Population 11,2 million
GDP 54,679 billion US$
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
2.4 |
2.7 |
3.2 |
4 |
|
Inflation (yearly average) (%)
|
2.1 |
4.8 |
5.5 |
6 |
|
Budget balance (% GDP)
|
-3.6 |
-3.8 |
-3.5 |
-3.5 |
|
Current account balance (% GDP)
|
0.3 |
-0.3 |
-0.3 |
-0.5 |
|
Public debt (% GDP)
|
35.4 |
35.4 |
35 |
34 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Tourism and mining sectors (nickel, cobalt) and agricultural potential (sugar, tobacco)
- Skilled and relatively cheap labour
- Good medical sector
- Relatively satisfactory social indicators
- Preferential agreement with Venezuela on importing oil
WEAKNESSES
- Vulnerable externally (climate, raw materials, Venezuelan economic situation)
- Limited access to external finance
- Weak investment and inadequate infrastructures
- Economic duality linked to two parallel currencies
- Economy of rationing, price control, black market
- Poor productivity of the public sector and agriculture
- Uncertainty over the evolution of the regime and external relations (American embargo)
Risk assessment
Economy benefitting from opening up to private initiative and the strength of tourism
Activity is expected to accelerate slightly again in 2013. Consumption and investment will benefit from the development of the private sector and from reconstruction in the south-east affected by hurricane Sandy. Public investment in transport, telecommunications and water delivery is expected to pick up again after many fallow years. Tourism (a quarter of goods and services exports) will benefit from the increased number of visitors from Russia, China and neighbouring countries which will make up for the decline in European visitors. The slower rise in revenues is likely to be offset by bigger knock-on effects on the economy, as it is a sector favoured by the new private entrepreneurs.
Public and external accounts constrained by the impossibility of adding to the debt
Despite the opening of the economy to the private sector, the public sector remains large: public spending represents 60% of GDP. Public sector workers are still numerous despite the beginning of a reduction. However, unless the nickel price falls, the public deficit is expected to remain moderate enough to ensure stabilisation of the public debt. In 2009 the fall in the nickel price forced the authorities to reduce imports and postpone debt repayment.
There is still a large trading deficit (11% of GDP). Exports of nickel, medicines and sugar are greatly exceeded by imports of food (in particular wheat), capital goods and oil. The latter is, however, obtained on favourable terms from Venezuela under the Petrocaribe scheme. It is paid for by the provision of skilled workers (chiefly medical staff, teachers). Apart from by sending foreign personnel abroad, the trade deficit is funded by tourism revenues and transfers by the Cuban diaspora in the United States. Finally, the current account deficit represents only 0.3% of GDP. It is line with the weakness of foreign investments and the very limited access to international finance. Despite recent opening up, foreign investment remains limited to certain sectors and can only be made in partnership with a local public body. Moreover, would-be investors are put off by possible reprisals under the American embargo. Moreover, in view of a medium term debt (public in total) unpaid for decades and estimated at 22.5 billion dollars, or 33% of GDP (double with the sums owed to countries that were formerly part of the USSR), Cuba can benefit only from short-term lines of credit from its trading partners.
Still many obstacles to private initiative
The authorities, identical with the Communist party, want to boost the economy while retaining control by fighting corruption, limiting the widening of inequalities and maintaining equal access to good education and health systems. Opening to the private sector, begun in 2010 under the aegis of Raul Castro (81), concerns 181 business areas but concentrates mainly on agriculture, the hotel trade, the restaurant business, all kinds of repair work and retail. 200,000 micro-businesses have been created, sometimes with employees. The sale of second hand vehicles is authorised, as is that of housing, even though, in practice, exchanges with under the table payments are still favoured. Cooperatives, until now limited to agriculture, have moved into 222 sectors, to the discontent of the private sector. However, there are many restrictions and the population has found it difficult to adjust to the new freedoms after living for over 50 years in a state-controlled framework. In the absence of wholesale markets, companies find it difficult to obtain supplies. Imports remain a monopoly of the state, state-owned enterprises and state/private joint ventures. Import authorisation and the availability of foreign exchange depend on the sector concerned, the importer’s status and its relations with the authorities. Some try to get round this obstacle by using airline passengers’ baggage but the authorities have blocked this channel by heavily taxing any baggage weighing more than 30 kg. Credit to businesses is practically non-existent as state banks limit their lending to construction and renovation. There are still two pesos, one convertible, reserved for tourism and trade, the other for domestic activities. Beside the official rate of 1 to the dollar, there is a managed, and therefore legal, rate of 24 to 1 for personal transactions. The gap between conversion rates and reality maintains the dualism of the economy, the black market and the informal economy. The price formation mechanism is moreover disconnected from real costs with subsidies constituting a quarter of public spending.
