5 Things Every American Should Know About the Cuban Economy
After a chilly half-century of non-relations with Cuba, Obama’s agreement to restore diplomatic ties with the Caribbean nation is a historic one. On December 17, 2014, the President and Raul Castro took the first steps toward normalizing relations with our southern island neighbor in more than 50 years.
There is still a lot of work to be done, and no matter how positive a spin you try to put on the Cuban government; emphasizing, perhaps, the nation’s remarkable literacy rates and renowned health care system, the fact remains that Cuba systematically restricts personal rights and freedoms on a grand scale, and it’s government is far from open to sweeping changes. The agreement to open diplomatic relations between the President and Castro is, at the end of the day, just that. Diplomatic. But it’s a start.
Yet with so much potential for change and such an entrenched and difficult history of Communism, Cuba can be difficult to understand for many Americans, even as travel to the country becomes more open, and relations begin to normalize. As a result, here are five things we think you should know about the Cuban economy, along with what the new agreement might mean for Americans.
1. The country is deeply indebted
Cuba’s isolationist government hasn’t done it many favors economically. The Cuban national economy is small, about $121 billion according to the CIA World Factbook, or for perspective, roughly on par with the state economy of New Hampshire. Further, the country’s gross national income per person is just $5,890, or less than half that of Mississippi, a state which currently ranks among the poorest state economies in the U.S. That figure is also about one tenth of the average American’s income, putting the not-so-distant island nation behind Colombia, Gabon, and Turkmenistan, to name a few.
Eduardo, a Cuban national whose name has been changed to protect his safety, and who plans on fleeing the island nation, spoke with National Geographic correspondent Cynthia Gorney, and says that for young Cubans, it often seems as though the country is relentlessly stubborn to change. “The economic model is broken, state employees survive on tiny salaries only be stealing from the jobsite, the national news outlets are an embarrassment of self-centered boosterism, the government makes people crazy by circulating two currencies at once…I love my country,” he adds, “but there is no future here.”
2. Cuba’s friends are in the same boat
Cuba’s biggest allies, Venezuela and Russia, both of which it depends on for oil subsidies and imports, are facing their own profound economic crises. Russia, for instance, is sliding into recession in the wake of Putin’s ongoing Western sanctions, along with the sharp decline in the price of oil in recent months.
Venezuela, too, is facing economic troubles, and though it currently subsidizes Cuba’s oil supply, it’s struggling to support the habit. In a recent article, Forbes described the Venezuelan economy as “trapped in a downward spiral.” The country is struggling with years of mismanagement and faces many of the same challenges as Russia as the price of oil continues to fall.
3. The government has loosened its grip since Fidel’s step-down, but only slightly
Though Cuba is still incredibly isolated and its peoples’ personal rights extremely limited, things are beginning to change … slowly. Too slowly for many Cubans. Following Raul Castro’s rise to the presidency, several bans have been lifted, including a ban on personal cell phones and computers, which ended in May 2008, shortly after Castro’s takeover of office. Phones remain expensive, however, with cell contracts costing $120 (or about half of a year’s wages on a state salary) to activate, and the fee doesn’t include the phone itself or the credits necessary to receive and make calls. Further, while cell phone ownership rates have risen in Cuba since the ban was abolished, the country still lags behind many other nations when it comes to Internet access.
But the ban on cell phones wasn’t the only sweeping change Castro made when he took office. Following his decision to lift the ban on cell phones and personal computers in May, Castro announced a plan to abandon salary equality, a monumental change from the country’s former Marxist governing principles.
In 2011, the government loosened its grip still further, and began allowing privately owned vehicles to certain citizens, a departure from the tradition of Havana’s government-owned-and-controlled maquinas.
According to the CIA, the government is finding it increasingly difficult to “balance the need for loosening its social economic system against a desire for firm political control.”
Yet many, many Cubans, particularly those in the younger generation, say they remain pessimisstic about Cuba’s ability to change. In Cuba, Eduardo notes, people are always skeptical whenever a promise of change arises. The country feels stifling to many of the nation’s youth, who often feel a complex mesh of emotions regarding their homeland, feeling both deeply reverent and incredibly frustrated. “These are changes that should have begun two decades ago,” noted Roberta Veiga, a lawyer who spoke with National Geographic. “We are a nation trying to define itself.”
4. Cuba imports most of their food, particularly food staples
Despite the overwhelming emphasis on organic agriculture and urban farms and gardens in the oil crisis years of the 1990s, Cuba is still unable to meet all of its own needs when it comes to food, particularly, staples. According to the World Food Program, more than 80% of the nation’s food is imported, and the country’s largest imports reflect this trend. Wheat, corn, poultry, and concentrated milk top the list of the most imported items into the country, according to the Observatory of Economic Complexity.
Still, the country exports huge amounts of sugar (accounting for 25% of the country’s exports), refined petroleum, nickel, and tobacco. Most of these exports end up in China (30%), along with several European nations, such as Spain, Italy, and Belgium-Luxembourg. Brazil is another large importer of Cuban goods.
Following the December 17 agreement, Cuba will now be allowed to export small-scale shipments of its world-famous cigars, as well as alcohol, to the U.S. Further, U.S. travelers to Cuba are now allowed to import up to $400 of goods from Cuba, of which no more than $100 may be alcohol or tobacco products.
According to the Peterson Institute, Cuba’s potential trade could total $20 billion a year if relations were normalized, and tourism, agriculture, oil, and cigars are all industries where Cuba could easily attract foreign investment, per the Wall Street Journal.
5. Your dream of a Cuban beach vacation probably isn’t going to happen … yet
The new regulations that took effect following Cuba’s new agreement with the U.S. have certainly loosened travel restrictions for Americans, but that doesn’t mean you can (or should) hop on a plane to Havana any time soon.
If you’ve always wanted to travel to Cuba, you’re not the only one. According to Skift.com, a number of airlines and hotel chains, including Delta, JetBlue, Hilton Worldwide, Marriott International, and Carnival Corp. have all expressed an interest in setting up shop in Cuba.
But despite the progress that the new agreement between Obama and Castro represents, it’s still too early to be dreaming of sandy beaches in this particular Caribbean nation. In terms of travel, the restrictions remain much the same, Skift notes. Currently, there are only 12 categories of people permitted travel to Cuba from the U.S., and they include close relatives of Cuban citizens, academics, people traveling for humanitarian and religious reasons, those traveling on government business, people enrolled in an accredited cultural education program, and journalists.
What the new agreement does change is that nowadays, travelers who fit into these 12 categories no longer need to seek a license before traveling to Cuba, so while it may be technically illegal for an American tourist to travel to the island nation, it’s become much more difficult for the government to enforce those rules.
Besides the illegality of traveling to Cuba as a tourist, Skift notes that because tourism hasn’t been developed in Cuba for the last half a century, there isn’t much infrastructure for it. Even if you manage to skirt the rules and fly to Havana, you still might have trouble finding a hotel room or buying anything with a credit card, for instance.