Cuba is a socialist country and has been ruled by Fidel Castro from around 50 years. Earlier all economic activities were governed and controlled by state .Embargo by US impacted its economy. But till 1990 it was supported by Soviet Union and its economy was in a decent shape. However with the collapse of Soviet Union, GDP became half and current account deficit ballooned by 3 times. However with Foreign Act 1995, Cuba has opened up its economy to certain sectors and is trying to bring foreign investments. Law 77 allows three forms of foreign investment: 1) International association contracts, 2).Joint ventures, and 3).Completely foreign-owned companies. However there are certain permissions which are mandated to be taken up before an FDI is approved by govt. They have also established duty free zones and export zones and have also allowed foreign investors to have real estate in Cuba. However Cuba ranks very low in case of economic freedom to do business and is hampered by corruption, bureaucracy and state intervention. Their economy is also hampered by very high account deficit and large govt expenditure and they have no plans of austerity programmes as yet.
As regards to political environment being a socialist country state intervention is too high and this reflects totally in their business policy. Their GDP growth rate is also not very high and is severely hampered by crisis of 2008 and natural disaster that occurred in 2008.Moreover their monetary system is again peculiar and has dual currency system which creates a large opportunity of arbitrage. Though the rate at Cuban exchange is 24 Cuban pesos per convertible the companies are forced to exchange at official exchange rate of 1 Cuban peso per convertible peso which acts as a deterrent for foreign investors. Their main partners are Venezuela, Spain and China and have been not able to get investors from US the biggest economy. Their economy is mainly dominated by nickel and sugar while with the new exploration of oil (around 20 billion barrels) it can be assumed that their economy will grow at a very rapid pace. Cuba has a very high education level which means all of them can be trained easily. Moreover the wage rates are also low. But non wage costs are quite high as foreign investors have to give 14% contribution to govt for social security, free lunches, bonuses, paid vacations etc which leads to high costs per worker and this discourages foreign investors. If we look at business practices prevalent at Cuba, there are no incentives for managers to perform well and are given promotions on the basis of their ideology, Moreover state keeps on intervening in different policies. Even for workers there is strong union and all are required to be affiliated to them. Workers are given enough social security benefits which does not give them motivation for higher productivity. Also there is problem of judiciary and legal system which clearly de motivates the foreign investors.
Cuba Automobile sector has been hampered by embargo of USA. There are hardly cars and automobiles and people usually use horses and bicycles. The transportation network i.e. their highways needs improvements and so does the roads. Moreover the govt stringent policy of not allowing private transport has also hampered the industry. In Cuba you can only see vintage cars like Lada, Detroit etc.Very few people can possess them and even fewer can afford them, high oil prices and lack of foreign currency has discouraged people from buying automobiles. Moreover the growth of automobile industry requires raw materials like iron and steel, coke and petroleum products. Cuba doses not have much iron ore and nor has good steel industry production facility. More than half of required petroleum products are imported and even with the discovery of huge oil reserves in Cuba it will take some time to build.
As per our recommendations for the industry, Cuba though has opened up its economy it's yet to prove its investor friendly behaviour. High handedness of State, higher wages cost and strong labour union along with dual monetary policy has hampered its image. Also with embargo by USA and its very low rankings in human rights has also dampened its image further. On availability of resources with govt attitude towards private ownership of car along with nonexistent ancillary industry to support automobiles it will be very difficult to operate and the advice is to wait and watch for some incentivization for automobile sector and opening up of FDI in this sector by Cuba.
History
Colonial Rule: Cuba's history began with arrival of Christopher Columbus in 1492 and
Spaniards' following invasion of the island. Groups-the Guanahatabey, Ciboney, and Taíno which owned the island but soon were eliminated or died because of the shock of conquest or diseases. Hence the effect of indigenous groups on Cuban society was limited, and Spanish culture prevailed. After Colonization of the island by Spain in the sixteenth and seventeenth centuries; agriculture became as the only basis of economy.
Cuba came up dramatically in the nineteenth century. United States grew as an independent nation, the collapse of sugar-producing colony Haiti, protective policies of Spain, and the cleverness of Cuba's business class all factors came together to produce a sugar revolution on the island. In few years, Cuba was became a major sugar producer in the world. Slaves started coming in increasing numbers; estates grew bigger; sugar became the main occupation replacing agriculture, tobacco, and cattle; country was richer now; and this caught Spain's attention. The move towards independence was delayed because of these factors in the early nineteenth century. Cuba remained loyal, when Spain was left by most of Latin America.
The Independence Struggle: Loyalty of Cuba started changing toward nineteenth century end, as a result of rivalry between Creole and Spaniards for ruling the island, increased Spanish quest for authority and taxation. These developments caused a prolonged war against Spain (1868-78), but Cuba failed to win independence. José Martí, Cuban independence leader was killed at the start of the second independence war (1895-98). With strained relations between Spain and the United States, the Americans decided in 1898 to enter the conflict. The Treaty of Paris in December 1898 ensured that United States emergence as a winner in the Spanish-American War.
Almost after five years of occupation by U.S. military, in May 20, 1902, Cuba launched into
nationhood. Militarism seemed curtailed and prosperity increased. But political irresponsibility and corruption grew. With 1901 Platt Amendment United States got the right to intervene into Cuba's internal affairs and to lease a Cuba area as a naval base. In 1906-9, 1917, and 1921 the Cuba was intervened militarily by U.S. Weakening growth of Cuba was attributed to economic involvement of U.S and made it more dependent on its northern neighbor.
1901-1930s: A major attempt at revolution was made in 1930s.Started by the cruel President, 1925-33 Gerardo Machado y Morales, the economic impact of world depression, and Spaniards and North Americans growing control over Cuban economy, a group of Cuban students and intellectuals stood for revolution.
The Rise of Fidel Castro: Fidel Castro Ruz, anti-U.S. revolutionary, took power, following his successful revolt against the Batista government on January 1, 1959. On April 16, 1961, Castro took office to create a one-party communist system in Cuba. The United States Cuba relations deteriorated rapidly. On October 19, 1960 United States prohibited commerce and trade with Cuba, also breaking diplomatic relations on January 3, 1961, in response to Castro's nationalization of private properties without compensation.
The Cold War Period: Tensions between US Cuba increased in October 1962 after US revealed that Cuba has Soviet missiles. Because of a U.S. naval blockade, the weapons and missile bases were dismantled. The Cuban Missile Crisis ended with a U.S.-Soviet agreement that assured Cuba is not attacked by US.
Military intervention in Africa, anti U.S. guerrilla and terrorist groups support to Cuba in Latin America and other developing countries of the world, and Soviet weapons support to Cuba suddenly made Castro an international contender.
The communism collapse in early 1990s had a profound impact on Cuba. In January 1, 1991 Soviet economic subsidies to Cuba ended. A major economic crisis followed. The G.N.P contracted by one-half between 1989 and 1993, exports and imports fell by 79 and 75 percent respectively, the budget deficit went thrice than what it was before crisis, and the population's standard of living declined sharply. The regime continued as an outdated Marxist and dictatorial system which refused to open the economy for country's progress. The Cold War continued during 1990's between United States and Cuba. Illegal immigration of Cubans to the U.S and human rights violations remained sensitive issues.
President Bush implemented the ban on American travelers to Cuba. Immigration talks with Havana which used to be held biannually for a decade were canceled. He talked about new proposals to further restrict the number of visits that Cubans living in the United States can make to their native place. Cuba started building strong relations with North Korea and China.
Castro was hospitalized by an illness, and decided to provisionally transfer his power to brother, General Raúl Castro Ruz, then the first vice president of the Council of State. Prolonged illness led to end of Fidel Castro's era.
Geography and Population
Cuba slightly smaller than the U.S. state of Pennsylvania, is an island nation in the Caribbean Sea located 94 miles south of Key West, Florida. The country with a tropical climate has a rainy season that lasts from May to October. The population is 11,477,459 with the population density of 104.5 people per sq. km. Havana, the largest city with population of 2.14mn is the capital, main port and commercial center. Agricultural land accounts for 27.63% of the country, while 75.2% of the population lives in urban areas; 24.7% of the country is covered by forests; there are 3,735 km of coastline; 6.54% of the land area is devoted to crops; and there are 8,700 sq. km of irrigated land. The median age is 20.7 years; the birth rate is 11 per 1,000 people; the death rate is 7.3 per 1,000 people; the fertility rate is 1.61 per female; 18.1% of the population is under 15, 31.3% is 25-44, and 11.6% is 65 and over. The population growth rate is 0.02% (UN estimate for 2010-2015). The time zone is five hours behind Greenwich meantime. Spanish is the official language.
Political Environment - Government & Civil Liberties Trend
Government
Cuba was ruled by Fidel Castro from January 1959 until he temporarily transferred powers to his brother, Raul Castro, who was serving as Vice President in July 2006. The decision was prompted by health concerns. The health problems are widely believed to be associated with complications following surgery for diverticulitis. Fidel Castro announced his retirement on February 19, 2008, by indicating he would not be seeking another term as the President in office. The National Assembly elected, Raul Castro, as the new President. Fidel Castro is still the First Secretary of the Communist Party. Raul Castro is the President of the Council of State and President of the Council of Ministers. From February 24, 2008Gen. Jose Ramon Machado Ventura is the first Vice President of the Council of State and the first Vice President of the Council of Ministers.The president of the Council of State proposes Cabinet members and are appointed by the National Assembly. The President and the Vice President are elected by National Assembly for a five-year term. After being held on February 24, 2008, the next will be held in 2013. Raul Castro got 100% of the votes in Feb, 2008 elections. There is only one legal party in the country i.e. Communist Party. There is a National Assembly of People's Power which has 614 members which is elected by direct ballot from slates approved by the Communist Party. Right of vote is a minimum of 18 years of age.
Economic Overview
Raul Castro, in his inaugural address on February 24, 2008 said that the government would advance in a well-thought out manner and a series of measures would be taken to increase the Cuban standard of living. Attempt will be made to link individual prosperity with individual initiative and work performance. He also promised to remove excess prohibitions and regulations, and indicated that more complex reforms would be introduced as and when required. He also introduced initiatives to encourage the private sector development and economy liberalization, expanding public land access for farmers, emphasized on cost reduction at public workplaces.
Promises were made to move towards a system in which pay is more tied with productivity, increasing the retirement age, allowing new licenses for more private taxis to operate, deregulation of construction industry, and expanding access and availability to previously restricted consumer electronic goods such as cell phones, computers, agricultural supplies, tools etc. These steps seemed as a move towards a Chinese economic model with tighter controls on the political system while motivating the private sector and reducing government role in the economy. Although the hopes have been shattered as the economic reforms are being implemented at a slow pace.
The economy saw strong growth in the mid to late 2000s pumped by high nickel prices, Cuba becoming a tourist destination, and increased production of domestic oil. However, in the wake of the 2008 global financial crisis, nickel and tourist revenues dropped in, and hurricanes in 2008 obstructed agricultural
growth and damaged infrastructure. In August and September 2008, hurricanes Gustav and Ike struck the country, damaging more than 100,000 homes, destroying 30% of crops, and causing damages of $5 billion. The agricultural sector was hindered by a drought in the eastern part of the country in 2008. The economy grew by 1.4% in 2009, falling from 4.3% in 2008 and 7.3% in 2007. The government had forecasted a growth of 1.9% in 2010.
In 2008, 16.6% of GDP came from wholesale, retail trade, restaurants, and hotels, manufacturing
contributed a 9.6% share, with transportation and construction contributing 7.7% and 7.0% respectively. According to government statistics, state has employed 83% of the labor force, cooperatives have employed 5%, these cooperatives are closely knit with the state and, private sector employs 12% of the labor force, including private farmers, artists, and 142,000 self-employed people. 1.6% is the official unemployment rate. Raul Castro admitted that there were more than 1 mn excess jobs in April 2010 which accounts for 20% of the total workforce. But the government indicated that there won't be massive layoffs, the excess workers would be continuing their jobs till productive jobs are not assigned to them. Due to financial constraints in the country new productive jobs cannot be created by the government.
The major problem of the economy remains to be unemployment. Highly qualified people such as doctors, engineers are working in restaurants to earn their living. Because of lower wages in the state sector the employees are taking up second jobs in the informal sector. Between 2000 and 2009 The economy grew at an annual average rate of 5.6%. The CIA Factbook estimated the per capita income as $4,800 in 2009, which ranks 90th out of 191 nations and territories. The rise in consumer prices was 4.3% in 2009, increasing from a 3.4% rise in 2008. The main crops are sugar, onions, peppers, tobacco, tomatoes, oranges, grapefruits, mangoes, bananas, rice, potatoes and papayas. The major natural resources are Cobalt, chromium, nickel, iron ore, copper, timber and petroleum. The principle industries are Sugar, food processing, petroleum extraction and refining, nickel mining, tobacco, construction, steel, cement, and pharmaceuticals.
Ministry of Labor and Social Security (MLSS) enforces the monthly minimum wage. It was $9.72 In 2009. The last minimum wage revision took place in 2005.Tthe minimum wage is supplemented with free education, subsidies in medical care, housing, and food rationing. The monthly wage is an average of 18$ a month. 44 hours is the standard workweek, which in hazardous occupations such as mining is shorter. No overtime payments are made but there is a cap on the number of workweeks in an year. 17 is the minimum age for employment. Child labor Laws are enforced, although rural boarding school students have to perform manual labor of some hours a day; students in secondary school are expected to devote up to 15 days of their summer vacation in work ranging from farm labor to urban cleanup projects for modest wages; and students in postsecondary institutions are expected to perform 30 to 45 days of work in agriculture a year.
Social System
Ethnic Groups and Languages: Cuba is a multiracial society, with a majority of population from Spanish and African origins; 51 percent are inhabitants, who are mulatto or mestizo; white population of 37 %, and 11 % black. There is a Chinese minority of 1%. Spanish is the official language. The ethnic language is Lucumí.
Religion: Cuba is a secular state which doesn't have any official religion. In 1992, the constitution was amended to make Cuba a secular state rather than being atheist. The largest organized religion is Roman Catholicism, most young people are not religious because of atheism in the state for more than four decades, nor do they have any religious training. Jewish community is also present but in small numbers. Cubans practice Afro-Christian rites. Lucumi rite which originated in West African Yoruba culture is widespread in Cuba even after attempts to suppress it.
Health: There are 590 physicians per 100,000 people, 740 nurses and midwives per 100,000 people, 90 dentists per 100,000 people and 490 hospital beds per 100,000 people. 0.1% of the adult population is HIV/AIDS infected. 1.8 per 100,000 people are Tuberculosis infected and death rate because of tuberculosis is 0.4 per 100,000 people. 11% of population between the age of 20 and 79 is diabetic. 14.9% for males and 24.6% for females suffer of obesity.
Fidel Castro took steps to rebuild and renovate the existing medical system. But he also sent 10000 doctors to work in poor neighbors such as Venezuela. This has led to shortages of doctors in Cuba.
Cuba's is ranked at 39 out of 190 countries in WHO's ranking of the world's health care systems.
Education: Education has been made compulsory from age of 6 to age 14, and has been made free till the university education. 97% of the students who enroll in grade 1 reach the last grade of primary school. 1% is the repeat rate in primary school. At the age of 12 secondary school begins and continues for 6 years.
For those 15 years and older, the literacy rate is 99.8%. The literacy rate is 99.8% for women.
98% is the net enrollment rate for girls and 99% for boys in primary school. This compares to a regional average of 93% for girls and 93% for boys. The transition rate from primary to secondary is 98.0%. In secondary school the net enrollment rate is 86% for girls and 85% for boys. The government allocated 20.6% of government spending to education in 2007, and public education spending was equal to 13.3% of GDP.
Legal System
Supreme Court is the highest court in Cuba. Judges of the Supreme Court are elected by the National Assembly. Judges hold accountability to the National Assembly. All the provincial judges in Cuba are elected by Popular Power Assembly. The Supreme Court comprises of a president, vice-president. The judges are independent and accountable only to the law.
