Cuban Economy’s 1.1% Growth is Not Felt on Cubans’ Dinner Tables

Residents walking near the entrance of Barbacoa, in Guantánamo. (14ymedio)

14ymedio bigger14ymedio, Mario J. Pentón, Miami | 25 July 2018 – Cuba’s 1.1% economic growth the first semester of 2018, announced by President Miguel Díaz-Canel, will not reach the kitchens of the Cuban people, nor will it be felt in the already reduced purchasing power of their wallets, according to various economists consulted by 14ymedio.

The island, crippled by the crisis of its greatest ally, Venezuela, has not been able to recover in light of the reduced number of tourists, the fall in exports, the impacts of tropical hurricanes and the incompetence of governmental officials.

“I am alarmed by this statistic. I am quite worried because I believe the Cuban economy is quickly getting out of control. Various Latin American nations have current growth rates above 4%. Cuba is below average. It is usual [for Cuba], but it indicates that the motors of the economy are turned off,” says the Cuban professor and economist Elías Amor Bravo from Valencia, Spain.

Amor Bravo explains that the low economic growth rate is produced by the fall in tourism, which is not registering the figures that were anticipated. In the first semester of the year, the number of tourists that traveled to Cuba fell by 5%. In the case of Americans, the reduction was of 24% (some 266,000 people) compared to the previous year. President Donald Trump’s new policy, which promised a hard stance against the tourism enterprises owned by the Cuban military, has struck the country’s economy.

The economist says that foreign direct investment continues to be paltry with respect to the 2.5 billion dollars that the country needs annually. In addition, the sugar harvest has been quite poor, one of the worst in an entire century in fact (1.1 millions of tons), coupled with the damage caused by hurricane Irma (13.585 billion dollars) and tropical storm Alberto. The trade balance (the difference between exports and imports) in 2016, the last year for which statistics are available, is of -7.953 billion dollars.

“The uncontrolled public deficit has snowballed from year to year and is fed by an ever-increasing debt,” cites Amor, in addition to “the government officials’ failure to manage the economy.”

Cuba received crucial aid in 2014 with the pardoning of 90% of its debt of 35 billion dollars to the former Soviet Union, of which the Russian Federation was on the receiving end. In 2015, the Paris Club and Havana reached an agreement to forgive 8.5 of the 11.1 billion dollars Cuba had accumulated in debt and interest since 1986. Mexico also pardoned 70% of the 487 million it had loaned to the island. Japan forgave almost one billion dollars of an outstanding debt in 2014.

“The symptom of the illness is a fever, but the illness is what a doctor must study. If you only fight the fever you don’t solve the problem. The illness in the Cuban case is the disequilibrium due to a lack of exports and the uncontrollable spending of the State,” he says.

An increase in blackouts, more shortages in shops where items are sold in Cuban convertible pesos (CUC), as well as in the rationed markets, are the result of the island’s current economic situation. This has led to a resurgence of government control over the private sector. According to economist Carmelo Mesa-Lago’s calculations, the average Cuban’s purchasing power is barely 51% of what it was in 1989.

The signs of deterioration have also been felt by the pharmaceutical sector due to various liquidity issues related to paying suppliers of raw materials. In an industry that imports 85% of the ingredients for the fabrication of drugs, the crisis has led to shortages of 45 basic medications.

The picture is the same for the supplies of ice cream, soft drinks and beer which have fallen sharply in recent months in stores and manufacturers. The problems in buying packaging and raw materials abroad has led many industries, such as Cuba’s iconic ice cream maker Coppelia, to reduce their production and temporarily close some plants.

Mesa-Lago concludes in a recent study that the average growth of the economy between 2016-2018 will be 0.6%, a very poor figure compared with other countries in the region. The International Monetary Fund forecast 1.6% growth for Latin America this year.

Emilio Morales, director of The Havana Consulting Group, also doubts the Cuban president’s figure. “A growth of 1.1% of GDP is questionable due to the poor economic results of this semester. At this moment the country is going through a tense financial situation and a profound lack of liquidity, which has delayed payments to a group of important suppliers of raw materials and products,” says Morales.

Cuba managed to boost its economy after Hugo Chávez came to power in Venezuela, which allowed it to find an alternative to the subsidies it had received from the former Soviet Union.

The signing of a collaboration agreement with Caracas at the beginning of this century and the sending of tens of thousands of professionals to work in Venezuela, for which that country paid Havana directly with subsidized oil, was like giving Fidel Castro’s government an oxygen balloon. However, the crisis facing Venezuela has caused this to change.

According to the latest published official figures, trade between both countries fell to 2.224 billion dollars in 2016, the historical minimum since the beginning of Chavismo, after having exceeded 8.2 billion in 2012.

Left side: Percentage of oil imports by Venezuela. Right side: Venezuelan exports to oil to ALBA (Bolivarian Alliance for the Americas) countries.

Venezuela, which in the best years of its “Bolivarian revolution” sent around 120,000 barrels of oil per day to Cuba (at a value of about 4 billion dollars a year), has reduced the shipments to about 55,000 barrels. The vertiginous fall of petroleum production in Venezuela has forced it to go to international markets to buy crude oil that it later sends to Cuba by an annual cost of around 1.2 billion dollars.

Cuba-Venezuela Trade Figures. Red line: Imports from Venezuela to Cuba. Green line: Exports from Cuba to Venezuela. Blue bars: Total trade. Source: Cuba’s Office of National Statistics

According to the economist Omar Everleny Pérez, “the government’s plan is still not being met every year, and the plan itself is already low.”

“For the economy to achieve the takeoff it needs to grow steadily between 5% and 7%, and for the last four or five years the Cuban economy has hit a plateau of 2%,” he told this newspaper by phone.

Pérez, who directed the Center for the Study of the Cuban Economy at the University of Havana, believes that there is a vicious circle that blocks growth from resuming.

“A 1%  growth in the case of an economy with a level as low as Cuba’s is nothing, it does not reach the population, it has no impact,” he says.


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