Cuba Economy Facts
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).
- Countryaah.com: Major imports by Cuba, covering a full list of top products imported by the country and trade value for each product category.
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).
- 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. Check findjobdescriptions to learn more about 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.
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.
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.
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)
US $ 96,851 million (2017)
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)
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