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Cuba’s Private Sector Amid a Difficult Backdrop

Cuba’s Private Sector Amid a Difficult Backdrop
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Nieves Diaz (Democrat), the leader of the small company “Velocuba” with one of her team members. Velocuba is a small and medium-sized company dedicated to the repair and rental of bicycles in Havana, Cuba. January 4, 2022. Photo: Jorge Luis Baños/IPS

Written by Patricia Grogg (IPS)

Havana Times – The new year has kicked off with more than 1,000 micro, small and medium-sized businesses (MSMEs), the first to be licensed since September, with owners hoping against a backdrop of economic tensions and the dangerous rise of COVID-19.

As of December 22, 2021, there were 1,188 SMEs, of which 1,166 were private and 22 state-led, as well as 19 non-agricultural cooperatives, which is the other form of private enterprise after a series of regulations came into effect in September, allowing them to join To the economy of this country with a socialist government.

The Cuban Ministry of Economy indicated that 58% of the total authorized to date, were already independent companies in existence (without a real legal status as such) that had been restructured, and the rest were new businesses. The official report added that these entities spread across the country, with a population of 11.2 million, will provide 18,603 job opportunities.

They range from food production, production of building materials, furniture, textiles, footwear, and plastics, as well as cleaning and hygiene products, IT programming activities, material recovery and recycling and technical services, to name a few.

Adan Perugorria, creative director and co-founder of Gorria Gallery/Studio, said when consulted by IPS.

Workers making mangoes to produce jam, in a small industry, in the municipality of Baracoa, in the eastern province of Guantanamo, Cuba. June 13, 2018. Photo: Jorge Luis Baños / IPS

This cultural institution in the busy neighborhood of San Isidro in Old Havana, linked to the local development of the region and does not rule out becoming a small and micro-enterprise in the future, giving it the opportunity to have a legal personality, a bank account, and other features of this type of economic operator.

“There is no doubt that this is a new reality for business in Cuba, which will allow companies to develop in favorable conditions for supply chains and greater opportunities to thrive,” Perugoria noted.

The formal opening of the economy to this new form of MSME has been well received and as an economic “boost”, although many experts agree that it should have been adopted several years ago or at least before the reform process, which was officially called sorting task It included the process of currency consolidation that began on January 1, 2021.

However, some entrepreneurs decided not to participate in the reorganization of the self-employed into business owners. We have a year to analyze all this and we will wait. First of all, because we have accumulated debts in the past two years, we are still trying to pay it off and it has been very difficult to get by,” explained the restaurateur, who requested anonymity.

We are concerned about these regulations which actually mean, particularly in relation to taxation, and in the legal context. We are also still not sure what advantages we will get now, by becoming an SME. A bunch of restaurants are already pretty sure about this, but we’re not.

Another small company that displays its products. Photo: Jorge Luis Baños/IPS

Both experts and businessmen point out how unfair the tax system, which does not differentiate between different types and imposes the same type of taxes and taxes for micro, small and medium-sized enterprises, which is what other countries in the region are doing.

Moreover, taxes are the same for state-run companies, but they are generally larger and protected by the state. “The tax burden is excessive,” says David Tavares, co-founder of the digital marketing agency JYD Solutions, Weighing when speaking to IPS. At this first stage, his company had not obtained a license to become a corporation.

“Despite the current legislation, we are not allowed to convert directly into an MME with our current business model, and we are still studying and looking at this, because when we are able to become legal persons with all the challenges and problems, we know that means,” he said. .

Speaking about his many years of experience in the self-employment sector, Tavares advises new business owners to be flexible and adapt business models to market realities. As well as diversifying the goods and services offered by companies and avoiding short-term thinking.

He noted that “we’re going to have to work really hard and be very efficient, in order to get our business to operate in an economy that is going through a crisis, so short-term thinking can be more of a problem than a solution.”

Entrepreneurs fear that the recent surge in COVID-19 cases will lead to new restrictions. After 13 consecutive weeks of declining infection numbers, more cases were recorded in the last few days of 2021 than in the previous seven days.

The year 2022 began with Cuban scientists predicting a new wave of infections in the country and the government’s appeal to citizens to act responsibly and respect health protocols to stop the spread of the epidemic.

However, there are hopes that with more than 90% of the population (11.2 million people) vaccinated and progress being made with the fourth dose of the booster drug, the situation can be kept under control in the first months of the year. (Editors’ note: The number of new cases is rising rapidly in the first nine days of 2022.)

The health situation also depends on whether the country will achieve its goal of welcoming 2.5 million tourists and be able to increase its GDP by a moderate 4% compared to last year.

However, efficiency in the relationship between economic actors, both public and private, is key to this recovery, in a landscape where SMEs will prove their resilience (or not). Experts in economic affairs believe that it is necessary to create conditions for the development of this entire business system.

Read more from Cuba here in the Havana Times.

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