Entrepreneurs a new force in the balance of power of the Cuban economy.

The results achieved by Cuban entrepreneurs in such a short time, despite the limitations they have (high taxes to which they are subjected, the lack of a wholesale market to acquire their inputs, among other difficulties), have generated a new Map in the balance of power in the Cuban economy. Currently this movement of entrepreneurs generates 17.8% of the gross income of the economy and places it as a necessary and essential force in the development of the country.

In almost 60 years of socialist economy, the state sector had never reached so much weight in the economy of the island. Currently, the armed forces (Grupo GEASA and MININT) control certain strategic sectors, such as 85% of the retail market, 40% of the hotel sector within the Cuban tourist industry, Mariel Special Development Zone, 27 % Of ETECSA, among others. However, its business structure only represents 23% of the gross income of the Cuban economy, not 60%, as the media and news agencies have pointed out in recent weeks. The rest of the state apparatus controls 60% (exports of sugar, nickel, petroleum products, medical services, rum, tobacco, seafood, biotechnology, telecommunications, etc.). See Figure 1.

Figure 1. Balance of power in the current Cuban economy. Private Sector Vs. State, 2016.

Source: Havana Consulting Group

The 535,000 people who currently work in the private sector officially plus another half a million who do so informally, receive an average minimum remuneration 10 times higher than that of a state worker. This significant difference in wages has given rise to the creation of new market segments with different levels of purchasing power, who have patterns of consumption different from the rest of the population.

In the period 2010-2016 there has been a boom in the Cuban private sector. Entrepreneurs have developed very successful and profitable business models. Due to the number of licenses that are active and the volume of business they generate, the most significant businesses are: privately-owned restaurants, popularly called "paladares"; hostels for renting rooms; beauty salons; cellphone repair shops; sale of footwear; transportation; and wholesale activities. The latter is an activity that has been developed without being approved in the list of 201 allowed modalities.

The above-mentioned modalities generate a volume of business that can estimated at between 2.5 and 3.8 billion CUC annually. See Figure 2.

Figure 2. Estimated revenue generated by the private sector in the 7 most profitable modes, 2016

Source: Havana Consulting Group based on its own sources and statistics published by the Ministry of Labor and Social Security.

 

* It refers to the licenses of different modalities that involve in the beauty salon activities: masseuses, hairdressers, barber, manicure, instructor of sport practice and Makeup artist.

** Refers to the total of licenses for the rent of houses and rooms, both in CUC and in CUP.

The entrepreneurs working in the mentioned modalities and the rest of the modalities authorized to carry out self-employment have formed a very successful business network. Many of these businesses have even created their own brand[i]. See Figure 3.

Figure 3. Collage of some brands created by Cuban entrepreneurs, in various sectors of the economy