October 15, 2013
Matthew Aho, Inter-American Dialogue's Latin America Advisor
Question: In late September, Cuba's government announced the legalization of 18 new categories of private employment, including real estate agents, bringing the total number of approved types of independent employment to 199. While Raúl Castro's government has issued more than 430,000 private employment licenses since 2010, the latest employment legalization effort also included bans on certain economic activities, including the reselling of imported goods. Are Cuba's newest economic reforms likely to bear fruit? How much has the state ceded control of the economy to market forces in recent years? What surprises might lie in store for Cuba's economy and its business climate?
"The decision to legalize new categories of private employment is yet another incremental step that—combined with other changes since 2010—clearly indicates a shift away from total state control and toward a 21st-century mixed market economy. Other recent examples include the September publication of new rules governing foreign investment at the Mariel Export Processing Zone and the Oct. 9 decision to allow state tourism agencies to do business with private enterprises, such as bed and breakfasts and restaurants.
The Cuban state will remain the economy's dominant player, but the space it has yielded so far was inconceivable five years ago. And it's paying off: visitors to Havana report a never-before-seen economic vibrancy transforming the urban landscape, as black-market businesses leave the shadows and new, remittance-fueled ventures arise. What's more, the recent loosening of migration restrictions and the passage (likely in 2014) of new foreign investment laws signal that policymakers are preparing for infusions of foreign investment and remittance capital in the medium-to-long terms.
There is a bevy of potential surprises, foreign and domestic. At home, the recent ban on reselling imported goods met swift and unusually vocal opposition from entrepreneurs vowing to disobey the rules. In the months ahead, the government must decide how to engage 430,000 private economic actors (and those dependent on them) as a rising political force on the island. Abroad, President Obama will decide whether to support the Cuban people in their pursuit of greater economic self-determination through proactive policies or do nothing—thereby clinging to decades of failed sanctions—because he sees no political upside.
2014 could be a real tipping point in U.S.–Cuba relations, but only if both sides seize the moment. That, unfortunately, would be the biggest surprise of all."
Originally published in the October 15, 2013 issue of the Inter-American Dialogue's Latin American Advisor newsletter: http://www.thedialogue.org/latin_america_advisor_newsletters