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Cuba Dips Toe in Market Economy with Legalization of Small Businesses

Author: Exports News
Dec 20, 2021
2 min read
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274
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Dec 20, 2021
2 min read
Cuba Dips Toe in Market Economy with Legalization of Small Businesses

In the coming months, the Republic of Cuba will embark on one of the most significant economic reforms since it nationalized all enterprises in the 1960s. Thousands of small and medium-sized enterprises (SMEs) will be allowed to incorporate. These companies have not officially been legal since 1968 in Cuba, though many have existed in a sort of legal limbo. These reforms should make business much more open and easier for such enterprises.

Ease of Restrictions

Moreover, the new law will apply to some state firms as it decentralizes certain activities. While the move has many potential benefits, like encouraging SMEs, the transition is unlikely to be painless. The move will likely force certain subsidized operations to become profitable or perish. In the food-service sector specifically, thousands of government-subsidized eateries will either shut down, become cooperatives, or transform into small businesses

The decree will probably mark the most significant change to the Cuban economy since the 1990s when only heavily regulated small businesses were permitted to operate in a few sectors under the category of self-employment. Earlier this year, Cuba saw some of the most prominent and widespread protests in the country’s recent history. Protesters were mainly voicing their discontent against poverty, which has increased due to the COVID-19 pandemic as well as stiffer sanctions from the US, causing a severe shortage of food, medicines, and other basic goods.

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Wind of Change?

While not being a direct response to the protests, the new measures are part of a broader strategy of economic reform by the new Cuban leader Miguel Diaz-Canel. Notably, Economy Minister Alejandro Gil said on TV that the new measures would put state and private businesses on an equal footing, allowing them to compete, work together, and create joint companies, similar to how things work in capitalist countries. These new companies will be limited to 100 employees, and individuals will only be permitted to own one single company. The new SMEs will be able to access the state-run wholesale system and can import, export, set prices, and court foreign investment. However, the system is still designed to be state-dominated, and all these activities will remain heavily controlled.

Future historians may look back on this moment as the beginning of Cuba’s transfer from a socialist system to a capitalist one, but that’s not likely. While economists have long called for such reforms, it’s important to note that few protestors in Cuba this past summer were calling for an abandonment of socialism. Instead, most advocated for merely an improvement of conditions. These reforms should be helpful and give Cuban SMEs a great opportunity and even foreign firms looking to trade with Cuba.

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