Economical overview
Cuba's economy is largely state-controlled,
although private forces have been given greater leeway
under the reform policy that has been in progress since
2010. The country's traditional dependence on sugar
production has drastically decreased. Instead, tourism
and mineral exports have become important sources of
income.
The state owns all 80 percent of all companies and
draws up guidelines for economic activity in the country
through detailed plans for the future. The state decides
what to manufacture, what services to deliver and by
whom. Anyone wishing to start their own business must be
approved by the authorities that only allow private
companies in certain industries (see below).
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Major imports by Cuba, covering a full list of top products imported by the country and trade value for each product category.
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The service sector is the industry that is expanding
the most. Tourism has risen sharply since the 1990s and
is now one of the most important sources of foreign
currency. Many of the companies in the tourism sector
are run by the military.
The industrial sector, especially the construction
industry, is also growing, but not as much, while
agriculture has stagnated. Agriculture's share of GDP
has been declining at a slow pace over the past decade.
Nickel is the country's most important export
commodity and usually accounts for over half of Cuba's
export revenue. The dependence on nickel makes the
economy vulnerable to external factors such as nickel
prices on the world market. The economy is also hampered
by inefficient companies, a substandard transportation
system, limited access to foreign currency and the fact
that the country is blocked from major markets by US
blockades (see Foreign Policy and Defense).
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Abbreviationfinder.org: Check this abbreviation website to find three letter ISO codes for all countries in the world, including CUBA which represents the country of Cuba.
Cuba's imports are far greater than the country's
exports. Thus, there are large deficits in both the
trade balance (trade in goods) and the current account
(trade in goods and services). The fact that Cuba can
pay the surplus of imports is due to the country
receiving foreign currency through tourism, through
loans and assistance, as well as the contributions that
exile Cubans send to their relatives in Cuba.
Cuba has had a considerable external debt, but the
exact level has been difficult to determine as the data
varied widely between different sources. During the
years 2013–2015, Cuba renegotiated its debts to Russia
and other countries in Europe, as well as to Mexico.
Large sums were donated, in Russia's case 90 percent of
$ 32 billion. After the renegotiation, doors were opened
for Cuba to obtain new loans.
Double currencies
An odd phenomenon in Cuba's economy is the
two-currency system. In addition to the usual peso used
in transactions between Cubans, there is a tourist
currency called convertible peso (or CUC with an English
abbreviation). According to the official exchange rate,
both currencies should be worth one US dollar but in
reality 24 ordinary peso goes on a convertible. Most
Cubans receive their wages in Cuban pesos while many
goods are sold for convertible pesos, making them
extremely expensive for ordinary people. It creates gaps
between those who work in the tourism sector and have
access to CUC and those who do not have it. The dual
currencies create a false picture of the economic
viability of Cuban government companies. In their
accounts, the companies apply the official exchange rate
and thus unprofitable companies can appear profitable.
The abolition of the dual-currency system has long
been on the government's agenda, but the decision had
delayed concerns about the economic consequences of such
a change.
reform Politics
Following the global financial crisis of autumn 2008,
which also affected Cuba, a number of reforms were
implemented to stimulate the economy. The farmers were
allocated land and were given more freedom to decide on
their production. In 2010, private individuals were
allowed to start smaller private companies. Ordinary
Cubans were also given the right to take out bank loans
and a tax system with a tax on profits for private
companies and private employees was introduced. At the
same time, the state began cutting its spending by
releasing state employees and cutting back on certain
benefits.
The government also tried to clean up the regulations
for foreign companies. Already in the 1990s, Cuba
invited foreign companies and a number of joint ventures
were started, but the extensive bureaucracy meant that
the business never got any real push.
The reform policy has not yielded the dividend the
government had hoped for. The land that the farmers had
to take over was often in the trough and was difficult
to use. Small businesses lacked the experience and
skills required for the business to merge and expand.
Other problems were the lack of capital for investment
and the fact that Cuba lacks a wholesale market.
Businesses are allowed to get what they need in regular
stores themselves, which has led to shortages of goods
and dissatisfaction among ordinary consumers.
Neither did the interest from foreign investors meet
expectations. Foreign companies have mainly focused on
the tourism, oil and mining industries, but all the
rules surrounding an establishment inhibit the
willingness to invest. Investments must be made in
partnership with Cuban state companies and all employees
must be recruited through the Cuban state.
The new tax system was also disappointing. The
authorities failed to collect taxes to the extent that
they had envisaged. One reason was that taxes were so
high. The system had been designed to counteract wealth
building. Already the basic taxes were high and
increased with the number of employees, which encouraged
tax evasion.
The government has high hopes for the free trade zone
established in connection with the new deep-sea port in
Mariel outside Havana, but so far the establishment in
the zone is slow.
Uneven growth
GDP has grown every year since the mid-1990s, but
2016 reversed the trend. Dramatically reduced oil
supplies from Venezuela combined with falling nickel and
sugar prices led to a contraction in GDP.
See Cuba's GDP development from 1971 to 2016 here.
To counteract the decline, the government launched a
new austerity program with budget cuts, energy rationing
and stripped imports. In 2017, growth reversed again. At
the same time, the government's concern about the
negative consequences of reform policy, such as
increased income gaps, led to a slowdown in private
sector development (see Current Policy).
At about the same time, the government adopted
financial guidelines for the next 15 years. According to
these, market forces should be given more leeway and the
number of non-state companies to increase, while the
state should reduce its direct control over economic
activities. However, the state must retain overall
responsibility for all economic activities.
FACTS - FINANCE
GDP per person
US $ 8,541 (2017)
Total GDP
US $ 96,851 million (2017)
GDP growth
1.8 percent (2017)
Agriculture's share of GDP
3.8 percent (2017)
Manufacturing industry's share of GDP
13.5 percent (2017)
The service sector's share of GDP
70.8 percent (2017)
Currency
Cuban Peso
Commodity trade's share of GDP
14 percent (2017)
Main export goods
nickel, tobacco, sugar, medical products, seafood,
citrus fruits
Largest trading partner
Spain, Canada, Netherlands, China, Venezuela
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