Wednesday, May 22

How Capitalists in Communist Cuba Are an Economic Lifeline

A modern grocery store whose shelves are packed with everything from pasta to wine fills a spot in central Havana once occupied by a drab state-owned flower shop, its ceilings and walls repaired and repainted.

A former state glass company in a Havana suburb now houses a showroom for a private business selling Cuban-made furniture.

And at the Cuban capital’s port, forklifts carefully unload American eggs from a refrigerated container. The eggs are bound for an online private supermarket that, much like Amazon Fresh, provides home delivery.

These ventures are part of an explosion of thousands of private businesses that have opened in recent years across Cuba, a remarkable shift in a country where such enterprises have not been permitted and where Fidel Castro rose to power leading a communist revolution determined to eliminate capitalist notions like private ownership.

But today Cuba is confronting its worst financial crisis in decades, driven by government inefficiency and mismanagement and a decades-long U.S. economic embargo that has led to a collapse in domestic production, rising inflation, constant power outages and shortages of fuel, meat and other necessities.

So the island’s communist leaders are turning back the clock and embracing private entrepreneurs, a class of people they once vilified as “filthy” capitalists.

Taking advantage of loosened government restrictions granting Cubans the legal right to set up their own enterprises, roughly 10,200 new private businesses have opened since 2021, creating a dynamic, if fledgling, alternative economy alongside the country’s hobbled socialist model.

Underscoring the growth of private businesses — and the government’s economic travails — private sector and government imports last year each totaled about $1 billion, according to government data.

Much of the private sector imports came from the United States and were financed by cash remittances sent by Cubans there to relatives back home. About 1.5 million people work for private businesses, a 30 percent jump since 2021, and they now represent almost half of the total work force on the Caribbean island.

“Never has the private sector been given so much space to operate in Cuba,” said Pavel Vidal, who studies Cuba’s economy and is a university professor in Cali, Colombia. “The government is bankrupt, so it has no other choice but to invite other actors in.”

Despite the private sector’s growth, its overall contribution to Cuba’s economy, while increasing, remains modest, accounting for about 15 percent of gross domestic production.

Still, the economic transformation is significant enough that it is leading to deep divisions in the island’s communist system as a new business elite acquires wealth, something anathema to Cuba’s revolutionary ideology.

Cubans working for the state, including white-collar professionals, doctors and teachers, make the equivalent of roughly $15 a month in Cuban pesos, while employees in the private sector can make five to 10 times that amount.

A government salary does not go very far in the private stores that have popped up, where a bag of Italian potato chips costs 51.25 Cuban pesos or $3, a bottle of good Italian wine $20 and even an everyday need, like toilet paper, costs $6 for a pack of 10 rolls.

Most customers who can afford those kinds of prices receive money from abroad, work for other private businesses or are diplomats.

“You have to be a millionaire to live in Cuba today,” said Yoandris Hierrezuelo, 38, who sells fruit and vegetables from a cart in Havana’s Vedado neighborhood, earning about $5 a day. “The state can no longer meet the basic needs of the population.”

Cuban government officials said the legalization of private businesses was not a grudging acceptance of capitalism for the sake of economic survival, making it clear that state-run industries still dwarf the private sector’s role in the economy.

“It’s not an improvised strategy,” Susset Rosales, the planning and development director at the Ministry of Economy, said in an interview. “We have a very clear idea of the pathway for gradual recuperation of the economy with the incorporation of new economic actors that are complementary to the socialist state economy.”

But U.S. officials say that the growth of private businesses could be a game changer, paving the way for greater democratic and economic freedom.

“The question is — are they enough?” said Benjamin Ziff, the chargé d’affaires who heads the United States Embassy in Cuba. “Cuba is falling apart faster than it is being rebuilt. There is no turning back.’’

A key question, he added, is whether the government will allow the private sector “to expand fast enough and freely enough to meet the challenges.”

Cuba’s rapidly expanding private sector has attracted deep skepticism within Miami’s staunchly anti-Communist Cuban exile community, where many dismiss it as a ruse by Cuba’s communist leaders to ride out the economic crisis and cling to power.

Representative Maria Elvira Salazar, a Republican and one of South Florida’s three Cuban Americans in Congress, led a congressional hearing in January about private business titled “The Myth of the New Cuban Entrepreneurs” and suggested that licenses for such ventures were reserved for relatives of Cuban government officials.

“The Cuban regime is still in the business of power, and there’s nothing that proves to me that they’re willing to give a portion of that market share to anybody else but themselves,” she said in an interview.

Since banning private businesses in the 1960s, Cuba has, in fact, experimented with free market practices during other times of hardship, only to roll them back later when economic pressures eased.

When the Soviet Union collapsed in the early 1990s and left Cuba without its main economic benefactor, the government issued a limited number of “self-employment” licenses for some low-income tradespeople, including barbers and tire repairers.

After President Barack Obama restored diplomatic relations with Cuba in 2015 and relaxed the U.S. embargo, American tourists flooded the island, and U.S. companies began exploring investments.

Still, the Communist Party never fully embraced the private sector, regarding it as a potential Trojan horse for “Yanqui imperialists.”

Then came a double blow. Donald J.’s Trump’s election in 2016 led to the restoring of sanctions on Cuba, including a ban on U.S. cruise lines sailing there. Three years later, the Covid-19 pandemic shut down Cuba’s tourism sector entirely, its largest source of foreign currency.

Since then, Cuba has been in financial free fall. Production of pork, rice and beans — food staples — plunged by more than half between 2019 and 2023, according to the government.

This year Cuba requested — for the first time — help from the United Nations World Food Program, to provide enough powdered milk for children, the state-run media reported. A lack of oil and an aging electrical grid have led to rolling blackouts across the country.

The worsening living conditions triggered a rare public display of unhappiness in March as hundreds of people took to the streets of Santiago, Cuba’s second-largest city, chanting, “Power and food,” according to social media and official government reports.

The economic hardships have set off an enormous surge in emigration. Since 2022, roughly 500,000 Cubans have left the island, an extraordinary exodus for a country of 11 million, and most Cubans who have left have gone to the United States.

Amid so much deprivation, privately run small businesses offer a small dose of hope for those with the money to open them, and for their employees.

Many are taking advantage of regulations introduced in 2021 granting Cubans the legal right to set up their own enterprises, which are limited to 100 employees.

Across Havana, new delis and cafes are appearing, while entire office floors are leasing space to young entrepreneurs bursting with business plans and products, from construction and software to clothes and furniture.

Diana Sainz, who had lived abroad for much of her life and worked for the European Union, took advantage of the economic changes in her homeland and opened two Home Deli markets in Havana, offering a mix of locally made items like pastas and ice cream, as well as imported goods, such as beer and cereals.

Ms. Sainz says Cuba had not had a private supermarket in decades. “Now it’s beautiful to see a store on every street corner,” she said. “When you compare things to five years ago it’s totally different.”

Still, many business owners said the Cuban government could do more to build the private sector.

Cuba’s state-owned banks do not allow account holders to access deposits in dollars to pay importers because of the government’s lack of foreign currency to pay its own bills. U.S. sanctions also prohibit direct banking between the United States and Cuba.

And the Cuban government has kept major industries off limits to private ownership, including mining and tourism.

But that has still left plenty of opportunities.

Obel Martinez, 52, a Cuban American interior decorator from Miami, recently partnered with a local restaurant owner to reopen a landmark Havana restaurant, La Carreta, that was abandoned by the state a decade ago.

“The ceiling was falling, and we had to totally demolish the interior and rebuild it,” he said.

Mr. Martinez grew up in Cuba and after working in Spain and Mexico, he resettled in Miami but never gave up his Cuban residency.

“We are showing the state that it’s possible to do things another way,” said Mr. Martinez, as he surveyed a busy lunchtime crowd in the 136-seat restaurant, which serves traditional Cuban fare. “And we’re totally private.”