Cuba's growing private sector is driving economic growth and social change across the island.
Over the past few years, entrepreneurial activity has taken off in Cuba as a result of economic reforms and a growing tourism sector. The Cuban government has loosened many restrictions on private sector licensing, employment, and property ownership. Additionally, the Cuban government announced it would legalize small and medium-sized enterprises in May 2016. Private enterprises continue to acquire market share from state entities. While Cuban entrepreneurs and small business owners still face many barriers, including the inability to import and export and limited access to internet, private sector employment is growing rapidly and now amounts to an estimated one third of the total workforce.
Along with economic reforms from the Cuban government, U.S. regulatory changes have spurred growth in the private sector, which is fueled by tourism and remittances to the island. While Americans are still prohibited from traveling to Cuba for tourists purposes, the easing of travel restrictions has allowed U.S. travelers to Cuba to skyrocket. In 2016, 500,000 U.S. citizens and Cuban-Americans visited the island. The previous administration also eased regulations on U.S. remittances to Cuba. Remittances have accounted for 70-80% of investment capital in the private sector, despite high transfer costs due to a Cuban taxation on self-employment.
On Dec. 7, 2016, a group of Cuban entrepreneurs released a letter signed by over 100 Cuban private business owners that was sent to President Trump. The letter urges the President to continue to build on the progress of the last two years that has helped Cuba's private sector to flourish.
Cuba's private sector
There are now over 4,000 privately owned paladares across Cuba, with up to 50 seats per restaurant. Once a completely government-run industry, the state has largely begun to exit the restaurant business in lieu of private enterprise.
Bed & Breakfasts (Casas Particulares)
There are now over 28,000 rooms in private B&Bs, which is almost half the number of hotel rooms. The B&B industry is fueled by a growing tourism sector. Forecasts indicate that tourism will continue its upward trajectory over the next year, and state-owned hotels are often at capacity, which will further increase the high demand for B&Bs.
Though still a heavily regulated industry, private citizens can now acquire licenses to use their own vehicles as a taxi service.
Cooperatives are state enterprises that have been turned into self-governing legal entities primarily in the agricultural sector. Cooperative farms have existed in Cuba since the beginning of the revolution, with 5,500 in operation today. But non-agricultural cooperatives were approved in 2012 and include operations such as farmers’ markets, manufacturing plants, construction companies, and transportation services. To date, there have been 498 non-agricultural cooperatives approved, with 329 operational. Unlike private businesses, they are granted access to wholesale markets and are able to import and export, but this provision has yet to go into effect.
Opportunities & Challenges for the Private Sector
Labor force investment
Cuba has a low-cost, highly educated workforce, with a higher percent of GDP invested in IT research and development than many developed nations, including the United States. But medical and educational sectors remain under state control, and have many restrictions on foreign investment. It is still difficult for many other professionals (lawyers, architects, engineers, etc.) to acquire self-employment licenses.
Computer science and programming
Cuba has approximately 4,000 IT engineers graduating annually, creating a surplus of qualified IT workers. These computer-literate graduates have been instrumental in driving innovative technology, such as offline mobile apps. But limited internet access still hinders technological innovation. Only about 5% of the population has access to the global internet; despite the state’s expansion to over 200 public wi-fi hotspots, very few have residential access. Smart phones are increasingly common in Cuba, but there are still only about 3.5 million mobile phones in a population of 11 million.