A couple of days after the closing of the Cuban border, 16,000 private workers, upon sensing danger, requested the labor ministry suspend their licenses so they could avoid paying taxes. That number rose to 119,000, 19% of the private workforce, in a few more days and threatened to annihilate the Cuban economy. The implementation of the global travel restrictions had a devasting impact on the country’s tourism sector, which is the second-largest revenue generator for the island nation. As a result, selective private businesses took a massive hit and the government lost a crucial foundation for foreign exchange. By December 2020, Cuban tourism had fallen by 16.5%, followed by an 11% drop in the country’s GDP. Worried by the lingering economic collapse, the government began opening Cuba’s private sector, providing Cubans with self-employment opportunities and allowing them to operate businesses in added sectors.

What Did the Government Do?

Previously, the communist-led government allowed Cubans to participate in merely 127 officially approved private sector activities. Some of the legalized activities included working as a barber, working in gastronomy or transportation or renting rooms to tourists. To expand the private sector, the government eliminated the previous list of 127 activities. Instead, it created a new list of 124 jobs prohibited in the private sector. The rest of the 2,000 legal activities, which the government recognized, will be open to Cubans. In the past, state-owned businesses have always dominated the Cuban economy. However, the private sector has managed to make a mark over recent years. Presently, 635,000 people occupy the private sector, which is roughly 14% of the Cuban workforce. The introduction of the long-awaited economic reform might increase diversification in the private sector and could spur economic growth for Cuba.

The Effects on Cuba and its People

The economic reform will allow Cubans to partake in additional economic activities. It will help eradicate bureaucracy in the governmental arrangements, as the Cubans will no longer have to manipulate their business documentations to fall under the list of legalized activities. Now, they only have to confirm that they are not running any business from the list of prohibited activities.

Further, the liberalization of the private sector will bring about a change in the career patterns of Cubans. Previously, apart from the underpaid state-run jobs, the only other viable option for Cubans were low-skilled jobs. Now, Cubans will have countless other opportunities in technical fields like engineering and economics. Still, professional fields like medicine, law and teaching could open to state employees only. Additionally, the opening of the private sector will increase employment opportunities, which will rapidly develop the private sector. Private business owners currently make up 13% of Cuba’s workforce. This number will spike due to the relaxation of the private sector.

The Future of Cuba’s Economy

Ricardo Torres, a pro-reform economist at the University of Havana’s Center for the Study of the Cuban Economy, stated that the opening up of Cuba’s private sector will diversify jobs and boost the GDP. This, in turn, triggered a shift in economic arrangements in Cuba. But the chances of the private sector dominating the economy soon are bleak, mainly due to the political settings of Cuba. Therefore, expectations have determined that state-owned businesses will direct the economy. Rather than rushing into free-market forces, the Cuban government must seek inspiration from other countries and establish a solid institutional framework. Several European states, the U.S., Japan and other East Asian countries have proved that by focusing on macro and microeconomic policies and planning and investing in citizens, an economic upliftment should be possible.

Cuba’s Relationship with the US

The economy was booming under the Barack Obama Administration. Things, however, took a turn when former President Donald Trump overturned Obama’s agreement to ease travel restrictions on Cuba. Donald Trump also ended the U.S. cruise travel to Cuba, disallowed many Cuban Americans to send remittances back home, pressured a U.S.-run hotel out of Cuba, forced countries not to hire Cuban doctors and nurses during the pandemic and re-enlisted Cuba on the list of countries that sponsor state terrorism. Cuban businesses suffered a great deal due to this. The labor reform could not have been timelier for the Cuban government as it could present a sturdy case for amendments in the U.S. policy.

One of Obama’s main objectives was to expand the private sector in Cuba. Therefore, on the back of the opening of the private sector and the appointment of Joe Biden as President, the Cuban government can look to persuade the U.S. to consider a policy reform. Although Cuban had to wait a long time for labor reform, it is crucial to mend unemployment rates, boost the GDP and restore Cuba’s unsteady economy through Cuba’s private sector.

– Prathamesh Mantri
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