Thursday, June 25, 2015

Cuba - Private Sector Entrepreneurs Feel Smothered by the Government

Cuba: Private Sector Entrepreneurs Feel Smothered by the Government /
Ivan Garcia
Posted on June 24, 2015

Iván García, 17 June 2015 — Amid spider webs and musty smells, in a
corner of his garage where things that no longer work go to retire,
Leonardo has stacked molds for making candies and desserts.

There are also three rolling pins, an electric oven outfitted with parts
lifted from a state-owned factory, two chrome sandwich makers and a
microwave still in its original box. Everything is now for sale.

"I didn't realize what I was myself getting into. A relative of my wife
who lives in Miami gave us $5,000 in 2012 to start a business selling
pizzas, desserts and lunches on our front porch. We had to close last
year because of losses. I still owe $1,500. I was never able to make the
numbers add up," says Leonardo.

Just as in sports, in any given field of business there are winners and
losers. Leonardo's frustrations stem from the Machiavellian system for
private businesses designed by Cuba's military strongmen.

They tolerate private businesses but they do not love them. The
conservative state sector continues to view them as potential criminals.
They are considered dangerous types. Restrictions such as high taxes,
excessive regulation and corrupt inspectors make doing business an
expensive proposition.

"First, the government's rules make it very difficult to generate
profits. Secondly, there is ignorance. They know absolutely nothing
about marketing or publicity. The only ones who do well are those who
have access to government funds or good contacts in the black market,"
argues Leonardo.

According to statistics from the ONAT (National Tax Administration
Office), close to seventy thousand people in recent years have forfeited
their private business licenses. But if you were to ask the owners of
those businesses, 90% say they are just getting by.
"You live better than working for the state. The fact is you have to
work like a dog. I drive a cooperative taxi for twelve or thirteen hours
a day. I earn 550 to 700 pesos a day, but the high cost of living and
inflation eat up all my earnings. With what I make on the side, I can
buy food for my family and own a car in good condition," says a Havana
taxi driver.

The most profitable businesses are in food, lodging and taxis. Armando,
the owner of a private bar in the town of 10 de Octubre, claims that
only a few have been able to make a lot of money.

"There are some who are probably millionaires, like the artists Kcho
and Colomé Ibarra, the son of the interior minister. Because of their
relationships with people in power, they have a clear path. Others
succeed through talent, such as the owner of La Guarida or La Fontana.
But most have to rely on illegalities and tricks to get ahead," says

Nevertheless, one can detect among small business owners the emergence
of a future middle class. On June 6 several travel agencies were
introducing a special all-inclusive summer rate at the Havana Libre hotel.

"There was a line and most of the people in it were Cubans," notes a
public relations agent for the military-run Gaviota hotel chain. "It's
widely believed that many overseas relatives are paying for these stays
in tourist resorts. But I've noticed that there has been a tremendous
increase in the number of Cubans paying for these vacations out of their
own pockets. A couple of years ago they were spending a weekend in two
and three-star hotels. But now they prefer week-long stays in high-end

From the end of 2008 — when Raul Castro decided to put an end to
tourism apartheid — until 2014, roughly 127,000 Cuban tourists spent
their vacations in tourist hotels across the island, spending more than
ten million convertible pesos. And the numbers keep growing.

While thousands of overburdened senior citizens sell peanuts,
periodicals and cigars on Havana's streets — making a few pesos that
barely allows them to eat — an elite group of private sector
entrepreneurs makes money hand over fist.

Meanwhile, fear and distrust continue. Very few have faith in the
banking system or in the rules of the game created by the regime.

In 2014 only 658 cuentapropistas — the government's term for
self-employed workers — applied for loans through state banking
branches. Seventy-five were from Havana and the remaining 538 were from
the rest of the country according to the magazine Bohemia. This
represents 0.1% of the more than four-hundred thousand registered
private sector workers.

The total loan amount comes to only 13,000,000 pesos (some $520,000 US).
According to conservative estimates by Onelio, an economist, the amount
of capital flowing to private businesses exceeds $3,000,000.

"Investments in high-end private restaurants and luxury home rentals
start at $20,000. My theory is that part of this money comes from the
exile community but the sources of the rest are sketchy. It could be
from workplace theft, white collar crime, high-level political
corruption or Medicare fraud in the United States. The money might later
be laundered through private businesses in Cuba," he speculates.

Behind the glamor and success of private restaurants where stars like
Rihana and Beyoncé or U.S. senators passing through Havana dine, there
are thousands of businesses on the verge of collapse.

The roadmap drafted by Obama on December 17 opened up a new political
landscape between Cuba and the United States. Six months later, however,
the proposals that were supposed to benefit the owners of private
businesses are still a mirage.

The Castro dictatorship has not enacted a law allowing private farmers
and entrepreneurs access to microcredit or to imported foodstuffs and
other goods. These businesspeople must then try their luck with loans
from relatives living abroad and must work more than twelve hours a day
to try to achieve minimal gains.

For entrepreneurs like Leonardo things did not go well. Four years after
opening a cafe with high hopes, he had to close due to losses. He has
not been able to sell off the equipment he bought for the business, even
at reduced prices. And he still owes money to a relative in Miami.

Source: Cuba: Private Sector Entrepreneurs Feel Smothered by the
Government / Ivan Garcia | Translating Cuba -

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