upon a casa particular, a home licensed to rent rooms to foreigners, or
a paladar, a privately run restaurant, both of which have been legal
since 1993 but weren't very common in a neighborhood fairly off the
tourist track. Now nearly every other house is operating a mom-and-pop
venture of some sort, ranging from cell-phone repair shops to nail salons.

This sudden infusion of small-scale free enterprise is the result of
major policy changes announced at the end of 2010 by Cuban leader Raúl
Castro, who was appointed sitting president in 2006 after elder brother
Fidel fell ill. The plan, formally ratified by the Sixth Communist Party
Congress in April this year, brings some of the most significant reforms
to Cuba's economic model in more than 50 years.

The reforms, such as a decree that Cubans will be able to buy and sell
their homes for the first time since 1959, are many — 313 points to be
exact, outlined in the publication "Revised Guidelines for Economic and
Social Policy." But perhaps the most obvious immediate change, which has
sprouted a new landscape in neighborhoods across the country, is the
legalizing of 178 categories of trabajo por cuenta propia, regulated
self-employment, that the government hopes will absorb half a million
state jobs slated to be phased out.

In speeches, Raúl Castro has stressed that the many reforms are sought
as a way of pushing Cuba's current system forward and making it viable,
not undoing it.

"Most people I speak to [in the neighborhood] say similar things," says
Jorge, a 56-year-old lifelong resident of Buenavista who runs a
fast-food stand. (He asked that his last name not be used.) "We don't
want to undo the revolution. We don't want to undo health care and
education for all and fill Cuba with foreign corporations."

"I am a proud socialist," he continues, pointing to a Che Guevara
portrait hanging above a portable electric stovetop where he toasts
bread for burgers. "But we had to adjust, modernize, based on what we've
learned throughout the years."

Jorge, a burly man who sports large-rimmed glasses and a booming voice,
never imagined himself a restaurateur. For 17 years, he was a state
worker handling inventory at a port. Analytical and good with numbers,
he liked his job and thought he would work there until he turned 65 and
would qualify for a pension. He and his wife, a state employee at a
bank, had been saving up bits of money to throw a quinceañera party for
their only daughter, now 15.

But shortly after the announcement in October 2010 that the state would
cut 500,000 jobs by the end of 2011 (that deadline has now been delayed
indefinitely), Jorge's supervisors began to circulate news that some
positions at the port would likely be deemed nonessential. If Jorge were
laid off, he would have two choices: transfer to a job where workers are
needed or work for himself. In either case, he would retain his pension
under the new provisions.

"I made the decision right at that moment," Jorge says. "Not so much for
me, but for my daughter. I imagined that if I had this opportunity to
start a small restaurant, it could grow into something bigger, and I
could retire and pass it on to her." Jorge left his state job in
October. By November, he was applying for a self-employment license.

Jorge quickly filled out paperwork, was granted a permit to sell food,
and passed a home inspection that checked for sanitary conditions and
proper safety measures. That part was easy, he says. The tough part was
raising capital.

He started small: a few bags of fruit purchased at the state-run agro
market, a bag of sugar from the supermarket, and a blender he already
owned. Admittedly, he had to dip into his daughter's quinceañera fund, a
fact that kept him anxious about turning a profit. A cardboard sign was
drawn up to announce fresh, cold juices for sale: guava, mango, and
pineapple. He set prices.

In Cuba, there are two forms of currency. State employees are paid in
moneda nacional, which is used for subsidized rations, bus fare,
additional food items at agro markets, and many forms of entertainment.
Foreign currency, such as dollars and euros, are most often exchanged
for convertible pesos, which can be used at larger supermarkets, for
individual (as opposed to collective) taxis, and at most clothing and
appliance stores.

Each convertible peso is worth 24 in moneda nacional, because everything
priced in the latter is more accessible to average Cubans. Eliminating
the dual currency system has been one of the main talking points in
reform debates. Jorge, like nearly every cuenta propista on the block,
set prices in moneda nacional.

It wasn't difficult to attract customers, Jorge says. Almost every day,
the sidewalks of this neighborhood are filled with people, on the way to
run errands or visit neighbors, or crossing the street to hang out on
the promenade. Jorge kept the juices chilled in his refrigerator. The
cardboard sign rested against railings that surround his porch, and he
sat in a chair, making conversation with passersby, many of whom were
starting their own ventures.

One early customer was Yunior, a skinny 20-year-old with a fade haircut
and a seemingly never-ending array of polo shirts in bright colors.
Several of his relatives live five houses down from Jorge, and on
weekends, he would stop by the stand and chat up the cuenta propista.

"He was the first person I knew who got a license," Yunior says with the
cadence of someone whose mind is constantly racing, whose words rush to
catch up. "I wanted to learn the process... He was like the go-to guy in
the neighborhood for people who wanted to go into trabajo por cuenta

Once a promising baseball player until an injury permanently benched
him, Yunior finished high school but decided early on that university
"wasn't for him." But with no money of his own and no family abroad
sending remittances, as is the case with some of the self-employed,
Yunior remained unable to start his own business.

Jorge, on the other hand, continued to attract clientele and saved his
money meticulously that first month. "I didn't go out, buy a beer,
anything. My goal was to reach a point where I could buy ingredients for
pizzas and burgers, so I was up as early as I could and closed shop as
late as I could, and I held on to every bit of money." Within two
months, Jorge had surpassed the monthly salary he earned as a state
worker, from $480 ($20 U.S.) to about $800 ($34). Prices in moneda
nacional are controlled, so a loaf of bread, for example, costs $5 to
$10 in that currency.

And Jorge had saved enough to expand: He exchanged some of the money for
convertible pesos in order to buy cheese at a supermarket, the most
expensive item on his list. The rest he bought at an agro with moneda
nacional: bread, hamburger meat, pizza dough, tomatoes for his homemade
sauce. And he set aside money for taxes, about 25 to 35 percent of his
earnings, before deductions. He kept careful track of all purchases and
saved receipts: In an effort to curb the black market, the Cuban
government requires detailed accounting reports and proof of all
business materials purchased every few months.

Jorge's customer base continued to grow, despite other similar fast-food
counters operating in the area, a fact he attributes to cooking skills
and "not skimping on ingredients." He says product costs, not taxes,
have formed the greatest financial hurdle for him and other cuenta
propistas he knows. Many Cubans simply cannot afford materials, most of
which are imported, or are unable to purchase enough of them. In
response, the government recently announced it will eventually open
wholesale markets to provide greater access to goods.

Jorge's secret to success: Keep the stand small and the menu limited. "A
lot of people sunk thousands into fancy paladares, and now they struggle
for customers from the neighborhood who only go out to eat like that for
fancy occasions. Me, I offer a quick bite to eat that won't cost someone
a month's salary."

In four months, as profits continued to grow, the budding entrepreneur
transformed the space that was once his front porch. He purchased a
laminated sign with colorful graphics, paid an independent contractor to
pave cracks in the sidewalk outside his house, and had a slot cut into
the railing so that hot plates of food could be passed to customers
without having to open a gate. He invested in equipment, increased
production, and began offering pizza with toppings. And in five months,
he hired his first employee — Yunior.

In May 2011, the Cuban government announced another set of measures to
ease taxes and encourage hiring in the private sector. A tax holiday on
payroll taxes will be offered through the rest of the year to all cuenta
propistas who hire one to five workers. Paladar restaurants can now seat
as many as 50 diners at a time, up from the previous limit of 20. And a
three-to-six-month tax holiday will be offered to taxi drivers and
people who rent rooms for tourism if their cars or houses are being
repaired. The number of requests for licenses continues to grow.

But questions still loom for many of the neighborhood entrepreneurs who
stop by Jorge's stand on an eventful Saturday afternoon in June. The
self-employed — hairdressers, cabbies, plumbers, sellers of artisan
crafts, and many food industry workers — express some doubts: They
wonder what will happen if their ventures grow and they find themselves
unable to hire more employees than the limits allow. They question
whether the reforms will be permanent and whether the government will
continue to ease and adjust tax schedules. Some aren't sure their new
enterprises will survive.

Maria, a retiree who sells party supplies from her home, has trouble
attracting customers. "Sometimes it's days or even weeks before I sell
anything," she says.

And Luis, who rents rooms to tourists, worries the neighborhood is
becoming less attractive. "There needs to be more spaces people can rent
to conduct their business. Otherwise, this neighborhood is going to look
less and less like people's homes and more like a bunch of timbiriches
[small shops]."

But many are also eager for what the future may hold. The recently
released "guidelines" pamphlet is sold-out at nearly every news kiosk,
and the proposed changes are the subject of discussions all over the
neighborhood, from the street corner to the dinner table. On this day,
for example, a private taxi driver wonders whether Article 265 — which
states the government will "study a policy that facilitates Cuban
residents traveling abroad as tourists" — will materialize quickly.
"That would be buenísimo," he says, spouting a list of locations he
dreams of visiting.

And from his daily post on a railed porch, Jorge has watched the
neighborhood where he grew up change from week to week. First there were
only a few vendors, only a couple of signs advertising services. Now
most of his customers are cuenta propistas themselves.

Still, he says, it's too early for him to speculate about what the
large-scale effects of policy change will be or what Cuba will look like
in ten years. "Those are all lofty, theoretical questions, and to be
honest, I measure my life in the day-to-day," he says, as Yunior
sprinkles shredded cheese over a small piece of dough.

Earlier that day, the young employee, who had been working at the food
stand for only three months, announced it would be his last week. He had
saved a small amount of money, just enough to open a juice stand.


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