The Cuban economy in the first half of 2017

HAVANA — Reports from the first-semester meeting of the National Assembly of the People’s Power say that the Gross National Product (GNP) rose by 1.1 percent in the first semester. Coincidentally, this result is not much different from the only obtained in the first period of 2016.

This performance, which continues to be very discreet, is achieved under conditions that are somewhat different from the preceding period. The best indicators were found in tourism, construction, transportation and agriculture. We might add that, although the sugar harvest did not meet the production target, it increased its production volume with relation to the harvest of 2016. The investments grow but remain below the plans; likewise for dairy farming.

The explanations offered stress that the foreign financial situation remains very tight. The government announced that it has paid more than $2 billion to amortize the debt but has failed to pay numerous suppliers. In addition, problems remain in the supply of fuel, essentially from Venezuela. In that regard, the Ministry of Transportation revealed the purchase of oil from other, more distant markets such as Russia and Algeria.

On the positive side, the government said that it had approved 11 new deals with foreign-capital businesses (five in the Mariel Special Zone) for a sum close to $1.3 billion, and the expansion of two other existing partnerships. However, on the heels of the criticism made by the Cuban president at the parliamentary session of late December 2016, it is disappointing that no new initiatives have been announced about the policy to attract foreign capital.

In general, the figures released are few and unstructured, which impedes an in-depth analysis of the economy’s behavior. Nevertheless, some issues are noteworthy. Several analysts felt that the goal of increasing the GNP in 2017 (set as 2 percent for the entire period) was achievable by taking into account the starting point, but that scenario might be seen as optimistic and not necessarily the most probable.

That objective presupposed that sugar manufacture would grow almost 45 percent, but less than half of the figure was attained. In late June, the Ministry of Tourism reported that the arrival of visitors increased 23 percent, an exceptional result with a favorable dynamics in tourism revenues.

However, the ministry cautioned that hotel occupancy changed little. This would suggest that practically the entire increase benefited the private sector, which is occupying an increasingly important role in that industry.

This characteristic has broad implications for future development and requires careful analysis to prevent the temptation of increasing the flow of revenue to the public coffers through coercive measures.

For the time being, this implies that the direct spillovers to the families connected with the chain of value in private hostelry will continue, which will feed other activities that are closely linked, such as transportation, real estate, restaurants and bars, among others. The relationship between these revenues and the GNP dynamics is unknown, given the absence of detailed information.

Certainly, the relationship exists thanks to the taxes paid to the Treasury, the expenses made in state-run establishments and the payments to other producers, which in turn replicate the aforementioned mechanism. Still, a proportion that is hard to estimate fails to become part of the national budget because the funds pay for the informal sources of supply from abroad.

This could be seen as a measure of the inefficiency of the distribution and importation by the state-run enterprises, which cannot compete in price, quality, variety or stability of the supplies. Not to mention that, in another context, national participation in the chain of supplies to the sector could increase considerably.

The plan also presupposed a specific behavior by several of the aforementioned sectors, which in many cases was not achieved. It is known that the first semester has the greatest weight for the year-long performance, because of the sugar harvest and the busy season in international tourism. Despite the elevated dynamics of tourism, expansion reached only 1.1 percent, which indicates that the economy will have another very discreet year that would not alter the descending shrinkage that has lasted for almost a decade.

The external context holds a combination of positive and negative signals. For example, the prices of some products that are essential to the Cuban economy show positive behavior at the start of this year. Although the earnings are quite modest, they indicate a more favorable trend.

In some cases, these dynamics can compensate for the stumbles in some of these productions, as in the case of nickel. The combination of higher prices and a better sugar harvest indicates that the revenues for sugar exports should be greater this year.

The case of crude oil is significant, because at first sight Cuba appears to be a clear importer of energy — and it is. But the net effect on the balance of payments follows the same sense of the evolution of quotations of “black gold” due to the impetus it gives important commercial partners such as Venezuela, Russia, Canada, Angola and Algeria.

On June 16, the U.S. president announced some changes in the policies introduced by his predecessor regarding the travel of Americans to the island. Although the speech contained more flamboyant words than substantive talk, and lacking the important details of the regulations (to be published in autumn), the elimination of the general license for individual travel under the “people-to-people” category will surely affect the trips. In addition, transactions of any type with entities linked to the military will be banned.

Add to this the uncertainly and negative perspective the new measures introduce in U.S.-Cuba relations. We can also expect that the authorities will be more demanding in enforcing the latest requirements, which until now had been applied in a relatively relaxed manner.

It is too soon to predict the real impact of those measures, but in any case they are not intended to improve relations; in sectors of great weight, such as tourism, upsets will occur. It’s only a question of determining their extent. On the other hand, we’d have to monitor their effect on the relation of third parties with the island, inasmuch as this reversal can be perceived as a disproportionate increase in the risks of investing and partnering with Cuban entities.

It will be particularly important to establish the influence on the financial entities of other countries, which already were facing enough of a challenge in their transactions with Cuba.

In Cuba’s economic policies we have not observed too many counter-cyclical initiatives, which has been a characteristic of the economic landscape for many years. In general, the tendency has been to manage the effects of crises by “protecting” the priority sectors and trying to maintain the essential services, with particular stress on avoiding “the blackouts.”

Although the approval of a greater number of projects with foreign investment is a welcome sign, it must be supported and expanded with new proposals directed at simplifying approval procedures and improving the business climate, something that goes beyond the mere publication of projects in the Portfolio of Investment Opportunities.

This contrasts with the announcement of restrictive measures regarding cooperatives (there was talk of consolidating the existing co-ops), which means that the bias against domestic businesses is upheld and even reinforced. Nothing new was announced regarding state enterprises, foreign trade or the dual currency.

In summary, the official stance suggests that the evaluation made tends to consider this cycle as the result of conjunctural situations, and at least as the reflection of complex structural problems that, although succinctly acknowledged in the 2011 Guidelines, have not been adequately treated in the transformations tackled since.

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