HAVANA, Cuba – The Cuban government has recently authorized all state-run tourist agencies to contract private businesses in order to perform services ranging from lodgings, dining and excursions, to other activities.
This authorization is the latest government step to increase privatization and boost productivity in tourism–the largest economic sector in Cuba, with revenues nearing $3 billion and attracting 2.8 million visitors in 2012. More broadly, the move exemplifies the Cuban government’s larger effort to fundamentally shift its role in the economy, as well as the many challenges that shift carries.
Cuba’s plan for wide-ranging economic changes began as early as the 1990s. Following the collapse of the Soviet Union, all Soviet aid to the country was withdrawn, and Cuba’s economy collapsed. The nation’s GDP plummeted, and even today the average Cuban’s standard of living remains at a lower level than what it was prior to the 1990s downturn. The government has been searching for ways to increase enterprise efficiency and combat widespread shortages of basic services, such as food, housing, and consumer goods, ever since.
In April 2011, President Raul Castro took the opportunity during the first Cuban Communist Party Congress in almost 13 years to announce a sweeping plan to revamp the Soviet-style economy, including a new “non-state” sector where private and cooperative businesses could operate.
“The growth of the non-public sector of the economy…will allow the state to focus on raising the efficiency of the basic means of production…while relieving itself from those management activities that are not strategic for the country,” said President Castro.
Replacing his brother Fidel Castro in 2008, Raul Castro has already made initial steps in reforming the economy by opening up retail services to small entrepreneurs. In August 2013, more than 20 state restaurants in Cuba became employee-run cooperatives. This has enabled business owners, rather than the government, to make all business decisions, from the buying of food to the division of profits. A similar transformation is beginning to take place in other sectors of the economy, including construction, transportation, farmer’s markets and light manufacturing.
It should come as no surprise then that the government has decided to allow state-run tourism agencies to utilize privately contracted businesses in order to enhance efficiency and quality. More than 5,000 bed and breakfasts, 1,700 private restaurants, private entertainment and transportation will now be available for contracted services. Moreover, private business can be contracted by tourism facilities, like hotels, to provide meals for workers, gardening and other services.
By stimulating growth in the nascent private sector of the economy, Castro hopes to create enough jobs to support the 1 million employees that are slated to be slashed from inflated government payrolls over the next several years. So far, there are over 450,000 people employed by small businesses or self-employed in transportation, entertainment, building trades, and cooperatives.
While most local experts look forward to the government’s initiatives to enhance private sector growth, there is concern over the process itself, and the tenuous business climate it could create.
For example, most business cooperatives are formed due to decisions made by the state, rather than by voluntary choice. In addition, cooperatives face higher taxes, trade restrictions, failing infrastructure and inefficient banking practices that could make it difficult to be competitive.
However, optimists say that the opening of the tourism industry will create new business and job opportunities. According to figures released by the Cuban government for 2012, the number of workers in the private sector rose 23 percent, despite the cutting of 228,000 public jobs and a 5.7 percent drop in state sector employment. As an anonymous Cuban economist recently said, “If you’re thinking of venturing into the private sector, this could be an opportunity to get started.”
– John Wendel