Let’s bet on something different
HAVANA – The Cuban economy will soon face a severe crisis. The Covid-19 pandemic is spreading on the Island, and its definitive scope and impact is unknown. But the strategy implemented by the authorities, which appears to be timely, rigorous, receptive to feedback, and adjusted to their own strengths and weaknesses, together with a response that is largely conscious of the population, must allow us to mitigate and submit to the health crisis without it becoming a catastrophe. However, the biggest challenge is yet to come.
Once the epidemic has been neutralized within the country, the persistence of external epidemic foci will force the Cuban government to maintain restrictions on the national border until the danger of reintroduction disappears. And the latter, on a planet disabled to coordinate globally, can only occur with the emergence of an effective treatment, or vaccine, with universal access. Therefore, the path can be long and thorny.
Meanwhile, a deep global crisis is taking place, whose magnitude, extent, and scope are unpredictable. Widespread confinement for an indefinite period — a requirement to avoid the collapse of health systems — can lead to a vicious circle called a stagnation trap. By impacting consumption levels and patterns, it leads to the closure of companies, causes supply to drop, generates unemployment and thereby constrains demand, which in turn restricts consumption and enhances the spiral of bankruptcies and new unemployment, among other more complex dependencies.
Cuba will not be able to save itself from the impacts of this crisis. The high degree of external forces that pull on Cuba’s economy will affect its performance mightily. Even if domestic confinement is not extended and people can — in theory — return to their usual jobs and activities, the world will no longer be the same, nor will the way Cuba inserts itself in it.
It is still too early to estimate with certainty the impact the situation will have on most sectors of the Cuban economy except for one: tourism. Here the forecast is very simple: tourism will not exist for most of what remains of 2020. Visitors will disappear; hotel and non-hotel revenues will disappear from the state sector; the economic runoff to the private sector will disappear; their will be no demand for supplies from the national companies; the need for jobs will disappear; the activity levels of carriers, restaurateurs are being affected … and thus a long trail of derived concatenations.
The World Tourism Organization declared on March 27 that the contraction in the number of international travelers in the world may be reduced by between 20 to 30 percent, while warning of the fragility of these estimates given the uncertain nature of the phenomenon we are facing. Even after the pandemic is eradicated internationally, people’s confidence in the safety of traveling beyond borders could remain affected, and the impact of the economic crisis will reduce their ability to do so. It will take several years, if successful, for the global tourism industry to return to its recent activity levels, and may undergo unpredictable structural changes today.
The tourism panorama at home had been teetering in recent years. At the end of 2019, there were 436,000 less visitors to the Island than the previous year. Then during the months of January and February 2020, before the international spread of the disease put a stop to travel, the number of visitors arriving on the Island had already decreased by 16.5 percent (156,000 fewer visitors) compared to the same period of 2019.
Statistics released by Cuba’s National Office of Statistics and Information (ONEI) indicate that over the past three years, even in the peak months of the high season, nearly 40 percent of active tourism housing capacity went unsold. If this data already reinforced the questioning of the projected strategy for the construction of new hotel rooms, a post-pandemic analysis leaves no doubt as to its inadmissibility. Ongoing investments to expand capacities, with the aspiration of having more than 100,000 rooms by 2030, were only justified as a risky bet on a scenario of significant expansion in demand — perhaps expecting a definitive opening of the United States market — that will unquestionably not take place in the near future.
This goal should be reviewed. The more than 20 investment projects planned to start in 2020 should seek new feasibility studies, and investments in these projects as well. The costs of continuing to invest in something that is not going to recover quickly could be higher than the costs of pausing the investment or redirecting it to another sector. The national economy must allocate its scarce resources towards other survival objectives and with better future possibilities, and especially if, as stated, these investments are made with the country’s own funds, and not based on credit. An adjustment is required with the country and its people as priority.
The advantage of a centralized model
For the team in charge of managing the Cuban economy, the current challenge is monumental. Perhaps the complexity is comparable to the moment when we experienced the collapse of the socialist camp. The effects of the coming crisis may be less, but the starting conditions to face them are undoubtedly more difficult. Beyond the financial and commercial persecution unleashed by the United States government that has been in force for six decades and worsened in recent years, domestic productive capacities are greatly diminished, especially in industry and food production.
The great historical disadvantage of centralized economic models is their inability to generate fine tuning. In practice, all the experiences of this economy-types have demonstrated ineffectiveness in identifying the preferences of individuals, therefore they lose sight of the movements of demand thereby constantly generating allocation gaps, which feed the second economy.
But in the face of an emergency such as the one we’re facing, with the need to tackle structural changes with a sharp turn of the helm, the centralized model has the potential advantage of being able to operate large movements of resources immediately, without wasting time on inertial processes derived from indirect mechanisms. It can be done now.
Reducing the enormous external dependence of the Cuban economy constitutes an old national security problem, which now takes its toll on us. It is urgent to try to reduce dependence on activities such as tourism in favor of other more autonomous sectors, less subject to the movements of the international economy, more based on endogenous resources, that internally close the production-consumption cycle, or that have sufficient weight to prevail in the world market under any circumstances. In Cuba, many sectors of this type are underutilized, which makes us more dependent on external openness and, therefore, more vulnerable to the blockade.
Food security would be the number one emergency. Without a total revolution in agriculture, which dynamites policies, managers, institutions, incentives, management models, checking methods, and even forms of property if necessary, there will be no possible salvation.
On the other hand, the expected success in managing the internal health situation, the effectiveness of the interferon produced with Cuban technology, as well as the medical collaborations sent to international crisis zones — which are impossible to silence at this time — will bring about a strengthening of the image of Cuba as a medical and biotechnological power. This, beyond the political returns, can be used as a competitive factor in a commitment to further development of this industry.
Let us take advantage of the centralized model to immediately redirect the scarce resources available to ensure food security, and further develop the science where we are strong. Let’s bet on something different.