Cuba Dips Toe in Market Economy With Legalization of Small Businesses
Cuba has a mostly planned economy with state-run firms. A majority of its workforce is employed by the government, and since the 1960s, thousands of small and medium-sized businesses have been under the control of the government.
Most of these businesses will now be able to incorporate in the coming months, as part of one of the most major economic changes implemented by the island’s Communist government since it seized control of all industries over five decades ago.
The small country of about 11 million people face several economic challenges, even though housing and transportation costs are low. Cubans enjoy government-subsidized healthcare, education, and food, which comes at a considerable cost to the economy. In 2020, its economy shrank by 11% — the worst decline in three decades.
In recent years, price inflation, shortages of food, fuel, and locally made goods have become frequent, pushing the country to seek foreign direct investments to help increase its economic conditions. But being a complex country to invest in, stringent regulations will have to be reformed to attract the investments needed to spur economic growth.
Cuba has strong economic ties to Venezuela. Both countries have, however, been under the U.S. embargo for several years. Sharp reductions in economic growth in Venezuela due to tougher U.S. sanctions and economic collapse have affected Cuba and stimulated the Castro regime to take measures aimed at partial liberalization.
In the Heritage Foundation’s 2021 Index of Economic Freedom, Cuba was ranked the 176th freest economy of the 178 countries. Cuba has been at the bottom of the ranking since the inception of the order in 1995.
The Government’s Efforts
The country has taken several steps to open up its economy to private businesses. Earlier this year, the Cuban government announced that it would allow private companies to operate in most sectors of the economy. According to its labor minister, Marta Feito, the list of allowed economic activities was increased from 127 to over 2,000.
This reform, which came to light in August, will also apply to state-owned small and medium-sized enterprises. Experts believe this will lead to the decentralization of several economic activities and a reduction in subsidized services. For example, in the food service sector, this would mean that the thousands of government-subsidized eateries will most likely be closed down or turned into small businesses.
This measure is a crucial part of the effort by the current leadership of the country, as the pandemic and tougher U.S. sanctions take a significant toll on the economy, with a shortage of food, medicine, and basic needs reaching an alarming level.
Businesses will now compete, get involved in import and export businesses, and key into the country’s supply chain. The government will therefore need to do much more to reduce its restrictive regulations to liberalize its economy further.
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