Economy

CUBA'S ECONOMY

The economy of Cuba is a largely state-controlled, centrally planned economy overseen by the Cuban government. Most of the means of production are owned and run by the government, and most of the labor force is employed by the state. Recent years have seen a trend towards more private sector employment though.

A sharp fall in GDP of 35% in 1990-1993 due to the collapse of the Eastern European bloc and the loss of Soviet subsidies, accompanied by a decline in exports from US$8.1 billion (1989) to US$1.7 billion (1993), forced the government to take remedial action and the decision was made to start the complex process of transition to a mixed economy.

To alleviate the economic crisis, from 1992 on the government introduced a few market-oriented reforms, including opening to tourism, encouraging foreign investment, legalizing the dollar, and authorizing self-employment for some 150 occupations.

Sugar, which was traditionally the leading foreign exchange earner, fell upon troubled times. In 1989, production was more than 8 million tonnes, but by 2009, it had fallen to under 2 million tonnes. Low world prices, poor weather and shortages of fertilizers, oil and spare parts limited any great improvement in income. In 2003, 71 of the country’s 156 sugar mills were closed and the land under production cut by 60%.

In the mid 1990s tourism surpassed sugar, long the mainstay of the Cuban economy, as the primary source of foreign currency. Despite political crises, numbers of visitors rose steadily from 546,000 in 1993 to 2.4 million in 2009. Cuban revenue from tourism was reported to be $2.1 billion in 2009. Most tourists come from Canada, Great Britain and Spain. A study for the International Monetary Fund estimates that as many as 3.5 million Americans could visit Cuba annually if the travel ban was lifted.

All sectors of the economy were open to foreign investment and in some areas majority foreign shareholdings were allowed. Some 400 foreign companies were established in Cuba before the COVID-19 pandemic, with capital from 38 countries in 26 economic sectors, mostly in tourism, energy, mining, communications and agriculture. The only sectors where investment is not allowed are national defense, health and education. Under new legislation passed in 1996, free-trade zones were established, the first one in Havana with others in Cienfuegos, Mariel and Wajay, outside Havana. Some 75% of production could be exported but the rest should be sold in Cuba.

Cuba is rich in mineral ores, especially nickel, cobalt, copper, manganese and iron. Cuba’s three nickel- processing plants make it one of the world’s largest producers. About 37% of the world’s nickel reserves lie along the coast of the northeastern province of Holguin. Since 1990 Canadian mining companies such as Sherrit International have become involved in joint ventures to develop the country’s mining potential.

About 50 percent of Cuba’s land is classified as agricultural. Cuba’s agricultural land is about evenly split between cropland (46 percent) and pasture (54 percent).

Citrus became an important agricultural export with production of around 1,850,000 tonnes a year. Production was mostly in the centre and west of the island and in the Isla de la Juventud. Cuba became a member of the International Coffee Agreement in 1985 and produces about 22,000 tonnes of coffee a year but exports are minimal. Drought and disease have limited expansion. Tobacco is a traditional crop and Cuban cigars are world famous.

As a result of severe shortages in petroleum, pesticides and fertilizers, Cuba was forced to practice organic agriculture on a nation-wide scale. Previously highly mechanized farming methods and monocultures of foreign crop species were replaced with animal traction, crop and pasture rotation, soil conservation, organic soil inputs, biopesticides and biofertilizers. And a growing percentage of the agricultural production takes place now in the so-called urban agriculture. In 2002, 35,000 acres (140 km 2) of urban gardens produced 3.4 million metric tonnes of food. Current estimates are as high as 81,000 acres (330 km 2). In Havana, 90% of the city's fresh produce come from local urban farms and gardens. With over 8,000 hectares of urban farms, 25,000 urban farmers and hundreds of researchers and extension workers, the capital of the island has become a world leader in urban agriculture.

Cuba's pharmaceutical and biotechnology industry is another important emerging sector. Exports of pharmaceutical and biotech products averaged between $300 and $350 million from 2007-2009. The country sells over 200 different products such as vaccines against meningitis and hepatitis B.

Cuba’s Economy after the COVID-19 Pandemic

The COVID-19 pandemic had a devastating impact on Cuba's economy, which heavily relies on tourism. The number of tourists visiting the island plummeted from 4 million in 2019 to just 356,000 in 2021 and 1.7 million in 2022. Economy Minister Alejandro Gil projected that tourist arrivals would reach 3.5 million in 2023, but acknowledged that the pandemic and new sanctions imposed by the Trump administration severely affected dollar-earning sectors like tourism, foreign investment, trade, and remittances.

This severe economic crisis, one of the worst since the 1959 revolution led by Fidel Castro, has resulted in severe shortages of food, fuel, and medicine in Cuba. The collapse of the tourism industry has left the country without enough foreign currency to import essential farming supplies such as fertilizer and animal feed. Economy Minister Alejandro Gil emphasized this issue during a speech at the 2022 year-end session of Cuba's National Assembly, stating that the country lacks sufficient foreign currency to pay for necessary fuel, food, and agricultural imports. Consequently, Cuba will increasingly have to rely on domestic production to meet its needs.

As a result of these challenges, Cuba experienced a 30% decrease in imports and a 45% decrease in exports in 2021 compared to 2018 levels. In response, the government agreed to expand private sector activity to boost output and alleviate goods shortages. This included granting private company status to 2,000 listed professions, allowing for partnerships with foreign investors and reducing state control over commercial activities.

Additionally, Cuba has been exporting healthcare services by sending physicians and nurses to countries like Brazil and Venezuela. The country has also garnered recognition for its reputable education and healthcare systems. Notably, Cuba has achieved a higher life expectancy than the United States and has successfully developed its own COVID-19 vaccine, making it the world's smallest country to do so.

Approximately 30% of Cuba's foreign exchange earnings come from tobacco and sugar. Furthermore, Economy Minister Alejandro Gil noted that annual inflation stood at around 45% in 2023, down from 77% in 2021.