Cuba: Rekindling old friendships

  • Article by: THE ECONOMIST
  • Updated: August 11, 2014 - 6:20 PM

Cuba is once again resorting to geopolitics to support its failing economy

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Cuba's President Raul Castro, center, and China's President Xi Jinping review the troops during a welcoming ceremony at Revolution Palace in Havana, Cuba, Tuesday, July 22, 2014. Xi Jinping is in an official state visit to Cuba. (AP Photo/Cubadebate, Ismael Francisco)

– Carlito, a wiry man with graying hair, sits under a palm tree in Mariel, a town on a bay 25 miles west of Havana, sipping rum and watching a container ship edge out toward the Caribbean. He recalls seeing a flotilla of smaller boats leaving from this same spot in 1980, carrying thousands of opponents of the Castro regime to Florida in the “Mariel boatlift.”

Those were politically charged times. Government trucks would come to his school to deliver eggs for him and his friends to throw at the people fleeing. About a decade and a half later, after the collapse of the Soviet Union in 1989 plunged Cuba’s economy into crisis, sources of protein were so scarce that Carlito recalled those wasted eggs with bitter regret.

Some “Marielitos,” as those who fled are known, returned recently and Carlito was stunned at how prosperous they had become.

Across the bay from where Carlito sits is a $900 million container port, which was built with Brazilian money and inaugurated in January. There are plans to develop a special economic zone alongside it, modeled on the thriving export hubs, such as Shenzhen, a city that China developed from 1980 onward. The port is part of a vision for Cuba that relies less on Cuban-Americans sending remittances to prop up the local economy, and more on an inflow of foreign investors.

But Carlito is keeping his excitement in check. Construction workers building the container terminal were paid a mere 250 pesos ($10) a month, he said, so the ramshackle town has yet to benefit from the development. Out of the 23 firms that have sought licenses to operate in the special economic zone, not one has been granted authorization. Even Joaquín Infante, the 88-year-old vice president of the slow-moving National Association of Cuban Economists and Accountants, urges speedier authorization of investment. “We need to be more flexible and take more risks,” he said.

Despite reforms that have brought some big changes to Cuba in the form of private restaurants, bed-and-breakfasts and new cooperatives, the economy has virtually ground to a halt. GDP grew by just 0.6 percent in the first half of the year, leading the government to reduce its estimate for full-year growth to 1.4 percent. That is lower than the 2.7 percent annual average figure since Raúl Castro became president in 2008.

Investment is the root of the problem. In a report in July, two Cuban economists, Omar Everleny and Ricardo Torres, estimated that the growth in Cuba’s capital stock, such as machinery and buildings, fell to 7.8 percent of GDP last year. The figure is above 20 percent in Latin America as a whole. “The economy is screwed,” a Havana-based diplomat said.

Supporters of the regime argue that the reforms simply need more time. A profit-oriented reorganization of state-owned behemoths, such as the sugar monopoly, could be promising; it is just that the bureaucrats who run them are slow to change.

Critics, however, see a fundamental flaw in the reform model. Although it has sought to give some people more freedom in what they make and sell, the state keeps a stranglehold on the inputs they need for those businesses, such as seeds for growing crops, or sauces and spices for restaurants, or spare parts for taxis.

Diplomats say such countermeasures will make it harder for Cuba to attract the $2.5 billion in annual foreign investment that the regime aims for. Some also reckon the financial squeeze on the island has tightened this year because of the case against BNP Paribas, a French bank, for evading American sanctions on doing business with Cuba, among other places.

“We have to diversify and not depend on just one partner,” Infante said. He hopes that means more Chinese and Russian investment in Mariel.



Copyright 2013 The Economist Newspaper Limited, London. All Rights Reserved. Reprinted with permission.

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  • Cuban President Raul Castro, center; Chinese President Xi Jinping, top right; and Russian President Vladimir Putin, bottom right, joined a commander in reviewing troops in Havana. Putin last month began a Latin American tour aimed at boosting trade and ties in the region.

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