The importance of remittances in the Cuban economy

By Emilio Morales

For decades it has become very difficult to measure the real performance of the Cuban economy. Several factors distort and make it difficult to make a reasonable estimate of the rate of economic growth of the country. Among the most important factors we can highlight the monetary duality, which prevents a true calculation of the performance of Cuban companies and the measurement of their profitability. Also important is the lack of transparency in key areas of the economy, such as the export of services, which are not disaggregated and rather behave like a black box, whose content is not known; nor is there detailed information on the economic activities that compose it, raising doubts among experts and local and international economists, as well as among international organizations that study the economy of the island. Another factor is the lack of officially published information on the value of important items such as remittances received through official channels and of the value of international reserves in foreign currency, the "peculiar" method followed by Cuban authorities to calculate GDP, inconsistent with international standards of how this indicator is calculated, the general doubtful reliability of official data, the delay in their publication, the concealment of data, etc.

Despite the barriers mentioned, there is no alternative but to analyze the data that the Cuban government issues and adjust them in some way by triangulating information issued by third parties, such 
as exports and imports of products and services from countries that trade with the island. Obviously, this makes it more difficult to make these calculations and corrections, since it implies having a commercial intelligence team to monitor the performance of dozens of variables from a number of countries that trade with Cuba, which would make very expensive the investigation and constant monitoring of these activities.

Therefore, in order to have a realistic idea of the performance of the country's economy it is necessary to resort to other methods and techniques that allow us to compare and estimate the value of those macroeconomic and microeconomic variables that have the greatest impact or weight on the economy. A comparative analysis of the performance of these variables allows us to put into context the current reality of the economy, and its strengths and weaknesses, and evaluate a number of factors that influence how the economy of the country is managed.

This type of analysis also helps to identify the sectors of importance in the Cuban economy, which constitutes a great help to companies, businessmen and entities that are interested in knowing the performance of the Cuban economy, whether for commercial reasons, to explore investment opportunities on the island or to learn about competing interests in the Caribbean region.

Following this logic, one of the ways to obtain a quick and accurate analysis of the Cuban economy is to compare the main items that generate income in the economy of the country. This allows us to know at first glance how the balance of power in the economy is distributed, which are the most strategic items and who is responsible for each.

Our analysis is based on comparing the revenue from the main exportable items of the Cuban economy with the income from remittances from abroad. This comparison allows us, on the one hand, to put in context the real scope of the domestic economy, to evaluate its export capacity and the weight that these exports have on the performance of the economy. On the other hand, it allows us to know the level of dependence that the economy has on remittances that come from abroad and the weight they have on the performance of the Cuban economy.

Remittances vs. exportable items

In 2016, cash remittances sent to the island amounted to 3,444.68 million dollars1, while remittances in goods totaled an estimated 3,000 million dollars. Combining the two forms of remittances, in 2016 the Cuban population received a total of 6,444.68 million dollars, a figure higher than the sum of several of the most important items exported by the Cuban economy, such as the export of nickel (464 million dollars), sugar and its derivatives (360 million dollars), tobacco (211 million dollars), frozen seafood and fish (74 million dollars), medicines (900 million dollars), agricultural products (24 million dollars) and even tourism income (2,907 million dollars), which in total amounted to 4,959.1 million dollars in that year. See Figure 1.

Figure 1. Comparison of remittances with main sectors of the Cuban economy (in millions of dollars), 2016


Source: Havana Consulting Group

However, the mentioned value of 7 of the main exportable items of the Cuban economy refers to the value of gross exports, from which production costs, operating costs and marketing costs, etc. must be netted out, which means that the estimated net profit of these sectors is reduced to around 1,137.2 million dollars, which is 5.6 times less than the value of the financial  assistance provided by the Cuban diaspora to relatives and other persons on the island.

It is worth noting that this same community of exiles supports all the costs of sending money and merchandise, so the 6,634 million that the diaspora offers in assistance represent a net value. Remittances are the main source of income for families in Cuba and the main source of income for dollarized retail trade in the country.

The dependence of the Cuban economy on remittances from abroad grows If we compare the value of the seven exportable items with the remittances that arrived in Cuba in the last 9 years, the results show a very strong dependence of the Cuban economy on remittances from abroad and at the same time that the economy has a stagnant level of exports.

If we compare the combined growth of Cuban exports in seven of the most important items (tourism, nickel, sugar and its derivatives, medicines, frozen seafood, tobacco and agricultural products) in the last 9 years we can see that it amounted to 258.8 million dollars, while cash remittances grew 7.18 times more, by about 1,997.62 million dollars. If we compare it with total remittances (cash and merchandise), the difference is 15.99 times higher, about 4,397.62 million dollars. See Figure 2.

Figure 2. Comparison of cash remittances and total remittances with the 7 main sectors of the Cuban economy (in millions of dollars), 2008-2016

  Source: Havana Consulting Group

Growth of remittances in cash

Cash remittances to Cuba have had a steady and exponential growth in the last 9 years, from 1,447.06 million dollars recorded  in 2008 to 3,444.68 million dollars in 2016, with an average annual growth of 221.96 million dollars. See Figure 3.

Figure 3. Remittances to Cuba in cash (in millions of dollars), 2008-2016