Daily Management Review

Cuban Economic Reform Will Allow Incorporation Of Small Businesses


Cuban Economic Reform Will Allow Incorporation Of Small Businesses
Cubans will be allowed to incorporate small and medium-sized businesses in the country in their thousands in the coming months as the island's Communist government undertook arguably its most popular and important economic reform since all companies in the country were nationalized in the late 1960s.
Details of the reform plans of the government were revealed this week according to which Cubans will be allowed to set up small and medium-sized businesses - a first since 1968. That is expected to end the legal limbo for many such businesses that have existed for years in the country.
According to Cuban economists, small and medium-sized state firms will also come under the purview of the new law which would allow the decentralization of some activities and make profitable subsidized operations or be ended.
According to a mid-level manager involved in the process who spoke on condition of anonymity, thousands of eateries of the country that are run with government subsidies will either have to close down or transform into cooperatives or small businesses.  Those businesses in the food sector that the government decides to keep with also be changed into small- and medium-sized state-owned businesses that will compete with those in the private sector.
Until the 1990s, most of the economy was in state hands, even though private farms and agricultural cooperatives have existed in Cuba for long. In the late 1990s, the government allowed the setting up of heavily regulated small businesses in a few areas under the preface of self-employment. That however limited the legitimacy and legal standing of such businesses,
This new economic move is a part of the reform agenda being followed by new Cuban leader Miguel Diaz-Canel over the last year as the shaky economy of the country went into a tailspin with shortages of food, medicine and other basic goods reaching unprecedented levels because of the coronavirus pandemic and tougher sanctions by the United States/. 
State and private businesses would be put on an equal footing to compete, work together and create joint companies, much as it is in capitalist countries, said the country’s Economy Minister Alejandro Gil in a televised presentation Wednesday.
"It is a starting point for a new stage in the diversification of the economy and its development, in order to make the most of its potential," Gil said. This move will increase employment and result in a stronger economic rebound, Gil added.
Cuba's Council of Ministers had approved in May the creation of micro, small and medium-sized (MSME) businesses and the process has been fast-tracked since then.
Access to the state wholesale system will be available to the new MSMEs and allowed to import and export, set prices and attract foreign investment, under the new system. However, the businesses will also be under a state-dominated business environment where the activities of the businesses mentioned above would be highly regulated by the government.
According to a decree law published by the Council of State this month, new companies would be allowed to employ only 100 employees and individuals starting a private business can only set up one company.
"Cuba is moving towards a mixed economic model, at least in terms of employment," said Pavel Vidal, a former Cuban central bank economist who teaches at Colombia's Pontificia Universidad Javeriana in Cali.
"With this opening, in a few years the non-state sector will represent more than 50% of total employment in the economy," Vidal said, adding that "still much more needs to be done."