When the presidents of Cuba and the United States announced to the world on December 17, 2014 the beginning of talks aimed at restoring diplomatic relations, they opened the door to business opportunities in several sectors of the Cuban economy: air transport, tourism, maritime transportation, telecommunications, remittances, biotechnology, etc.
Out of all these sectors, there was one that quickly caught the attention of North American companies: the information technology sector.
Several American companies quickly set their sights on the island's telecommunication sector with a view to exploring business opportunities. Given the island's poor infrastructure to access the Internet, Cuba is one of the countries with one of the lowest connectivity rates on the planet, with only 5% of the population with Internet access[i].
Figure 1. Graphic representation of Internet access in the Cuban population
Source: Havana Consulting Group.
Among those US companies interested in the Cuban market were internet providers such as Google; software development companies such as Yahoo, Adobe Systems Inc., Software and Information Industry Association (SIIA), Microsoft, etc.; cell phone providers such as ATT, Sprint, Verizon and T-Mobil; in addition to suppliers of technological infrastructure and equipment such as Cisco Systems, Stripe[i], Brightstar Corp, among others. All these companies were looking for an opportunity based on the regulations issued by the White House that facilitated North American companies doing business in different sectors of the economy, including telecommunications. These regulations allowed US companies to provide commercial telecommunications and Internet services to the island. They also granted permission to U.S. companies to export personal computers, mobile phones, televisions, memory and recording devices, and supply of equipment for technological infrastructure and to establish joint ventures with Cuban entities[ii].
However, most of these companies were not successful in achieving their objectives. The resistance of the Cuban government to open up the telecommunications and information sector to foreign competition was strong. Agreements could only be reached for cell phone companies regarding calls and for roaming service. In contrast, the offer made by Google to provide free Wi-Fi Internet was rejected[iii], as was the offer made by Microsoft, SIIA and Adobe System Inc to establish software maquilas in Cuba and develop specific programs for various US industries[iv].
Currently there are two fundamental factors that limit the development of large-scale computing on the island: the poor and backward installed technological infrastructure and the control that the state bureaucracy has over the market.
The current technological structure bases its connectivity on the X.25 protocol, which is outdated and does not adapt adequately to IP traffic, apart from having slow connectivity.
There are also three other forms of connectivity provided by ETECSA, but they are aimed at the commercial and corporate sector, with excessively high fees. These other forms of connectivity are: (a) Point-to-Point; (b) ATM and Ethernet; and (c) Frame Relay.
The form of connectivity that predominates is X.25. Internet access is mainly by state institutions, because the Internet has not yet entered massively into Cuban homes. Commercialization of the Internet to Cuban household began at the end of the first quarter of 2017[v].
At the moment, the means most used by the population to access the Internet is through cell phones, but it is limited to the Wi-Fi hotspots that have been enabled on the island; there are a total of 459 hotspots, which are insufficient for the over 4 million cell phone subscribers that now exist in the country[vi]. There are also 259 ETECSA navigation rooms and 613 third party navigation rooms. See Map 1.
At the end of 2016 there were 1.1 million PCs in Cuban state institutions, including companies, schools, universities, hospitals, hotels, and Ministries. Of these, some 628,000 were connected to a state intranet system that provides access to national e-mail and to 6,600 mostly non-commercial websites. See Figure 2.
Figure 2. Main indicators of the IT platform in Cuba, 2011-2016
Source: Oficia Nacional de Estadísticas e Información (ONEI)
The state institutions that have the largest number of commercial pages where transactions can actually be carried out are: the Ministry of Tourism (MINTUR), the Ministry of Information and Communications and the CIMEX Corporation, which can be accessed from abroad for the sale of lodging, tour packages and car rentals; the cellular telephone recharge and the collection of remittances shipments, respectively. It must be remembered that the Cuban population does not have access to online payments. In other words, there is a market of 11.2 million inhabitants with the potential to generate hundreds of thousands of daily online transactions that are not used by state companies. The state has designed an online marketing policy geared to outside the country, not towards the domestic market.
Main software producers in Cuba
Currently, software production in Cuba focuses in more than 40 producers. The best known are:
Figure 3. Major Software producers in Cuba
Source: Ministerio de Informática y Comunicaciones (MIC)
Also participating in the production of software are other entities such as: SEGURMATIC, AICROS, GESEI, DATACIMEX, DISAIC, AZCUBA, CUBARTE, TECMA, SICS, TEICO, ALIMATIC, LACETEL, ICID, CENATAV, ICIMAF, Neurosciences, the CIGB, the Center for Biophysics Medical, LITA (IACC) and ICIDCA.
Currently, the most important integrating and foreign trade entities, associated with the software sector, are ALBET and SYS COPEXTEL.
Types of software products for the domestic market and export
Cuban software producers have specialized in the applications in the fields of health, education, open access software, teletraining, legal, virtual reality, automation, bioinformatics, and image and signal processing, among others. Figure 4 shows the most recognized types of software that Cuba markets in the international market.
Figure 4. Cuban software for export
Source: Centro para la Promoción del Comercio Exterior y la Inversión Extranjera (CEPEC)
For the products and services of the UCI, the main markets are Mexico, Argentina and Venezuela, with sales of up to 150 million dollars per year; UCI is also currently venturing into Spain and Angola. The main market has been Venezuela, where Cuba has invoiced more than 1,250 million dollars since 2004. The Cuban software packages that have been commercialized in Venezuela are: the electoral register, identity cards, port controls and accounting. Sales of software along with other computer services reached annual sales between 1,500 and 3,000 million dollars between 2009 and 2011. However, revenues from this concept have decreased considerably in recent years.
For the domestic market the most recognized products are:
- Programs for the control of CUPET fuels.
- Development of software upon request by industrial facilities operated by the Revolutionary Armed Forces (FAR).
- Development of software for the management of hydraulic resources, operation of railroads, neuro technologies, energy efficiency and automated industrial systems.
- EPAL, for the control of food production in agriculture.
Currently, priority has been given to the development of protection and cybersecurity systems, for which several agreements have been established with the global research and analysis team of company Kaspersky Lab.
UCI also has an alliance with the company GEDEME (PC assembler in the country) to supply the NOVA open source operating system. This system has already been installed on 90,000 computers produced by GEDEME. The UCI is also working on a variant of Nova for mobile phones, called NovaDroid, whose objective is to provide a system capable of adapting to the conditions that Cuba presents today in its telephony network. Currently they are working on several prototypes.
Despite the state's effort to develop its own software, in the country there is a widespread use of a wide range of proprietary database management tools, such as is the case of Oracle, which is used by ETECSA, the Cuban Company of Airports and Aeronautical Services, the General Customs of the Republic of Cuba and several hotels of the Sol Meliá chain; meanwhile, the Central Bank of Cuba, the Bank of Credit and Commerce and foreign banks use Microsoft SQL Server, and the postgraduate secretariats of the universities use Microsoft Access.
The training of specialized human resources in information technologies was one of the priorities of the ambitious project for the computerization of Cuban society launched in 2000. With this objective, the UCI was created in 2002. At the same time, other Cuban universities also added information sciences to their study programs. Since then, an average of 5,500 IT engineers graduate every year, a third of whom obtain master's degrees or doctorates.
The UCI alone has graduated some 13,500 engineers in computer science[i]. The Cuban government has also embarked on a program to train high school students in 24 IT specialties in technology centers, emblazoned with the slogan "Believe in the Future."
These software engineers are becoming experts in Java, Windows, Linux-Unix and mobile technologies. About 40,000 teenagers with coding skills graduate each year, of which approximately 12% enter the university. However, the Cuban high-tech industry employs only 5,000 workers, mainly in state companies with poorly paid salaries.
Once again, the state prepares thousands of people so that they end up being underutilized in poorly paid and unproductive activities. Many of them end up migrating from the country, others to other professions and yet others become freelances or self-employed workers with a license.
IT entrepreneurs and development of private sector
Many young people, after graduating and fulfilling social service, have embarked on the idea of opening their own software business as alternatives to low salaries and low expectations of professional fulfillment.
Foreign companies have taken advantage of this resource and have begun to take Cuban programmers seriously, as a source of highly qualified and low-cost labor.
Currently the software industry in the Cuban private sector consists of two groups:
- Self-employed private businesses that are established under the computer programmer's license. By the end of 2016, 1,277 licenses had been granted, of which 65.8% in Havana. See Figure 5.
Figure 5. Licenses for computer programmers, 2016
Source: Ministerio de Trabajo y Seguridad Social (MTSS)
2. Freelancers (students, computer professors and programmers) who work for the state generating specific products on demand and informatics and also have contracts with foreign companies or intermediaries (startups created in Cuba that do not find how to grow nationally and have found demand for their services in other countries, with programs, investment funds and specialized visas for the relocation of the startup's founding team) [i].
The Cuban cuentapropistas are mostly focused on the construction of websites, the repair of computer equipment and the production of specific mobile apps for the Cuban market. See Figure 6.
Figure 6. Most popular mobile applications developed by Cuban entrepreneurs.
Source: Havana Consulting Group
In general, the domains and hosting of these websites are managed by friends or financiers outside of Cuba. In some cases, the software production of self-employed workersfor business accounting is provided to the state sector. Others participate in the export of applications for the international market, illegally.
The work modalities are diverse, determined by the management and specialization of those who integrate these teams, but also mediated by the material conditions and access to the tools that allow them to comply with a specific project.
Among the products developed for the international market, business systems for clients or foreign entities predominate. However, many professional-level applications are also made for photo retouching, video and audio editing, vector drawing, layout, web and multimedia content, among others.
The countries that most frequently host Cuban startups are Canada, United States, Spain, Germany, Argentina and Chile. In some cases, Cubans have managed to open their own business, in other cases they join an existing one.
In turn, the markets that mostly subcontract independent programmers resident in Cuba, for specific projects are: Argentina, Brazil, Peru, Puerto Rico, Ecuador, Uruguay, Venezuela, Canada, Bolivia, Colombia, India, the United States and Spain.
Independent developers prefer to keep a low profile about the work they do in order to not attract attention, due to the narrow legal framework that exists on the island to regulate this activity. For their part, the authorities recognize the current situation as inevitable, and have been unable, until now, to create policies that regulate or reverse this situation.
In general, independent developers work in private homes, with restricted and expensive Internet access. Some consolidated teams with foreign sponsors have rented offices in areas where rental prices exceed 20 CUC per square meter.
The hiring of developers occurs through different means, either through the contacts of friends, of foreign businessmen looking for skilled and cheap labor, through ads of job offers on the Internet, in places such as: www.jobs. com, www.freelance.com, www.Revolico.com, www.Cubamai.com, etc.
The prices of the products offered by individual developers are very diverse. Those who are hired for specific jobs abroad charge for projects from 500 to 8 thousand CUC, an amount that is often divided between 3 to 5 people. Other more consolidated groups invoice between 16 thousand and 25 thousand dollars per year for design projects of automation systems, bioinformatics, surveillance systems, etc.
Self-employed workers bill up to 25,000 CUP (1,000 CUC) for accounting software that only includes the installation and an initial training seminar (usually they do not have staff to expand their services). These also invoice between 5,000 CUP (200 CUC) and 20,000 CUP (800 CUC) for the design of web pages, both for the state sector and for other self-employed workers.
The forms of payment vary. Most individual developers charge when they deliver the product. However, some are paid monthly (mainly students, who receive for example between 100 and 300 CUC for updating web pages). In the case of foreign payments, they are usually made in cash or they may be sent through remittance sending agencies such as Western Union, Transcard, Vacuba, among others.
In the absence of a legal framework to regulate these activities, there are no contracts where the rules of the relationship between customer (foreign company) and service provider (cuentapropista / freelancer) are established. Everything remains in a risky status of mutual trust, which creates space for non-compliances, delays, and the lack of continuity of some projects. Cuban entrepreneurs are not accustomed to working under legal norms, which leads to them losing work opportunities compared to the low-cost labor provided by other markets, where they can legally be organized as companies and work under an appropriate legal scheme.
So far, the Cuban government greatly limits the development of these ventures. Private developers can not import equipment and supplies or market the applications and software they develop or make other types of alliances for this purpose.
The current IT market in Cuba has strong barriers that limit its development: weak technological infrastructure, the control that the state bureaucracy has over the market and the legal limitations that private entrepreneurs have for their development.
The weak technological infrastructure available in the country limits the development of information technology both in the state sector and in the nascent private sector. Low performance, limited access to the Internet, and low speed in data transmission are among the critical factors that currently affect the Cuban computer infrastructure. To this must be added the lack of experience in the management and creation of the marketing that the software industry requires.
Most of the IT exports that are made in the state sector, are based made more on political pacts with allied countries, than on the quality of the products that are exported, with some exceptions.
Being a closed market, the image that the country has as a software producer in Latin America is poor. The software industry in the region benefits from cooperation through different integration initiatives, of which Cuba is not a part. The resources allocated by the state to the IT sector only represent 0.02% of the total investments made in the country. There is not even a project in the Portfolio of investment possibilities in the island aimed at the development of the software industry.
Cuba has a large number of specialized human resources in the information technology sector. However, job opportunities offered by state companies are very limited and very poorly paid. That is why there is a surplus of thousands of professionals who choose to emigrate, become self-employed or freelancers, or work in other professions that are better paid.
The new reforms implemented on the island since 2010 with the aim of updating the Cuban economic model have left a legal vacuum with respect to the development of the information technology sector, particularly for the nascent private sector, where the creation of cooperatives, of companies, or the association with foreign companies is not allowed. However, despite all these difficulties, Cuban entrepreneurs and freelancers have developed a large number of ingenious applications for the domestic market and have also become a source of specialized low-cost labor that is used by entrepreneurs other countries.
Despite of the entrepreneurship fever that is lived in the country, there is still a long way to go for Cuba to become a new Silicon Valley. The potential exists, but there is a lack of political will on the part of the government. In this context, Cuban entrepreneurs, unlike entrepreneurs from other countries in the region, do not have access to angel investors, or investors with venture capital, who could provide not only capital, but also experience in how to start a business and how develop it. With these limitations, it becomes very difficult to develop such a dynamic and constantly changing industry as the IT industry. Until the barriers that muzzle the Cuban market today do not disappear, it will not be possible to build in Silicon Valley on the island.
Meanwhile, a multitude of young people, trained and hungry for success, develop on their own a computer ecosystem that transcends the limits of state control and has awakened a strong interest among foreign investors, who are actively seeking qualified low-cost IT labor wherever it might be.
[i] HCG Business Intelligence Unit. Entrevistas realizadas a estudiantes y profesores de la UCI, el Instituto Superior Politécnico José Antonio Echevarría (ISPJAE), la Universidad de la Habana y la Universidad de Santa Clara.
[i] Catálogo de productos de la UCI, 2016.
[i] De Haro, José Luis. “Más de treinta multinacionales de EEUU preparan ya su desembarco en Cuba”. El Economista.es. Marzo 2016. http://www.eleconomista.es/economia/noticias/7441658/03/16/Mas-de-treinta-multinacionales-de-EEUU-preparan-ya-su-desembarco-en-Cuba.html
[ii] Pérez-Lopez, Jorge. “U.S.-Cuba Commercial Relations Two Years After 17D”. THCG Business Report. December 2016. Nº6. The Havana Consulting Group and TECH.
[iii] CRONICA VIVA. “Cuba rechaza oferta de Google para WiFi gratuito”. Agosto 2015. http://www.cronicaviva.com.pe/cuba-rechaza-oferta-de-google-para-wifi-gratuito/
[iv] Representantes de empresas norteamericanas (Google y Microsoft) en encuentros con el sector privado
[v] EFE. “Cuba empieza a comercializar internet en los hogares a precios exorbitantes”. El Nuevo Herald. Marzo 2017. http://www.elnuevoherald.com/noticias/mundo/america-latina/cuba-es/article139748413.html
[vi] HCG Business Intelligence Unit. “High demand boosts cell phone development in Cuba”. THCG Business Report, February 2017 Nº 1, THCG & TECH.
[i] Reinl, James. “Silicon Havana? Young Cubans dream of a hi-tech era”. August 2015. http://www.aljazeera.com/indepth/features/2015/08/silicon-havana-young-cubans-dream-tech-era-150813083441465.html