HAVANA — As emerged from the discussions during the second regular period of sessions of the 2017 National Assembly, Cuba’s gross national product (GNP) rose 1.6 percent in real terms (constant prices in 1997) compared with 2016.
It should be noted that, as of the closing of this report, the final data from 2016 were unknown, given that the National Accounts chapter has not yet been published by the National office of Statistics and Information. This means that the exact basis for the calculation of the reported GNP increase is unknown.
According to press accounts, the overall results were based on the dynamism of sectors such as tourism, agriculture, transportation, communications and construction.
International tourism continued to be one of the pillars of Cuba’s economic performance. The data available show that the number of foreign visitors increased 19.7 percent until late November (4,257,754 arrivals). On this basis, we expect that the figure of 4.7 million for the entire year will be exceeded by 16.5 percent, compared with 2016.
Yet, we see an unfavorable performance by Canada, our main sender; the number of its tourists dropped by 6 percent, following a 7.4 percent contraction in 2016. This negative trend has been attributed to the depreciation of the Canadian dollar vis-à-vis the U.S. dollar. The fact that the Cuban convertible peso (CUC) is anchored to the U.S. currency means that any rise in the latter’s value translates automatically into the Cuban currency.
The rest of the traditional markets showed a very favorable behavior, including Russia and Brazil. This was the year when cruise ship travel took off; arrivals via cruise ships rose to almost 400,000 visitors. Overall, revenues increased by 10.5 percent.
The performance of the private and cooperative sectors were outstanding. In the case of lodging, surveys showed that tourists’ satisfaction with the offers from the private sector exceeds the state-run offers.
However, these results must be placed in context. The reality is that the tourism sector faces challenges at home and abroad. At least four shocks of diverse intensity, origin and forecast affected the heretofore positive evolution of this industry: the restrictive measures taken by the U.S. government in June and November; the temporary moratorium in the issuance of licenses for several tourism-related categories in August; Hurricane Irma in September, and the travel alerts issued by the U.S. State Department in September.
At present, the United States is the second sender of visitors, so its behavior should be followed with attention. The combined impact of all those events affected the number of U.S. visitors since September, which contracted by 14 percent. Although a recovery followed, the negative effect is inevitable. One of the questions to be answered is whether those impacts are temporary or will have a permanent effect on the markets affected.
The moratorium on the granting of licenses couldn’t have been more inopportune. It is another example of trickle-down equalization, which goes counter to the development of strength. A loss in the market quota of the state sector is solved with an administrative measure. It is simpler to pull back those who are advancing faster than to push forward those who are falling behind.
The other three activities that supported the reported growth have a lesser systemic repercussion and, in any case, its dynamics are relatively modest with relation to the starting point and their potential. In the case of agriculture, the effects of Hurricane Irma were major and will have repercussion in 2018, especially its effects on the sugar harvest, which reportedly will be modest, with numerous setbacks.
In the case of construction, beyond the hurricane’s direct effects on some productive capabilities, the work of reconstruction associated with the recovery of the storm damage constitutes a positive contribution to the sector’s performance.
From the point of view of demand, the outlook is mixed. On one hand (though much data are unavailable) the export of goods and service again behaved unfavorably. This has a doubly negative effect on the economy.
Beyond the storms’ direct effect on total production, the smaller revenues, along with the accumulation of debt to suppliers determine an amplified impact on the imports, which in turn affects the national productive system, particularly the manufacturing industry, which is highly dependent on the purchase of intermediary goods in foreign markets.
What’s described above is one of the vicious circles that currently throttle the Cuban economy. A small and open economy depends on exports to finance its economic growth. This is particularly true when the capacity for foreign indebtedness is limited, as is in the case of Cuba.
Faced with a negative external shock, an adjustment is done through a contraction in imports, which has a negative effect on the productive activity and the people’s standard of living, through a reduced availability of imported consumer goods and domestically produced goods.
A recurring scarcity of consumer goods or the savings forced by the mechanism of central planning are symptoms of this problem. On the other hand, although the investment plan has not been fulfilled, investments are growing modestly when compared with 2016.
In absolute terms, the total investments are kept at levels that do not allow us to sustain high growth. On the other hand, the behavior of foreign investment showed a positive advance during 2017, although it was far from meeting our needs.
As announced during the Havana International Fair and the National Assembly session, since the approval of the new Law, a commitment of about $4 billion has been made, nearly half of which was agreed upon in 2017. It has been learned that negotiations are underway for about 80 projects, 15 of which would be at a very advanced stage in the approval process.
We must acknowledge that the approval of contracts has been speeded up in the Mariel Special Zone. Nevertheless, we can still see long delays in all the stages of this process, the result mostly of domestic problems linked to the scant training of personnel and the existing bureaucracy.
Committed resources do not directly translate into invested resources, a situation that is subject to a series of domestic and international factors. However, it is absolutely necessary to identify the steps that can be taken at home to start the execution of the approved projects.
In the current context, characterized by an acute scarcity of hard currency and difficulties with the payments to suppliers and foreign companies that operate in this country, it would be advisable to consider alternatives to guarantee that the processes of investment with foreign resources can have their own operative mechanisms, which (to a degree) may isolate them from the imbalances in other sectors.
In addition to all the aspects that can be improved upon to ensure a happy ending to the negotiations, the Cuban side should analyze the areas that might have a greater systemic impact on the economy, for which it might consider additional actions aimed at maximizing the procurement of foreign resources.
Among these could be goods suitable for barter, infrastructures with a high incidence on the structure of costs for productive activity, and constructive capacity.
Although the economy dealt with several shocks throughout the year, the response — from the standpoint of economic policy — was insufficient. We might even say that the economic agenda slipped into the background. During the year, no initiative was concretized dealing with any new form of transformation of the economic model.
Two decisions of relative depth were made to guarantee the pre-eminence of the state enterprise over the non-state enterprise. But neither decision helps spark economic growth.
The brakes to the non-state sector, applied in August, should slow down its expansion short-term, because uncertainty discourages potential new investors and prompts those who operate in that segment to become more conservative. Likewise, the announcement about state-run enterprises makes no significant change in their status-quo within the productive landscape and shows that the underlying philosophy has not changed.
Verticalism and administrative measures used as reference in the economic relations between productive entities have become enthroned in our model. In that sense, the “update” merely consecrates old vices that have been proven wrong by history. Under these conditions, we shouldn’t expect too much of that sector in the future.
From the point of view of foreign insertion, the context has continued to deteriorate in terms of Cuba. The Venezuelan economy remains in recession. In 2017, Venezuela launched a campaign to renegotiate its foreign debt because it was unable to honor its commitments. It was the first time that it engaged in such a process since the Bolivarian Revolution began.
The difficulty in the shipments of fuel to Cuba remains and, since August, the Cienfuegos refinery has been operated completely by the Cuban side. At the same time, important projects of various shapes were announced, involving sizable resources from China, Russia and, to a lesser degree, European countries.
This situation posits a new emerging scenario for Cuba’s foreign insertion, characterized by a greater diversification of those links and a reorientation of those links toward solvent partners and emerging powers. In that matrix, Europe could be well positioned if it manages to solve the issue of financing.
This is a healthy situation for Cuba, which will have to face a complex situation for at least another year, but it enables Cuba to sustain its economic growth on more solid foundations, beyond short-term, even if the U.S. blockade remains inflexible.