cuba's emerging self-employed entrepreneurs: recent developments and prospects for the future

CUBA’S EMERGING SELF-EMPLOYED ENTREPRENEURS: RECENTDEVELOPMENTS AND PROSPECTS FOR THE FUTURE

MARIO A. GONZ�ALEZ-CORZO

City University of New York (CUNY), Lehman CollegeDepartment of Economics and Business, Carman Hall, 377

250 Bedford Park Boulevard West, Bronx, NY 10468

Institute for Cuban and Cuban-American Studies (ICCAS)University of Miami

Bildner Center for Western Hemisphere StudiesThe Graduate Center (CUNY)

[email protected]

ORLANDO JUSTO

Department of Economics and BusinessCity University of New York (CUNY)

Lehman CollegeCarman Hall, 377

250 Bedford Park Boulevard WestBronx, NY 10468

Received April 2014Revised July 2014

Published August 2014

This paper examines the evolution of Cuba’s self-employed entrepreneurs since the sector became anofficially-recognized alternative to State sector employment in 2010. Despite the expansion of au-thorized self-employment activities and the implementation of gradual economic reforms to “update”the country’s socialist economic model since 2010, Cuba’s emerging self-employed entrepreneurs stillface a series of constraints and limitations, such as an onerous tax system, underdeveloped bankingand financial sectors, lack of access to organized input markets and a still hostile business climate thathinder their ability to expand and contribute to the country’s economic growth.

Keywords: Entrepreneurship in transition economies; developing countries; Cuba.

1. Introduction

The reduction of State sector payrolls and the expansion of employment in the emergingnon-State sector has been one of the principal policy measures implemented by the Cubangovernment to transform the country’s socialist economic model. The end of centralplanning and excessive paternalism in labor practices was officially announced in 2010when Cuban authorities recognized the urgent necessity to transform the structure and

Journal of Developmental EntrepreneurshipVol. 19, No. 3 (2014) 1450015 (26 pages)© World Scientific Publishing CompanyDOI: 10.1142/S1084946714500150

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http://dx.doi.org/10.1142/S1084946714500150

composition of the country’s labor market. This was to be primarily accomplished by thereduction of State sector payrolls and the implementation of a series of policies to promotecooperatives and self-employment. This process was accelerated with the approval of the“Economic and Social Policy Guidelines of the Economic and Social Policy of the Partyand the Revolution” (“Lineamientos de la Política Económica y Social del Partido y laRevolución”) by the Sixth Party Congress of the Communist Party of Cuba (CPC) on April2011. Although the 20 percent reduction of State sector payrolls initially announced byCuban authorities has not been achieved, and the fact certain categories of self-employ-ment in the emerging non-State sector have been affected by recent policy reversals, acursory review of official statistics and data provided by other sources reveals that since2009 State sector employment has indeed declined, while employment in the non-Statesector has increased substantially as Cuba continues to “update” its economic model.

This paper examines the evolution of Cuba’s self-employed entrepreneurs since thesector became an officially-recognized alternative to State sector employment in 2010.Based on the premise that since the economic reform measures introduced by PresidentRaúl Castro in 2007, Cuba has entered a new stage in its post-Soviet transition. The firstsection examines the principal characteristics of entrepreneurship during the post-Socialistperiod based on the experiences of a selected group of Eastern European transitioneconomies. This is followed by an overview of recent reform measures in Cuba and theevolution of the selected economic indicators. Section three presents a detailed summaryof the principal policy measures implemented to expand self-employment and entre-preneurship as an officially-recognized alternative to employment in the State sector afterthe Sixth Congress of the CPC was celebrated in April 2011. Section four uses the mostrecent official statistics published by Cuba’s National Statistics and Information Office(ONEI) to present a detailed overview of the evolution of self-employed entrepreneurs inCuba since 2010. Finally, because the most recent official data on Cuba’s emerging self-employed entrepreneurs was published in the 2012 Statistical Yearbook (which was re-leased to the public in late 2013), section five uses recent media reports and officialstatistical data collected by the author to provide updated information about self-employedentrepreneurs in the City of Havana.

2. Entrepreneurship During the Transition Period: Literature Review

Even though private entrepreneurship was replaced with centralized planning during the“classical socialist period” in the former Soviet Union and in the Eastern European So-cialist Bloc, different forms of private activity co-existed with State ownership, and insome countries (e.g. Hungary, Yugoslavia, and Czechoslovakia) some forms of entre-preneurship existed with state-owned enterprises (SOEs) during the “classical period”(Kornai, 1992, 2008; Smallbone and Welter, 2001). Under the classical socialist model,entrepreneurial activities took place in both the formal economy and the in the informalsector. Economic activities in the “formal economy” (or “formal sector”) include thoseperformed by SOEs, cooperatives (particularly in agriculture) and legalized, small-scale(mostly-artisanal) businesses authorized by the State (Smallbone and Welter, 2001). The

M. A. Gonz�alez-Corzo & O. Justo

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informal sector, or “second economy,” consists of a wide range of activities associatedwith the production and distribution of goods and services that take place outside thechannels of the official (centrally-planned) economy and direct State control (Dallago,1990; Pérez-López, 1995). Like in contemporary Cuba, entrepreneurial activities withinSOEs during the classical socialist period were primarily a response to the constantshortage of materials in the State sector and the result of the gradual implementation ofcalibrated market-oriented reforms in some socialist countries (Kerblay, 1977; Kornai,1992; Smallbone and Welter, 2001; Kornai, 2008). Similarly, entrepreneurial activities inthe informal (or “second economy”) in these countries were mainly driven by the Statesector’s inability to allocate inputs and outputs optimally, and by the material (or eco-nomic) incentives associated with the activities for private gain that normally take place inthe “second economy” (Pérez-López, 1995).

During the transition period, the entrepreneurial activities that existed in both theformal and informal sectors under the classical socialist system provided the foundation forthe emerging entrepreneurial sector (Kornai, 2008; Smallbone and Welter, 2001). Forexample, entrepreneurial activities within SOEs contributed to the development of “no-menclature businesses” during the transition period, as former SOE directors and managersused their positions and influence and continued to operate a significant portion of theseenterprises after privatization (Dallago, 1997; Smallbone and Welter, 2001). Similarly,formerly-authorized (small-scale) private enterprises (e.g. arts & crafts or artisanaloperators, small-scale private farmers, independent taxi and truck drivers, etc.) andcooperatives also provided the foundation for the emerging private enterprises that pro-liferated in the former Soviet Republics and in the former socialist countries of Central andEastern Europe.

In the majority of these countries, the development of private entrepreneurship duringthe post-socialist transition was also influenced by its historical legacy during the pre-communist era. Szelenyi (1988) found that in transition countries with a strong tradition ofprivate entrepreneurship during the pre-communist period (e.g. Hungary, and Poland), asignificant number of entrepreneurs during the transition period originated from familieswith strong linkages to private entrepreneurial activities in the past while others hadoccupied top positions in SOEs during the communist period. Mugler (2000) shows thatentrepreneurship developed at a faster rate in transition economies in which economicreforms were implemented rapidly and proceeded smoothly. Benacek (1997) indicates asimilar trend in transition economies with high degrees of industrialization (e.g. Czche-koslovakia).

Entrepreneurship takes many forms during the post-socialist transition. According toArzeni (1996), self-employment and the operation of private micro-enterprises on a part-time basis are common forms of private entrepreneurial activities in economies in tran-sition. Self-employment offers a viable alternative to many former State sector employeeswho have suffered job losses or have been temporarily placed on paid leave because ofSOE restructuring (Smallbone and Welter, 2001). Many of these workers become self-employed entrepreneurs who operate small-scale firms on a part-time basis to generate thenecessary earnings to survive during the transition from the classical socialist model to a

Cuba’s Emerging Self-Employed Entrepreneurs

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mixed economy (Malle, 1996). Finally, another form of private entrepreneurship duringthe post-socialist transition, particularly in countries where a relatively weak State hasallowed an influential and powerful group of individuals to take advantage of the pri-vatization of State-owned resources and their privileged connections or networks to securemonopolistic markets or government subsidies, are the so-called “nomenclature entre-preneurs” (Malle, 1996; Smallbone and Welter, 2001).

Entrepreneurial activities during the post-socialist transition are primarily motivated bythe desire for autonomy or independence from the State, to increase potential earnings (orincome) and for personal satisfaction or fulfillment (Smallbone and Welter, 2001). Similarto Cuba’s emerging private entrepreneurs at the present time, entrepreneurs in the tran-sition economies of the former Soviet Union and Eastern Europe had relatively high levelsof educational attainment (Blawat and Dominiak, 1994; Kuczi and Vajda, 1992). AsSmallbone and Welter (2001) claim, it seems “that under the conditions of turmoil, duringthe early stages of transition particularly, entrepreneurship is one of the fields where aneducated, professional person can satisfy his/her need for creative and satisfying work,while obtaining sufficient income for an acceptable standard of living.” Entrepreneurshipduring the transition period is also influenced by previous managerial experience andprevious participation in entrepreneurial activities. Although managerial experience in theState sector may not provide all preparation necessary to operate a business firm undermarket conditions, some of the resourcefulness acquired by those running SOEs during theclassical socialist period could prove essential for entrepreneurship under the uncertainconditions that normally exist during the transition period (Kusnezova, 1999; Smallboneand Welter, 2001). Finally, social networks and informal connections, as well as familybackground, also have a notable impact on entrepreneurship during the transition period.Social networks and connections were found to significantly influence entrepreneurship inall transition economies while a family tradition of entrepreneurship was more important incountries in which some form of legally-recognized private activities were permitted undercommunism (Smallbone and Welter, 2001).

Serial entrepreneurship, also known as “portfolio entrepreneurship,” is common duringthe transition period. According to Smallbone and Welter (2001), in a 1997 survey cov-ering 619 small business owners in Ukraine, Belarus and Moldova, 22 percent ofrespondents indicated that they were involved in the ownership of one or more businesses.Serial entrepreneurship seems to represent one of the most common ways to accumulatethe financial resources necessary to build a new business at a time during which smallfirms are unable to secure significant credit or financing from the formal banking sector(Smallbone and Welter, 2001). Self-employment and serial entrepreneurship often serve asthe basis to obtain the necessary experience and financial resources required to set uplarger enterprises during the post-socialist period (Smallbone and Welter, 2001).

Another characteristic of entrepreneurial activities during the transition period is thepart-time nature of a significant number of self-employed workers (Smallbone and Welter,2001). Referring to the survey mentioned earlier, Smallbone and Welter (2001) indicatethat, similar to self-employed entrepreneurs in present-day Cuba, “a significant minorityof surveyed entrepreneurs in Ukraine, Belarus and Moldova (28 percent) has other


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occupations, suggesting their business activity was only part-time.” Part-time entrepre-neurial activities, primarily through self-employment, are often part of a survival strategyto cope with the risks, uncertainties and lack of social and economic security that generallycharacterized the early stages of transition and serve as a springboard to full entre-preneurship under a competitive market-oriented economy (Kornai, 2008; Smallbone andWelter, 2001).

There are several ways in which the State can influence the development of entre-preneurship during transition period. For example, the State can use its power and influ-ence to shape societal perceptions (and acceptance) of entrepreneurial activities. This canbe accomplished though the State’s role in education, and its role in encouraging currentand former State workers to set up small business firms (Mugler, 2000). The State can alsoinfluence the development of entrepreneurial activities during the transition period byreforming the property rights and the rules that govern interactions or exchanges betweeneconomic agents, including the rules that govern the relationship between the emergingnon-State sector and the State (Smallbone and Welter, 2001). In addition, the State canuse the tax system, laws and regulations pertaining to licensing and registering smallprivate enterprises, bankruptcy laws and contracts to influence the development of en-trepreneurial activities during the transition period (Mesa-Lago, 2012). On the other hand,as Smallbone and Welter (2001) indicate, frequent and arbitrary changes in the tax system,or in the laws and regulations governing the operations of emerging self-employedentrepreneurs and their relations with the State, forces many entrepreneurs to shift theiractivities to the informal sector. Excessive State regulation, an uncertain legal climate andState hostility and restrictions limits the ability of the emerging entrepreneurial class tomake positive contributions in terms of employment creation, income generation andinnovation.

3. Economic Reforms and the Recent Evolution of the Cuban Economy

This section presents a brief overview of the principal economic reform measuresimplemented in Cuba since 2007 and the evolution of selected areas of the Cubaneconomy such as Gross Domestic Product (GDP), the international sector, employmentand wages and non-sugar agriculture. Although official Cuban economic statistics andreporting have improved over the last decade, as the country (partially) reaped the benefitsof the information age, and Cuban economic authorities made an effort to conform tointernational reporting practices; the most recent edition of the Annual Statistical Year-book (Anuario Estadístico de Cuba–AES) (2012) was published in early 2013. As of thetime of this writing, the National Statistics Office (ONEI) has not disclosed (or published)the reasons for the delay in the publication of the 2013 Annual Statistical Yearbook.

3.1. Economic reforms in Cuba: 2007 to present

Starting in 2007, under the presidency of Raúl Castro, Cuba has embarked on a profoundprocess of economic restructuring to “update” the country’s socialist economic model.


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Mesa-Lago (2012) classifies these reforms as: (a) administrative measures, (b) gradualpolicy changes to transform selected (relative-minor) areas of the economy and (c)structural reforms.

(a) Administrative reforms: These policy measures aim to improve the system’s admin-istrative efficiency and to reduce the State’s fiscal outlays. They include:

. The fusion of several ministries with redundant duties and functions (e.g., the mergerof the Ministry of Sugar and the Ministry of Agriculture, the combination of theMinistry of the Food Industry and the Ministry of Fisheries and the joining of theMinistry of Foreign Trade and the Ministry of Foreign Investment and Collaboration)

. Measures to decentralize the administrative and managerial functions of the Stateand

. Public campaigns against the pilfering of State property and corruption.

(b) Gradual policy measures to transform selected (relatively-minor) areas of the econo-my: These reform measures aim to transform some, relatively-minor, areas of theeconomy without radically changing (or altering) the system. The most significantreforms in this category include:

. The elimination of legal prohibitions that prevented ordinary Cubans from staying inhotels and resorts previously reserved for foreigners

. Payments of arrears (by the State) to agricultural producers, and gradual priceincreases for selected agricultural products

. The sale of previously-restricted consume products (e.g., DVD players, cell phonesand other consumer electronics) to the population

. The authorization (legalization) of privately-operated transportation services (e.g.,taxis, agricultural transporters, etc.)

. Salary (wage) increases for State workers

. Pension increases for retirees and disabled persons and

. The reduction of State subsidies and products available through the rationingsystem.

(c) Structural reforms: Policy measures in this category represent a radical departure fromthe “classical socialist model,” and although they may be gradual in nature, their aimand scope have far reaching socioeconomic implications. The most significant struc-tural reforms implemented in Cuba since 2007 include:

. The transfer of idle (non-producing) State-owned lands to cooperative and indi-vidual farmers (in usufruct)

. The expansion of self-employment (outside of the State sector) in areas of theeconomy not considered strategically-important (e.g. personal and professionalservices, retail, commerce, etc.) and

. The transformation of private property rights by legalizing (or authorizing) the pur-chases and sales of used automobiles, without State intermediation, and purchases andsales of residential properties (with a maximum of two legally-owned residences).


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3.2. Recent evolution of the Cuban economy

3.2.1. Gross Domestic Product (GDP)

Tables 1 and 2 show Cuba’s GDP by economic activity (at current prices), and the GDPgrowth rates during the 2007–2012 period.

The Cuban economy reported mixed results at the end of 2012. Cuba’s GDP grew 3percent in 2012. However, this growth rate was 11.8 percent lower than the target rate of

Table 1. Cuba: Gross Domestic Product (GDP) by Economic Activity (at Current Prices), 2007–2012.

2007 2008 2009 2010 2011 2012

(Thousand pesos)Gross Domestic Product (GDP) 58,604 60,806 62,079 64,328 68,990 73,242Agriculture, livestock, fish farming 2,181 2,211 2,322 2,230 2,400 2,716Fishing 109 110 118 95 87 100Mining 344 364 356 429 441 453Sugar agro-industry 196 233 239 432 454 503Manufacturing, except sugar 8,308 8,683 9,061 9,623 10,129 11,275Construction 3,217 3,303 3,377 3,211 3,265 3,718Electricity, natural gas, and water 1,137 1,030 1,000 1,032 1,067 1,142Transportation, warehousing, and communications 4,563 4,927 5,151 5,314 5,595 6,041Commerce: Appliance repairs 12,626 11,813 11,609 12,058 12,971 13,888Hotels and restaurants 2,364 2,645 2,824 3,098 3,200 3,224Financial intermediation 1,086 1,145 965 1,028 1,044 1,066Enterprise services, insurance, real estate 1,574 1,619 1,633 1,775 1,811 2,015Public administration, national defense, national security 1,778 1,863 2,139 2,080 3,119 3,221Science, technology and innovation 203 255 274 284 271 340Education 4,995 5,640 5,956 6,010 6,485 6,453Public health and social assistance 9,202 9,915 9,862 10,016 11,419 11,949Culture and sports 2,304 2,374 2,700 3,030 2,953 2,617Other communal activities, and functions 1,758 1,780 1,866 1,925 1,499 1,699Import royalties 660 896 628 658 781 823Agriculture, livestock, fish farming 3.7% 3.6% 3.7% 3.5% 3.5% 3.7%Fishing 0.2% 0.2% 0.2% 0.1% 0.1% 0.1%Mining 0.6% 0.6% 0.6% 0.7% 0.6% 0.6%Sugar agro-industry 0.3% 0.4% 0.4% 0.7% 0.7% 0.7%Manufacturing, except sugar 14.2% 14.3% 14.6% 15.0% 14.7% 15.4%Construction 5.5% 5.4% 5.4% 5.0% 4.7% 5.1%Electricity, natural gas, and water 1.9% 1.7% 1.6% 1.6% 1.5% 1.6%Transportation, warehousing, and communications 7.8% 8.1% 8.3% 8.3% 8.1% 8.2%Commerce: Household appliance repairs 21.5% 19.4% 18.7% 18.7% 18.8% 19.0%Hotels and restaurants 4.0% 4.3% 4.5% 4.8% 4.6% 4.4%Financial intermediation 1.9% 1.9% 1.6% 1.6% 1.5% 1.5%Enterprise services, insurance, real estate 2.7% 2.7% 2.6% 2.8% 2.6% 2.8%Public administration, national defense, national security 3.0% 3.1% 3.4% 3.2% 4.5% 4.4%Science, technology and innovation 0.3% 0.4% 0.4% 0.4% 0.4% 0.5%Education 8.5% 9.3% 9.6% 9.3% 9.4% 8.8%Public health and social assistance 15.7% 16.3% 15.9% 15.6% 16.6% 16.3%Culture and sports 3.9% 3.9% 4.3% 4.7% 4.3% 3.6%Other communal activities, and functions 3.0% 2.9% 3.0% 3.0% 2.2% 2.3%Import royalties 1.1% 1.5% 1.0% 1.0% 1.1% 1.1%

Source: Anuario Estadístico de Cuba, 2012; and authors’ calculations.


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3.4 percent stipulated in the 2012 Central Plan. Total agricultural output, which includeslivestock and fish farming, grew a meager 0.5 percent in 2012. This was primarily becauseof the effects of Hurricane Sandy, which struck the island in late October 2012 anddestroyed crops and leveled farms and fields in most of Eastern and Central Cuba. On theother hand, construction expanded by 11.2 percent, driven mainly by policies to facilitateprivate home repairs and construction efforts, and self-employment in this key sector, aswell higher State expenditures. Similarly, transportation and telecommunications grew 6.2percent; retail commerce increased 5.3 percent; enterprise services, insurance and realestate expanded 14.4 percent and manufacturing grew 2 percent (Tables 1 and 2).

The composition of GDP by economic activity remained virtually unchanged duringthe 2007–2012 period. The top five (5) sectors (or types of economic activities) thatrepresented the largest share of GDP in 2012 were: (1) retail commerce (19 percent), (2)public health and social assistance (16.3 percent), (3) manufacturing (excluding sugar)(15.4 percent), (4) education (8.8 percent) and (5) transportation and telecommunications(8.2 percent) (Table 1).

3.2.2. The external sector

Table 3 shows Cuba’s merchandise trade balance during the 2007–2012 period.As Table 3 indicates, Cuba’s merchandise trade deficit widened substantially (28.6

percent) between 2007 and 2012. However, the value of merchandise exports grew at afaster rate (51.3 percent) than the value of merchandise imports (36.9 percent), while thevalue of total merchandise trade increased 40.8 percent, from 13.76 billion pesos in 2007

Table 2. Cuba: Gross Domestic Product (GDP) growth rates, 2007–2012.

2007 2008 2009 2010 2011 2012

Gross Domestic Product (GDP) 7.3 4.1 1.4 2.4 2.8 3.0Agriculture, livestock, fish farming 19.6 0.6 3.3 �5.1 5.0 0.5Fishing 1.7 1.4 �44.0 �24.7 �12.1 4.6Mining 4.0 3.2 �3.3 7.4 1.4 1.9Sugar agro-industry �3.4 15.8 �1.4 �13.1 5.0 7.7Manufacturing, except sugar 10.1 4.9 1.0 1.6 3.9 2.0Construction �8.6 2.4 0.6 �7.5 �7.3 11.2Electricity, natural gas, and water 7.9 0.6 0.8 �1.7 2.7 4.4Transportation, warehousing, and communications 6.4 6.6 2.5 2.6 3.6 6.2Commerce: Appliance repairs �0.3 �3.4 0.1 2.0 5.5 5.3Hotels and restaurants 4.9 10.2 10.0 7.3 9.1 5.1Financial intermediation 9.2 5.3 1.3 0.5 1.2 0.5Enterprise services, insurance, real estate 7.2 1.9 0.5 6.1 3.4 14.4Public administration, national defense, national security 5.8 3.3 6.5 1.7 1.5 �0.1Science, technology and innovation 10.0 24.4 10.7 7.8 7.8 7.0Education 9.1 3.1 1.5 4.5 �5.3 �3.8Public health and social assistance 21.0 12.7 3.4 5.6 3.4 0.4Culture and sports 13.8 1.2 0.6 7.8 �1.8 �0.2Other communal activities, and functions 12.1 1.2 5.4 �0.1 1.6 �0.7Import royalties �0.8 7.1 �36.5 4.4 31.7 �2.2



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to 19.38 billion pesos in 2012. The evolution of Cuba’s merchandise trade balance duringthis period reflects the country’s increased import capacity, as well as its high levels ofexternal sector dependency. This is particularly pronounced in the case of agricultural andfood imports, which primarily come from the United States (González-Corzo and NovaGonzález, 2013).

The total value of Cuba’s merchandise exports represented 26.5 percent of GDP in2012, illustrating the relatively high external sector dependency of the Cuban economy,and its susceptibility to external sector shocks. Services represented close to 60 percentof Cuba’s total exports in 2012 (in terms of value). Compared to traditional merchandiseexports, such as nickel and sugar, which are subject to price volatility in internationalmarkets, service exports represent a relatively stable source of hard currency for theCuban economy (CEPAL, 2013). Medical services to regional allies such as Venezuela,Bolivia and Brazil represented the bulk of Cuba’s service exports in 2012 (CEPAL,2013).

International tourism and remittances are also important sources of foreign exchangereceipts for the Cuban economy. Some estimates place the value of remittances fromabroad, including in-kind transfers, between $1.5 billion and $2.5 billion per year(CEPAL, 2013). Since the mid 1990s, these transfers of private capital have played a keyrole in the Cuban economy; this trend has accelerated recently as non-State economicactors have gained alternative spaces and more Cubans have been able to travel abroad.Table 4 presents Cuba’s principal tourism indicators for the 2007–2012 period.

The number of visitors increased 31.9 percent from 2,152,221 in 2007 to 2,838,607 in2012. The top-ten (10) tourist-sending countries accounted for 71.1 percent of total visitorsin 2007, compared to 69.7 percent in 2012. The gross revenues generated by internationaltourism increased 16.9 percent from 2.236 billion convertible pesos (CUC) in 2007 to2.613 billion CUC in 2012. The number of tourism establishments declined 18.4 percent,while the total number of rooms increased 16.1 percent and the occupancy rate declined10.7 percent during the same period (Table 4).

3.2.3. Employment and wages

Cuba’s labor market has experienced significant transformations in recent years. Themost significant include: transfers of State employees to the emerging non-State sector,

Table 3. Cuba: Merchandise Trade Balance, 2007–2012 (Millions pesos).

Year MerchandiseExports

MerchandiseImports

Total TradeBalance

DonationsGranted

DonationsReceived

2007 3,685.7 10,079.2 13,764.9 �6,393.5 156.5 80.92008 3,664.2 14,234.1 17,898.3 �10,569.9 62.3 178.72009 2,863.0 8,906.0 11,769.0 �6,043.0 6.3 401.82010 4,549.5 10,644.3 15,193.8 �6,094.8 17.2 132.62011 5,870.1 13,952.4 19,822.5 �8,082.3 6.4 125.12012 5,577.3 13,800.9 19,378.2 �8,223.6 1.1 107.2



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measures to promote the expansion of self-employment and cooperatives, the authorizationof more than one legally-recognized occupations and wage reforms to link salaries withresults. Table 5 presents the principal indicators of Cuba’s labor market during the 2007–2012 period.

The working age population increased 1.8 percent from 6,721,000 in 2007 to 6,845,200in 2012. Similarly, the labor force participation rate (LFPR) increased from 73.7 percent to74.2 percent during the same period. One interesting development is the decline in thefemale LFPR, which fell from 59.3 percent in 2007 to 57.4 percent in 2012. As Table 5indicates, the LFPR among males increased from 86.7 percent in 2007 to 89.5 percent in2012. The male LFPR in 2012 (89.5 percent) was 1.56 times higher than the female LFPR(57.4 percent).

Another notable development was the increase in the official unemployment rate, from1.8 percent in 2007 to 3.5 percent in 2012. In percentage terms, this represents an eye-catching increase of 94.4 percent. The number of unemployed persons grew from 88,600in 2007 to 175,700 in 2012. In 2012, the unemployment rate among females (3.6 percent)was slightly higher than the national rate (3.5 percent), while the unemployment rateamong males (3.4 percent) was slightly lower than the national average.

Table 6 shows total employment by economic activity between 2007 and 2012.Employment increased in key economic activities such as agriculture, mining,

manufacturing and commerce, but decreased in other activities such as electricity, naturalgas, water, construction, transportation, warehousing, communications, enterprise ser-vices, insurance, real estate, finance, communal services, personal services and social

Table 4. Cuba: Selected Tourism Indicators, 2007–2012.

2007 2008 2009 2010 2011 2012 Change % Change

Visitors 2,152,221 2,348,340 2,429,809 2,531,745 2,716,317 2,838,607 686,386 31.9Top-Ten Countries 1,530,942 1,665,063 1,711,564 1,754,996 1,884,029 1,978,285 447,343 29.2

Canada 660,384 818,246 914,884 945,248 1,002,318 1,071,696 411,312 62.3United Kingdom 208,122 193,932 172,318 174,343 175,822 153,737 �54,385 �26.1Germany 103,054 100,964 93,437 93,136 95,124 108,712 5,658 5.5Italy 134,289 126,042 118,347 112,298 110,432 103,290 �30,999 �23.1France 92,304 90,731 83,478 80,470 94,370 101,522 9,218 10.0United States 40,521 41,904 52,455 63,046 73,566 98,050 57,529 142.0Argentina 37,922 47,405 48,543 58,612 75,968 94,691 56,769 149.7Russia 29,077 40,621 37,391 56,245 78,472 86,944 57,867 199.0Spain 133,149 121,166 129,224 104,948 101,631 81,354 �51,795 �38.9Mexico 92,120 84,052 61,487 66,650 76,326 78,289 �13,831 �15.0

International TourismRevenues (inConvertible Pesos— CUC)

2,236.4 2,346.9 2,082.4 2,218.4 2,503.1 2613.3 377 16.9

Total tourism estab-lishments

580 539 548 565 562 473 �107 �18.4

Total rooms 55,656 56,970 60,606 65,031 65,878 64,627 8,971 16.1Average annual occu-

pancy rate (%)60.9 60.1 59.8 52.3 53.2 54.4 �7 �10.7



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Table

5.Cuba:

SelectedLabor

MarketIndicators,2007–20

12.

Economically

ActivePopulation(Thousandworkers),andLabor

Force

ParticipationRate(%

)

Total

Wom

enMen

Working

Age

Pop

ulation

Economically

Active

Population

Labor

force

Participation

Rate(%

)

Working

Age

Population

Econo

mically

Active

Pop

ulation

Labor

force

Participation

Rate(%

)

Working

Age

Pop

ulation

Economically

Active

Pop

ulation

Labor

force

Participation

Rate(%

)

2007

6,72

1.3

4,956.3

73.7

3,181.9

1,887.0

59.3

3,53

9.4

3,06

9.3

86.7

2008

6,72

6.7

5,027.9

74.7

3,178.8

1,912.8

60.2

3,54

7.9

3,11

5.1

87.8

2009

6,84

0.7

5,158.5

75.4

3,236.2

1,973.4

61.0

3,60

4.5

3,18

5.1

88.4

2010

6,82

9.1

5,112.5

74.9

3,226.4

1,953.3

60.5

3,60

2.7

3,15

9.2

87.7

2011

6,80

2.9

5,174.5

76.1

3,214.0

1,945.0

60.5

3,58

8.9

3,22

9.5

90.0

2012

6,84

5.2

5,077.9

74.2

3,259.6

1,870.3

57.4

3,58

5.6

3,20

7.6

89.5

Employ

ed,Unemployed

(Tho

usandworkers),andUnemploymentRate(%

)

Total

Wom

enMen

Employed

Unemploy

edUnemploy

ment

Rate(%

)Employ

edUnemployed

Unemployment

Rate(%

)Employed

Unemploy

edUnemploy

ment

rate

(%)

2007

4,86

7.7

88.6

1.8

1,851.7

35.3

1.9

3,01

6.0

53.3

1.7

2008

4,94

8.2

79.7

1.6

1,875.2

37.7

2.0

3,07

3.0

42.0

1.3

2009

5,07

2.4

86.1

1.7

1,934.1

39.3

2.0

3,13

8.3

46.8

1.5

2010

4,98

4.5

128.0

2.5

1,900.3

53.0

2.7

3,08

4.2

75.0

2.4

2011

5,01

0.2

164.3

3.2

1,876.4

68.3

3.5

3,13

3.8

96.0

3.0

2012

4,90

2.2

175.7

3.5

1,802.6

67.7

3.6

3,09

9.6

108.0

3.4

Source:Anu

ario

Estadísticode

Cub

a,20

12;andauthors’

calculations.


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services (Table 6). The economic activities that accounted for the largest share of totalemployment in 2012 were: (1) communal services, personal services and social services(39.7 percent), (2) agriculture, fishing and livestock (19.3 percent), (3) commerce (13.9percent), and (4) manufacturing (12.4 percent) (Table 6).

Table 7 shows average monthly salaries (in Cuban pesos — CUP) during the 2007–2012 period.

The average monthly salary increased 14.2 percent from 408 pesos (CUP) in 2007 to466 CUP in 2012. The economic activities with the highest average monthly salaries in2012 were: (1) construction (580 CUP), (2) mining (566 CUP), (3) agriculture, fishing andlivestock (513 CUP), (4) manufacturing (466 CUP) and (5) transportation, warehousingand communications (460 CUP). The official exchange rate sets 1 convertible peso (CUC)equal to 25 Cuban pesos (CUP); as a result, the average monthly salary in 2012 (466 CUP)was equal to 16.32 CUC. Because of monetary dualism and inflationary pressures, the realpurchasing power of the average Cuban household remains relatively low. Gradual priceliberalization, particularly in the case of food and agricultural products, and the elimination

Table 6. Cuba: Employment by Economic Activity, 2007–2012.

2007 2008 2009 2010 2011 2012

Total Employment (Thousand workers) 4,867.7 4,948.2 5,072.4 4,984.5 5,010.2 4,902.2Agriculture, fishing, livestock 912.3 919.1 945.6 921.5 986.5 944.2Mining 25.7 26.7 27.0 33.7 40.2 39.0Manufacturing (industry) 523.3 543.1 530.8 486.6 507.9 608.5Electricity, natural gas, water 85.0 79.8 90.3 101.6 91.5 83.1Construction 243.7 245.2 239.1 224.5 219.2 210.0Commerce (retail and wholesale trade),

restaurants, hotels613.6 610.2 628.2 641.9 647.3 683.3

Transportation, warehousing,communications

289.3 301.4 297.1 304.5 310.1 286.3

Enterprise services, insurance,real estate, finance

111.4 123.0 118.5 116.2 125.2 103.1

Communal services, personal,social services

2,063.4 2,099.7 2,195.8 2,154.0 2,082.3 1,944.7

Employment by Economic Activity as a Percentage (%) of Total EmploymentAgriculture, fishing, livestock 18.7% 18.6% 18.6% 18.5% 19.7% 19.3%Mining 0.5% 0.5% 0.5% 0.7% 0.8% 0.8%Manufacturing (industry) 10.8% 11.0% 10.5% 9.8% 10.1% 12.4%Electricity, natural gas, water 1.7% 1.6% 1.8% 2.0% 1.8% 1.7%Construction 5.0% 5.0% 4.7% 4.5% 4.4% 4.3%Commerce (retail and wholesale trade),

restaurants, hotels12.6% 12.3% 12.4% 12.9% 12.9% 13.9%

Transportation, warehousing,communications

5.9% 6.1% 5.9% 6.1% 6.2% 5.8%

Enterprise services, insurance,real estate, finance

2.3% 2.5% 2.3% 2.3% 2.5% 2.1%

Communal services, personal,social services

42.4% 42.4% 43.3% 43.2% 41.6% 39.7%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%



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of State subsidies have contributed to the decline of the real purchasing power for mostCuban households. However, relatively-low nominal salaries are offset by subsidizedhealthcare, education, transportation and social services, and are supplemented by remit-tances from abroad.

Table 7. Cuba: Average Monthly Salary, 2007–2012 (Pesos).

2007 2008 2009 2010 2011 2012

Total 408 415 429 448 455 466Agriculture, fishing, livestock 420 444 483 485 501 513Mining 544 562 537 550 553 566Manufacturing (industry) 433 430 449 433 455 466Electricity, natural gas, water 508 517 530 518 510 522Construction 497 522 531 541 566 580Commerce (retail and wholesale trade), restaurants, hotels 353 365 364 366 367 376Transportation, warehousing, communications 418 427 430 437 449 460Enterprise services, insurance, real estate, finance 493 445 502 429 422 432Communal services, personal, social services 398 385 418 425 415 425


Table 8. Cuba: Non-Sugar Agricultural Output, 2007–2012 (Tons).

CROPS 2007 2008 2009 2010 2011 2012 Change % Change

Viandas 2,369,500 2,150,700 2,236,000 2,250,000 2,280,000 2,337,000 �32,501 �1.4Roots and

tubbers1,378,600 1,392,500 1,565,600 1,515,000 1,445,000 1,452,000 73,400 5.3

Potatoes 143,700 196,100 278,600 191,500 165,600 130,933 �12,767 �8.9Boniato 414,000 375,000 437,100 384,743 311,900 335,319 �78,681 �19.0Malanga 207,800 240,000 199,400 137,400 132,100 153,782 �54,018 �26.0Plaintains and

bananas990,900 758,200 670,400 735,000 835,000 885,000 �105,900 �10.7

Bananas 385,900 280,800 245,400 249,200 250,000 195,496 �190,405 �49.3Plaintains 605,000 477,400 425,000 485,800 585,000 689,504 84,504 14.0Vegetables 2,603,000 2,439,300 2,548,800 2,141,035 2,200,000 2,112,000 �491,000 �18.9Tomatoes 627,900 575,900 750,000 517,040 601,000 494,432 �133,468 �21.3Onions 105,100 128,100 131,300 111,737 143,500 118,244 13,144 12.5Peppers 55,807 63,677 56,672 44,545 55,057 62,202 6,395 11.5Cereals 808,400 761,700 868,400 778,863 920,400 1,002,000 193,600 23.9Rice 439,600 436,000 563,600 454,400 566,400 641,600 202,000 46.0Corn 368,800 325,700 304,800 324,463 354,000 360,400 �8,400 �2.3Beans 97,200 97,200 110,800 80,439 133,000 127,100 29,900 30.8Tobacco 25,600 21,500 25,200 20,500 19,900 19,500 �6,100 �23.8Citrus Fruits 469,000 391,800 418,000 345,000 264,500 203,700 �265,300 �56.6Oranges 302,800 200,400 261,000 178,263 122,900 93,837 �208,963 �69.0Grapefruit 140,000 166,100 121,500 137,660 112,000 84,741 �55,259 �39.5Lemons 6,000 5,400 8,300 6,060 6,600 6,475 475 7.9Other Fruits 783,800 738,500 748,000 762,045 817,000 964,900 181,100 23.1Mango 198,000 228,700 269,300 203,595 185,000 286,385 88,385 44.6Guava 113,500 126,500 84,900 71,581 85,000 103,191 �10,309 �9.1Papaya 89,700 89,400 95,700 135,707 135,000 178,558 88,858 99.1Cocoa 1,379 1,100 1,387 1,709 1,510 2,027 648 47.0



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3.2.4. Non-sugar agriculture

The transformation of Cuban agriculture to increase production and reduce dependency onfood imports has been at the forefront of the economic reform process initiated in 2007(González-Corzo, 2013). The most significant policy measures to transform this vitalsector of the Cuban economy include gradual increases in the prices paid by the Stateprocurement agency (“Acopio”) for selected agricultural products, transfers of idle State-owned lands in usufruct to cooperatives and individual farmers, the authorization of directagricultural sales to tourism enterprises and the creation of new cooperatives to com-mercialize agricultural products. Table 8 shows non-sugar agricultural production in Cubaduring the 2007–2012 period.

As Table 8 indicates, between 2007 and 2012, physical output increased in four (4)of the nine (9) crop categories. The crop categories with positive results during thisperiod were: (1) roots and tubers (5.3 percent), (2) cereals (23.9 percent), (3) other fruits(23.1 percent) and cocoa (47 percent). By contrast, production declined in the followingfive (5) crop categories: (1) viandas (�1.4 percent), (2) plantains (�10.7 percent), (3)vegetables (�18.9 percent), (4) tobacco (�23.8 percent) and (5) citrus fruits (�56.6percent). Cuba’s agricultural output was affected by the reduction in area harvested, in-sufficient access to essential inputs, the lack of economic (or price) incentives, problemswith economic coordination and natural conditions (e.g. hurricanes, drought and soilerosion) (Mesa-Lago, 2012).

4. Policy Measures to Expand Private Entrepreneurial Activitiesin Cuba Since 2011

On April 18, 2011, the Sixth Congress of the CPC approved the “Economic and SocialPolicy Guidelines of the Economic and Social Policy of the Party and the Revolution”(“Lineamientos de la Política Económica y Social del Partido y la Revolución”). While notoffering specific details regarding their implementation, the “Guidelines” did provide abroad overview regarding the role of employment and wages in the Cuban economy, as thecountry continues to “update” its socialist economic model. Guidelines 156 to 165 de-scribe the overall regulatory framework as it relates to employment and wages. Guideline156 indicates that one of the primary objectives is to “ensure that wage policies guaranteethat each worker receives according to their work and that this generates quality productsand services” (Gobierno de Cuba, 2011). According to Guideline 157, this goal will beaccomplished by prioritizing the application of wage increases in jobs that generatehard currency (e.g., tourism, services, etc.), produce food (e.g. agriculture and agriculturalservices), jobs related to “other indispensable consumer goods” and “work that contributesto the investment process.” Furthermore, “special attention must be given to stimulatingthe incorporation of scientific advances and new technologies in production, on thebasis of the real results obtained through their application” (Gobierno de Cuba, 2011).Guideline 157 also recognizes the necessity to “modify the structure of employment,reducing inflated payrolls and expanding work in the non-State sector” (Gobierno deCuba, 2011).


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The possible steps required to transform the structure of employment, reduce bloatedpayrolls in the State sector and expand employment in the emerging non-State sector areoutlined in Guidelines 158 to 165. Guideline 158 recognizes the need to “expand the scopeof self-employment, not only as an alternative employment option but as a contributionto increasing the availability of goods and services;” it also states that as part of thesetransformations, it will be necessary to “apply a tax structure that guarantees that self-employed workers contribute according to their incomes” (Gobierno de Cuba, 2011).

To address the disruptions caused by the these transformations on a labor force that hasoperated under excessively paternalistic and restrictive conditions, often used to gettingpaid, albeit meager salaries and wages, without showing up for work or producing anytangible results, Guideline 159 recognizes the need to “develop job placement proceduresbased on the principle of demonstrated suitability, contributing to the elimination ofpaternalistic practices” and to “stimulate the necessity of work and reduce expenditures inthe economy and the State budget” (Gobierno de Cuba, 2011). In addition, according toGuideline 160, transforming Cuba’s labor force will require “training of qualified work-force in relation to current needs and the country’s development, for which is its necessaryto correct present deformations in the structure of training high-level specialists, mid-leveltechnicians and qualified workers.”

Given the role of wages (or labor income) in the labor market, and recognizing thedistortions causes by indirect and direct transfers (e.g., subsidies, and other redistributivemeasures) after more than five decades of implementing a State-centric economic modelbased on income redistribution, Guideline 161 stipulates that one of the main objectives isto “strengthen the role of wages in society, for which it will be necessary to reduceunnecessary gratuities and excessive personal subsidies, while establishing compensationfor those who need them” (Gobierno de Cuba, 2011). Along these lines, Guideline 162identifies the “orderly elimination of the rationing system” (in place since 1961) as anecessary requirement to restructure the labor market in Cuba (and to prevent citizens whodo not need access to food rations at subsidized prices from selling any surplus in the blackmarket or informal economy).

However, Guideline 163 indicates that the elimination of the rationing systemwill require countermeasures such as “maintaining dining halls in the sphere of socialservices, in the centers of health, and education that require them” and that “it is necessaryto improve methods of protecting the nutritionally vulnerable or at-risk population”(Gobierno de Cuba, 2011). In addition, this process requires “maintaining workplacedining halls (“comedores obreros”) where essential, ensuring the sale of these services atnon-subsidized prices.” Finally, Guideline 165 states that one crucial goal is to “guaranteethat the beneficiaries of the protection offered by social assistance are people who reallyneed it because they are unable to work and cannot count on the support of their families”(Gobierno de Cuba, 2011).

The (gradual) implementation of the broad policy statements included in the Guidelineshas resulted in several important (general) measures to expand self-employment and en-trepreneurship to employment in the State sector. The number of authorized self-employedoccupations has been increased 181 to 201. Most of these activities or occupations, as has


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been noted by several scholars (Mesa-Lago, 2010; Pérez-Villanueva and Vidal Alejandro,2012 etc.), are in areas that require low levels of training and education, which ironicallyunderutilizes Cuba’s relatively highly educated workforce and its accumulated humancapital. Self-employed entrepreneurs are authorized to sell products and services to Stateenterprises and cooperatives at prices negotiated directly (with reduced State intervention).To meet a growing demand for their products and services, self-employed entrepreneursare authorized to hire other self-employed workers as “contract workers,” and parties cannegotiate wages directly. Privately-operated restaurants (“paladares”) are authorized tohave 50 chairs (from 20 chairs prior to the reforms) and are allowed to hire up to 50 self-employed workers, which are no longer required to be immediate family members orrelatives. Men 65 years or older and women 60 years or older are no longer required to beformally (or officially) affiliated with a formal State sector employer. The grace period forpaying tax arrears has been expanded for ten years; access to credit financing (from State-owned banks) has been expanded since the approval of Decree-Law No. 289 (2011); andself-employed entrepreneurs are allowed to directly purchase cars and up to two housesfrom private parties.

Another significant policy measure has been the implementation of an updated taxregime for self-employed entrepreneurs. Resolution No. 298, approved by the Ministry ofFinance and Prices in 2011, established the regulatory framework governing the taxregimes for Cuba’s emerging self-employed entrepreneurs. The new tax system has fivecomponents: (1) sales tax on (tangible) goods, (2) tax on the utilization of the labor force(i.e. hiring of other self-employed workers under “contract”), (3) income tax, (4) surtax onservices and (5) social security (or social insurance) tax payments (Ritter, 2011). A tax of10 percent is levied on the value of tangible goods sold by all self-employed workers thatdo not qualify for the “Simplified Tax Regime” (discussed below). Self-employed workersengaged in the sale of agricultural products on kiosks or roadside stalls are exempt fromthe 10 percent tax on sales; instead, they are required to pay a tax of 5 percent of the valueof reported sales (Resolución No. 298, 2011). Self-employed workers are also required topay a tax on the utilization of labor, which is set at around 37.5 percent of the averagenational wage (Resolución No. 298, 2011). Based on an average national wage of 450pesos in 2012–2013, this tax is approximately 168.75 pesos per month per worker, or2,025 pesos per worker on an annual basis.

Resolución No. 298 (2011) introduced two income tax regimes for self-employedworkers in Cuba: (1) a simplified regime, applicable for smaller-scale activities and (2) amore complex tax regime designed for larger scale self-employment activities (Ritter,2011). The “Simplified Tax Regime,” which applies to 91 smaller-scale self-employmentactivities requires self-employed workers to pay a consolidated tax, consisting of amonthly licensing fee, rather than paying taxes on sales, income, etc. (Ritter, 2011). Thismonthly fee currently ranges from 40 to 150 pesos, and it is payable during the first tendays of the month (Resolución No. 298, 2011). Self-employed workers and micro-enterprises involved in larger-scale activities, which pay monthly licensing fees rangingfrom 40 to 700 pesos to the State, operate under the “General Tax Regime.” The “tax base”used to determine income tax payments under the “General Tax Regime” are equal to total


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revenue minus a fixed amount for deductible expenses (Resolución No. 298, 2011; Ritter,2011), and can be expressed as follows.

Tb ¼ ðp*qÞ � d

Where:

Tb: Tax base (or income level used to determine tax payments)p: Price per unit of output sold by self-employed workersq: Quantity of output sold (in units)d: Fixed amount for deductible expenses

Resolution No. 298 indicates that the maximum (fixed) allowances for tax deductionpurposes vary by type of self-employed activity. For example, the maximum deductionpermitted for eleven self-employment activities is 10 percent; self-employed workersengaged in “room rental operations” can deduct up to 20 percent of their income; thoseengaged in “personal, technical and maintenance services” can deduct up to 25 percent oftheir income; self-employed workers participating in “artisanal activities, and in thecommercialization of artisanal and industrial products” can deduct up to 30 percent of theirincome; and those participating in a selected group of six transportation and food sellingand preparation-related activities can deduct up to 40 percent of their income for taxpurposes (Resolución No. 298, 2011).

The “General Tax Regime” established by Resolution No. 298 applies progressiveincome tax rates ranging from 0 percent for the first 5,000 pesos of income, through 25percent for additional income between 5,000 and 10,000 pesos; 30 percent for additionalincome between 10,000 and 20,000 pesos; 30 percent for increments between 20,000 and30,000 pesos; 40 percent for additional income between 30,000 and 50,000 pesos and 50percent for any additional income above 50,000 pesos (Resolución No. 298, 2011).

In addition to sales and income taxes, Resolution No. 298 introduced a 10 percent salestax on services (sold by self-employed workers to State and non-State entities). Self-employed workers engaged in activities that qualify for the “Simplified Tax Regime” areexempt from the tax on services (Resolución No. 298, 2011). Finally, Resolution No. 298requires self-employed workers to make monthly contributions to the social security (orsocial insurance) system to provide old age support, coverage for maternity leave, dis-ability and death. These contributions are based according to a scale selected by self-employed workers, and according to Ritter (2011), they range from 25 percent of 350 to2,000 pesos per month based on the selection made by the self-employed worker.

5. The Evolution of Self-Employed Entrepreneurs in Cuba 2009–Present

As Table 9 indicates, the structural composition of employment in Cuba has been intransition since 2009. The State sector’s share of total employment has decreased notably,while the emerging non-State sector’s share has moved in the opposite direction. Em-ployment in the cooperative sector, despite official efforts to promote the expansion ofemployment in cooperatives as an alternative to employment in the declining State sector,


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has decreased significantly since 2009. This has been offset by dramatic increases in self-employment during the 2009–2012 period. As Kornai (2008) indicates, these trends arenot surprising, considering the emergence of an expanding non-State (or private) sector isone of the most important results of economic reforms during the (gradual) transit from theclassical socialist model to a mixed (and somewhat market-oriented) model.

Female workers represent a higher share of total State sector workers, compared to theirshare of total workers in the emerging non-State sector. Although the number of womenworking in the emerging non-State sector has grown substantially since 2009, women remainunderrepresented, particularly when it comes to self-employment. Males represented close

Table 9. Cuba: Employment, State and Non-State Sectors, 2009–2012.

2009 2010 2011 2012 Change % Change

Total 5,072,400 4,984,500 5,010,200 4,902,200 �170,200 �3.36Female 1,934,100 1,900,300 1,876,400 1,802,600 �131,500 �6.80Male 3,138,300 3,084,200 3,133,800 3,099,600 �38,700 �1.23

State SectorState Sector 4,249,500 4,178,100 3,873,000 3,684,300 �565,200 �13.30Female 1,815,700 1,787,000 1,669,300 1,634,100 �181,600 �10.00Male 2,433,800 2,391,100 2,203,700 2,050,200 �383,600 �15.76

Non-State SectorNon�State Sector 822,900 806,400 1,137,200 1,217,900 395,000 48.00Female 118,400 113,300 207,100 168,500 50,100 42.31Male 704,500 693,100 930,100 1,049,400 344,900 48.96

Non-State Sector by CategoryCooperatives 231,600 217,000 208,700 212,600 �19,000 �8.20Female 39,400 35,800 30,800 29,800 �9,600 �24.37Male 192,200 181,200 177,900 182,800 �9,400 �4.89Private Sector 591,300 589,400 928,500 1,005,300 414,000 70.02Female 79,000 77,500 176,300 138,700 59,700 75.57Male 512,300 511,900 752,200 866,600 354,300 69.16Self-Employed Workers 143,800 147,400 391,500 404,600 260,800 181.36Female 30,300 29,500 61,900 63,000 32,700 107.92Male 113,500 117,900 329,600 341,600 228,100 200.97

Selected General RatiosState Sector as % of Total 83.78% 83.82% 77.30% 75.16% — —

Non-State Sector as % of Total 16.22% 16.18% 22.70% 24.84% — —

Cooperatives as % of Total 4.57% 4.35% 4.17% 4.34% — —

Cooperatives as % of Non-State Sector 28.14% 26.91% 18.35% 17.46% — —

Self-Employed as % of Total 2.83% 2.96% 7.81% 8.25% — —

Self-Employed as % of Non-State Sector 17.47% 18.28% 34.43% 33.22% — —

Self-Employed as % of Private Sector 24.32% 25.01% 42.16% 40.25% — —

Selected Gender RatiosFemale as % of Total (Nation) 38.13% 38.12% 37.45% 36.77%Female as % of Total (State Sector) 42.73% 42.77% 43.10% 44.35% — —

Female as % of Total (Non-State Sector) 14.39% 14.05% 18.21% 13.84% — —

Female as % of Total (Cooperatives) 17.01% 16.50% 14.76% 14.02% — —

Female as % of Total (Private Sector) 13.36% 13.15% 18.99% 13.80% — —

Female as % of Total (Self-Employed) 21.07% 20.01% 15.81% 15.57% — —



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to 85 percent of self-employed workers in Cuba at the end of 2012. This can be explainedin part by high entry barriers (e.g. startup costs, opportunity costs, etc.) associated with self-employment and the nature of the 201 self-employment activities (or occupations) currentlyauthorized. (More research needs to be done to test these and other explanatory variables.)

As Table 9 demonstrates, the total number of employed persons in Cuba in 2009 was5,072,400. Of these, 83.8 percent (4,249,500 workers) were employed in the State sector,while 16.2 percent (822,900) were employed in the non-State sector, which includescooperatives and the emerging private sector (mostly comprised of micro enterprises).

Self-employed workers (143,800) accounted for 2.83 percent of the country’s totalemployed workers in 2009, but represented 17.47 percent of employed non-State sectorworkers (822,900) and 24.32 percent of employed private sector workers (591,300). Atotal of 1,934,100 women were employed in Cuba in 2009. Women represented 38.13percent of the total number of employed workers in that year (5,072,400); 42.73 percent ofall employed State sector workers (4,249,500); 14.39 percent of all employed non-Statesector workers (822,900); 17 percent of all employed cooperative workers (231,600);13.36 percent of all employed private sector workers (591,300); and 21 percent of all self-employed workers (143,800) in 2009.

The total number of employed persons in Cuba in 2012 was 4,902,200. Of these, 75.16percent (3,684,300 workers) were employed in the State sector, while 24.84 percent(1,005,300) were employed in the non-State sector, which includes cooperatives and theemerging private sector (mostly comprised of micro enterprises).

Self-employed workers (404,600) accounted for 8.25 percent of the country’s totalemployed workers in 2012, but represented 33.22 percent of employed non-State sectorworkers (1,217,900), and 40.25 percent of employed private sector workers (1,005,300). Atotal of 1,802,600 women were employed in Cuba in 2012. Women represented 36.77percent of the total number of employed workers in that year (4,902,200); 44.35 percent ofall employed State sector workers (3,684,300); 14.39 percent of all employed non-Statesector workers (1,217,900); 17 percent of all employed cooperative workers (212,600);13.36 percent of all employed private sector workers (928,500); and 21 percent of all self-employed workers (404,600) in 2012.

Total employment declined 3.36 percent between 2009 and 2012, from 5,072,400workers to 4,902,200. Employment in the State sector fell by 13.30 percent, from4,249,500 workers to 3,684,300. By contrast, employment in the non-State rector in-creased by 48 percent, from 822,900 workers to 1,217,900. Employment in the cooper-ative sector decreased 8.20 percent from 231,600 workers to 212,600. The number offemale workers employed in this sector suffered a more significant decline (�24.37%),from 39,400 workers to 29,400.

Private sector employment rose dramatically (70.02 percent) from 591,300 workers to1,005,300. The number of females and males employed in the private sector increased byrelatively similar amounts (and percentages) during this period. Female employment in-creased a remarkable 75.57 percent (from 79,000 workers to 138,700), and male em-ployment rose 69.16 percent (from 512,300 workers to 866,600). Self-employed workersgrew from 143,800 to 404,600 (181.36 percent); the number of female self-employed


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workers increased from 30,300 to 63,000 (107.92 percent), while the number of male self-employed workers increased 200.97 percent from 113,500 to 341,600.

The analysis of recent (sparsely published) data and reports from official Cuban andmedia sources provides a more detailed picture of the current situation of self-employedworkers. Official estimates indicate that by the end of February 2014 there were anestimated 455,577 self-employed workers in Cuba. Close to two-thirds (67 percent) arelocated in Havana, Villa Clara, Matanzas, Camagüey, Holguín and Santiago de Cubaprovinces. The most common occupations (for self-employed workers) include: foodpreparation and sales: 57,776 (12.68 percent), passenger transportation: 47,733 (10.48percent), residential renting and leasing services: 29,952 (6.57 percent) and “contractworkers” (i.e. self-employed workers who are hired by other self-employed workers):91,978 (20.19 percent). An estimated 68 percent of self-employed workers (309,792)indicated they had no previous employment affiliation before becoming self-employed; 18percent (82,000) held another (salaried) job or position and 14 percent (63,781) wereretirees (CubaDebate, 2014).

5.1. Recent trends in self-employment and entrepreneurship in the City of Havana

Table 10 shows the total number of self-employed workers in Havana and their principaloccupations or activities.

As Table 10 indicates, the majority of self-employed workers in Havana (in February2014) were employed as contracted self-employed workers (27.49 percent), food preparersand/or sellers (15 percent), taxi drivers, truck drivers and in other passenger transportation-related activities (14.55 percent), intermediaries (leasing or rental agents for residential and

Table 10. Self-Employed Workers in the City of Havana, February, 2014, Selected Data.

Activity or Occupation Number of Workers % of Total

Contracted self-employed workers 25,287 27.49Food preparation and sales 13,816 15.02Transportation 13,385 14.55Intermediaries (leasing or rental agents) 10,576 11.50Construction 7,037 7.65Household products (producers and sellers) 4,368 4.75Messengers 3,273 3.56Collectors and re-sellers of raw materials 2,682 2.92Tailors 2,126 2.31Records (CDs, DVDs) buyers and sellers 1,990 2.16Agricultural carts owners/operators 1,599 1.74Artisanal workers (metal, wood, and other

natural products)1,509 1.64

Barbers 1,493 1.62Electrical appliances repairpersons 1,440 1.57Activities related to animals (trainers, keepers,

grooming, etc.)1,411 1.53

Total 91,992 100.00

Source: CubaDebate, 2014; and authors’ calculations.


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small-scale commercial properties) (11.50 percent) and in construction (builders, plum-bers, contractors, repairpersons, etc.) (7.65 percent).

The concentration of self-employed workers (in Havana and in the rest of the country)on these occupations or activities also resembles the experiences of other economies thattransitioned from the classical model to a more flexible (and less State-centric) model.According to Kornai (2008), during the period of transition in Hungary and other Centraland Eastern European economies a significant private sector emerged in various branchesof services, transport and construction. Similar to present-day Cuba, many self-employedworkers in these economies were also engaged in activities or occupations related toleasing and/or renting out private homes or apartments in cities and towns, and other “do ityourself activities” (Kornai, 2008).

The geographic distribution of self-employed workers by municipal districts in the Cityof Havana (in February, 2014) was as follows: (1) Plaza de la Revolución: 11,293, (2)Boyeros: 11,166, (3) Diez de Octubre: 10,949, (4) Playa: 10, 923 and (5) Centro Habana:10,361. Other interesting (and relevant) characteristics of self-employed workers inthe City of Havana as of February 2014 were: (1) workers with no previous officialemployment affiliation: 80,660 (62.3 percent); (2) workers that also hold State sector jobs:19,862 (15.3 percent) and retirees: 15,929 (12.3 percent). In terms of their levels ofeducational attainment, 79,980 (61 percent) had at least a 12th grade education level;37,548 (29 percent) had completed the 9th grade; and 10,358 (8 percent) were universitygraduates (CubaDebate, 2014).

As Pérez-Villanueva and Vidal Alejandro (2012) indicate, self-employment hasemerged as one of the central pillars of Cuba’s efforts to “update” its economic model.This alternative to State sector employment has been gaining ground and greater levels ofpopular and official acceptance (despite some setbacks at the end of 2013) since 2010(Spadoni, 2014). The fact that self-employment in Havana grew an astronomical 480.30percent, from 22,312 in 2010 to 129,476 in February, 2014 (Table 2) and that it hasexpanded quite significantly nationwide since the beginning of the reforms in 2010(Table 1) as an increasing number of Cubans see it as a viable alternative to improve theirincomes and living standards suggests that Cuba is indeed moving (albeit gradually)toward a reformed (socialist) economic model. Cuba’s employment data since 2009 cor-responds with Kornai’s (1992) observation that

“the government typically does not have to convince its citizens to enterthe private sector through a propaganda campaign. Usually, once certainprohibitions on private activity are lifted, the private sector begins togrow spontaneously, with individual enterprises sprouting like mush-rooms in a forest after rain. The explosion of private activity is all themore remarkable because it often follows a period of brutal repression ofany form of private venture. As soon as the repression ends, the privatesector immediately begins to expand in reform socialist countries in agenuinely spontaneous manner. People do not have to be cajoled intochoosing this life. In fact, they are immediately attracted by the higher


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earnings, the more direct link between effort and reward and the greaterautonomy and freedom the private sector offers.”

6. Prospects for the Future

The creation of alternative spaces for the emerging non-State sector, particularly privately-owned microenterprises, has improved the availability and quality of goods and services inthe Cuban economy in key areas such as construction, food preparation and services, andtransportation (Pérez-Villanueva and Vidal Alejandro, 2012). Self-employment hasemerged as viable alternative for a growing number of Cuban households wishing toimprove their incomes and living standards; it serves as an increasingly important sourceof tax revenues for the State; and provides alternative employment opportunities for agrowing class of micro-entrepreneurs (Spadoni, 2014). The expansion of self-employmentsince 2010 suggests a gradual movement towards a more flexible economic model (Mesa-Lago, 2012; Spadoni, 2014).

However, this process has been plagued by excessive restrictions by the State and bywhat Kornai (2008) considers as “the inner contradictions of market socialism.” At thepresent time, Cuba’s self-employed workers face a series of State-imposed regulatorylimitations and prohibitions that hinder their potential for growth. Although self-employedworkers are allowed to sell goods and services to State-owned enterprises (SOES), they areunable to form joint ventures with foreign investors, which would provide expandedaccess to capital, best practices and technological know-how. Export promotion programsto promote the export of goods and services produced by the self-employed are virtuallynon-existent. The same applies to wholesale input markets where self-employed workerswould be able to purchase essential inputs at market prices using Cuban pesos (CUC).

Existing restrictions on property rights, limitations on the use of tangible assets ascollateral to finance business loans and the structural and technological constraints thatcharacterize Cuba’s State-operated financial system hinder the financial sector’s ability tofacilitate the mobilization of credit in the Cuban economy. Unlike self-employed workersin other developing countries, Cuba’s self-employed lack access to international micro-finance (or microcredit) institutions. They also lack access to capital market (equity anddebt) instruments to finance the expansion of low-scale microenterprises, primarily fo-cused on meeting local customer needs, into globally competitive large-scale firms.

Self-employed workers in Cuba also face an onerous tax burden (Ritter, 2011). Thecurrent tax system applied to self-employed workers imposes an income tax ranging from 0to 50 percent, depending on annual income levels; it also includes a sales tax of 10 percent(for the sale of either goods or services) and a 25 percent tax for hiring more than fiveworkers. In addition, contributions to the system of social security are also subject to taxation(Resolución No. 298, 2011). This implies the State continues to perceive self-employedworkers primarily as a source of tax revenue rather than an engine for economic growth.

The approval of Decree-Law No. 289 in 2011 expanded self-employed workers’ accessto micro-credits from State banks, and for the first time allowed self-employed workersand other non-State actors (e.g., small-scale agricultural producers and cooperatives) to


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open bank accounts to manage their working capital, payroll and other financial obliga-tions. Despite these advances, Cuban self-employed workers still operate under an un-derdeveloped, State-controlled, banking and financial system with limited lending andmoney creation capabilities. As Mesa-Lago (2012) indicates, Cuba’s State-owned bankinginstitutions have limited capabilities to promote and deliver innovative financial solutionssuch as online banking, telephone-based banking services, automatic teller machines(ATMs), etc.; the majority of their credit or lending personnel lack sufficient expertise tomanage credit (or loan) portfolios and provide other essential services to self-employedworkers; and monetary dualism and the (State-controlled) exchange rate system representsignificant obstacles for the development of the banking and financial services required toeffectively support entrepreneurial and self-employment activities.

Another constraint or limitation on self-employment and entrepreneurial activities inCuba is the inexistence of input markets where self-employed workers and micro-enter-prises can purchase essential products at competitive prices in Cuban pesos (CUP) fromreliable suppliers. Although some “experiments” with agricultural input markets have beentried, primarily in Havana, with some limited success, and the need to create input marketswhere all segments of the emerging non-State sector can procure essential inputs has beenofficially recognized, and the State has announced the allocation of funds to finance theimport of inputs and the creation of input markets, this goal has not been reached. Self-employed workers and micro-enterprises continue to rely on purchases in State-owned“hard currency stores,” and in the second economy to procure essential inputs; thereby,incurring relatively high search costs and facing limited options when it comes to sourcingor procuring these inputs (Mesa-Lago, 2012).

Self-employment and entrepreneurial activities in Cuba are also constrained by theState’s monopoly on imports, foreign investment and the formation of joint ventures withforeign investors. Another limitation are the prohibitions on direct investment and own-ership of tangible (or real) assets by Cubans that reside abroad permanently. As Kantis(2005) indicates, the development of government-supported and non-governmental net-works, both domestic and transnational, is one of the most common ways to promoteentrepreneurial development. Facilitating access to seed capital and financing from bothgovernment-sponsored investment funds and from private sources of capital is anotheressential requirement for entrepreneurial development (Kantis, 2005). In the case ofpresent day Cuba, official policies (so far) have not addressed this vital tool to encourageentrepreneurial activities, and existing prohibitions regarding the direct participation of theDiaspora on the creation and development of micro-enterprises prevents the country’semerging entrepreneurial class from having direct access to this important source of seedfinancing and capital, and knowledge and technology transfers.

Cuba’s self-employed workers and emerging entrepreneurs, particularly those engagedin retail-oriented activities, are also affected by the scarcity of suitable commercial (retail)spaces, and by the advanced state of disrepair of State-owned commercial retail outlets(Feinberg, 2013). Resolutions 333 and 434, approved in 2011, authorized the leasing (inusufruct) of State-owned retail spaces to newly-created “first degree” cooperatives en-gaged in the provision of personal services such as barbershops, beauty salons, car repair


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shops, etc. Self-employed workers are also authorized to lease retail outlets from State forperiods up to ten years and can use these outlets to provide their corresponding services atprices determined by the supply and demand (Mesa-Lago, 2012). Although these measuresrepresent a positive step, the deteriorated conditions of the majority of the retail outletsleased from the State, the lack of sufficient credit financing to allow cooperatives or self-employed workers to make the necessary repairs or improvements to these outlets and thesheer lack of sufficient commercial (retail) spaces represent a serious constraint for theseeconomic actors (Feinberg, 2013).

Finally, Cuba’s self-employed entrepreneurs face a challenging and (still) hostilebusiness climate. Despite recent economic transformations, Cuban household income andpurchasing power remain relatively low compared to the late 1980s. In 2010–2011, realwages (or salaries) were about 70 percent lower than in 1989 (the last year before the onsetof the “Special Period” and the economic crisis caused by the disappearance of the Councilof Mutual Economic Assistance (CMEA) and the disintegration of the Soviet Union in theearly 1990s) (Mesa-Lago, 2012). Self-employed workers and entrepreneurs lack access tothe traditional mechanisms used to finance new business ventures (NVBs) such as venturecapital, private equity, debt financing and collaterized lending. As noted previously, theyhave limited access to microcredit and microfinance; only State-owned banks are autho-rized to provide limited forms of restricted credit financing to self-employed workers inrelative small amounts (Mesa-Lago, 2012). Despite recent transformations concerningproperty rights, self-employed workers and entrepreneurs in Cuba are still confronted witha wide range of limitations and restrictions designed to prevent the concentration of wealthin the hands of a few (Mesa-Lago, 2012; Spadoni, 2014). And on the “cultural andpolitical front,” they are confronted with ambivalent State policies and attitudes toward theself-employed and the emerging non-State sector.

The policy measures to promote self-employment implemented since 2010 represent apositive step, particularly when compared to the more timid reforms that took place in the1990s and in earlier periods since 1959. However, the excessive prohibitions and lim-itations confronted by Cuba’s self-employed workers constrain their expansion possibil-ities and potential to achieve economies of scale. Eliminating excessive prohibitions andcorrecting the wide range of distortions that still affect self-employed workers and the restof the emerging non-State sector are essential to achieve sustainable economic growth andprosperity in Cuba.

Finally, in addition to the elimination of excessive prohibitions and restrictions, fos-tering entrepreneurial development in Cuba to provide a viable alternative to employmentin the State sector and to improve the country’s economy requires the formulation of aseries of comprehensives policy measures designed to expand the social and gender basesfrom which entrepreneurial activities emerge, expand the quantity and quality of en-trepreneurial opportunities, facilitate the development of entrepreneurial networks,improve access to credit and financing, support local and regional entrepreneurial devel-opment, transform the business climate to favor and support the development of en-trepreneurial activities (Kantis et al., 2005), and treat entrepreneurial activities, not like asource of fiscal income in which success should be penalized or punished, but as an


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integral component of a new long-term vision in which this vital sector of the economy ispermitted to flourish and make valuable socioeconomic contributions

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cuba's emerging self-employed entrepreneurs: recent developments and prospects for the future

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