Cuba’s small businesses are hampered by rules

HAVANA — For any self-employed entrepreneur (SE) in Cuba today, anything involving financing, supplies and taxes is a major headache.

The restrictions on access to loans, the absence of a wholesale market, the ban on operating as small or medium-sized businesses (known as PYMES), the nonexistence of licenses to engage in high-value professional activities, the prohibition against importing supplies and technologies, and poor access to information, these and many other limitations hinder SE’s activities.

In addition, the country’s lifestyle, often ignorant of international practices, leads many of these entrepreneurs (and I’m not talking only about coffee shops and taxi drivers) to concentrate on activities that may seem novel, but only because of the distortion created by so many years of economic blockade by the United States, the nearest economic power.

Since self-employment was authorized anew in 1993 on an island where economic activities had been mostly state-run since the triumph of the Revolution in 1959, it became evident that self-employment was a temporary measure to alleviate the crisis of the 1990s, not to become part of the nation’s economic concert.

“The conditions of the Current Special Period determine the need for an expansion of self-employed entrepreneurship,” said Law-Decree No. 141 in 1993.

In the same document, a Joint Resolution set up clear boundaries. Excluded from this activity were government officials and university professionals; authorized were workers in labor centers, retirees, men and women with diminished work capacity, “surplus workers” subsidized because of layoffs or shutdown of state jobs, and housewives.

The “surplus workers,” as they were called, or subsidized workers who engaged in self-employed entrepreneurship would not be exonerated from their obligations to the state center to which they were linked, in the event that the nation’s conditions demanded a call-back.

The state also could restrict self-employed entrepreneurship in regions where state-hired workers were scarce and more necessary; those workers would not be allowed to abandon their work centers. Today, professionals can be SEs but only in approved activities, not in their area of expertise.

Salaried workers could not be hired. And the worker, before engaging in private work, had to demonstrate he was a faithful state worker. None of this is required today.

SEs were allowed to sell products or services directly to the population but not to state-run entities, something that later was approved. The state would use its discretion when allowing private work in some areas and reserved for itself the right to intervene in the commercialization process, depending on public and social convenience.

The state wanted “to avoid at all costs the emergence of intermediaries or parasites who would profit and enrich themselves with other people’s efforts.”

At that time, the minimum monthly fees that the SEs had to pay could be raised by the municipal councils in the event that “excessive gains” were produced. That rule remains in effect today.

After the successive updates of these rules and regulations, and in a context completely different from the Special Period (except for certain types of shortages that have been dealt with in various ways), it becomes clear that the political model chosen by the Cuban government does not conceive the concentration of capital, something that will always be linked to private enterprise. Yet, that situation is already happening in this country.

It is also clear that — in the face of a new and increasingly more evident economic crisis — Cuba is pushed once again to update its economic model and make room for self-employed entrepreneurs, this time with less hindrance but still with a low ceiling.

The formula that allowed “surplus workers” (now “available workers”) or workers “subsidized” because of the shutdown of their activities (now “interrupted workers”) to engage in self-employed entrepreneurship, is being restated.

This time, the surplus workers numbered 1 million and, “in order to guarantee the rational employment of the labor force and to strengthen the role of the salary and its relationship with the results of the labor,” their work treatment was published in 2011 in the Official Gazette. The Gazette also published the update on the new policy affecting the SEs.

Of the four options that the government gave those workers, only one involved the state sector, so the “availables” were invited to join the ranks of the SEs.

However, life demonstrated that access to self-employed entrepreneurship did not “absorb” that idle labor force as expected. Rather, it removed from illegality or at-home idleness many people who had no previous labor links, according to Prensa Latina. Now they account for 68 percent of those who engage in private business.

After 274 Guidelines, an update of the model that deals directly with PYMES, 201 activities approved for self-employed entrepreneurship (as updated in 2013), and after President Raúl Castro said in 2016 that we should drop the euphemisms and speak clearly about private businesses (small, medium and micro), the self-employed entrepreneurs remain at a disadvantage, now faced by the evermore likely competition from foreign investors.

Let’s look at the laws that set out the rules for everyone involved.

As to the area of operation, the SEs must be limited to activities that are mostly of very low economic value added (EVA). Let’s face it: toilet attendants, shoe menders, or telecommunications clerks are not going to raise the nation’s GDP from the red. Not even the finest private restaurants could do that.

On the other hand, the latest Foreign Investment Opportunities Portfolio lists as “priority sectors … agriculture production and the food industry; tourism, including health tourism; the development of sources of energy, especially renewable energy; the exploration and exploitation of hydrocarbons and mineral resources; and the construction or improvement of industrial infrastructures.” All these are key areas for the country’s economic development.

A foreign investor will find in Cuba an environment that may not be totally favorable for doing business but that includes a tax policy that is more relaxed than the one affecting private businessmen. The foreign investor is exempt from paying taxes on gains for 8 years; if he invests in the Mariel Development Zone, the exemption lasts 10 years.

Private businessmen are exempt from taxation (sales taxes, taxes on products and services, utilization of the labor force and personal income) only for the first three months.

The Foreign Investment Law does not mention maximum amounts or limits on the growth of businesses. But all those issues limit the development of PYMES and non-agricultural cooperatives, thus hampering the “Made in Cuba” factor and leaving us at the mercy of foreign capital.