After the 1959 revolution, Cuba became increasingly dependent on the then Soviet Union. In 1972 the country became a member of the economic cooperation body of the socialist states SEV (COMECON).
Between 1975 and 1990, Cuba’s financial strategy was based on plan-keeping principles with five-year plans that were integrated with other SEV members. The Soviet Union, in particular, bought Cuban sugar at an overpriced price in exchange for financial and military support.
Following the collapse of the Soviet Union in 1991, a slow transformation of Cuba’s economy towards market management took place. Between 1990 and 1993, GDP fell by 35 percent, which is why a series of relatively radical reforms were introduced in 1993 and 1994 to decontaminate the state budget, which went into a large deficit; among other things, the subsidies to the state-owned companies were cut dramatically. Other reforms included a new Investment Act (1995), which opened the doors to foreign investment, opportunities for non-governmental activities (especially cooperatives), and also some cautious opening for private family businesses.
Gradually, tourism replaced sugar production that was previously as important as the country’s main source of income, and the Cuban economy recovered during the early 1990s. However, the financial crisis of 2008 hit the country’s tourism industry and the nickel industry hard.
During the 2010s, the economy has recovered, but the state has announced sharp cuts in public operations, while at the same time slowly easing the barriers to private enterprise. The state plans to lay off at least 1 million government employees and has begun to close unprofitable companies and institutions that no longer fulfill any function in the new economy.
According to COUNTRYAAH, an alternative for the unemployed is to start their own business. Private small businesses belong to the fastest growing part of the economy and now employ over half a million people. There is a list of about 200 approved businesses that may be run by private individuals outside the state sector. Most small businesses work in sectors that directly or indirectly live on tourism such as restaurants, hotels and taxis.
According to the ruling Communist Party, the state should continue to control the strategic direction of the economy. Specifically, the goal is that one-third of the economy should be controlled by state-owned enterprises, one-third by cooperatives and one-third by private small businesses.
Following the historic agreement in December 2014 with the United States, hopes were raised that the US trade embargo would be lifted. But despite some easing of trade between the countries, the embargo remains. In addition, President Donald Trump has withdrawn some of the changes made by his representative Barack Obama, which will lead to reduced US investment.
A brake block for the Cuban economy is the existence of double currencies. On the one hand there is a currency for tourists, the Cuban Universal Currency (CUC), and on the other there is a local currency, Cuban peso.
CUC is worth 25 times more than Cuban peso. In the subsidized economy intended for Cubans, everything is traded with local pesos and there is a great shortage of most, while there is a significantly greater range of goods available to those with CUC.
A CUC is converted to one dollar, but in the official state economic statistics that also control the state companies’ accounts, a US dollar is valued at a Cuban peso, in practice an overvaluation of the local currency of about 96 percent. Should the government today merge the currencies, it would mean a devaluation that would force most state companies into bankruptcy.
Communist Party economists have acknowledged that the Cuban peso is overvalued and that an adjustment is necessary. Letting go of the currency would be a quick path to a more realistic exchange rate, but such a form of shock therapy would entail rapidly rising prices and risk of hyperinflation, commodity shortages and mass unemployment. Instead, a gradual transition is advocated. Despite promises to abolish the parallel currencies, no solution has been presented and the decision has been postponed in the future.
Fertile soil and a suitable climate provide good cultivation conditions, although both tropical cyclones and droughts sometimes cause difficulties. Prior to 1959, agriculture was usually conducted extensively on large estates, mainly sugar plantations owned by American companies. After the revolution, these were nationalized, and private land ownership (a total of about 10 percent of the cultivated area) has been limited to a maximum of 67 ha since 1963. It is mainly in tobacco and coffee farming that individual small farms remain. Most state farms were transferred in 1994 under the auspices of the cooperative, whereby the cooperatives use the land for free indefinitely. During the plan-keeping period, until 1990, the soil was used relatively intensively with artificial irrigation, increased mechanization and use of fertilizers and pesticides.
About half of the arable land has traditionally been used for growing sugarcane. Cuba is one of the world’s largest sugar producers and until the beginning of the 1990s the largest exporter of sugar by far. Up to this time, sugar accounted for about 75 percent of the country’s export earnings. Sugar production in the late 1990s was less than half of what it was in its heyday in the 1980s, when annual harvests totaled around 8 million tonnes (about 8 percent of the world’s raw sugar production). Since then, production has continued to decline, and in 2012, sugar exports accounted for only 6 percent of total exports (compared with 80 percent in 1990).
Tobacco and citrus fruits are also important for Cuba’s exports. Tobacco cultivation has an old tradition, and the world’s best cigar tobacco is considered to come from the Vuelta Abajo district in western Cuba. Other important agricultural products are coffee (Oriente region of eastern Cuba), rice, root vegetables and tomatoes. Furthermore, bananas, mangoes and fiber plants are grown.
Livestock management plays a big role. Meat and hides are important products, and the production of milk and dairy products increased strongly until the late 1980s. During the first half of the 1990s, production fell sharply, although some recovery has taken place since then.
In the province of Pinar del Río at the far west as well as within the island’s south-east, there are larger contiguous forest areas. Here are extracted, among other things. mahogany and cedar. However, Cuba’s forestry is of limited importance. Most of the logging goes to fuel. Some new planting of forests has taken place.
Cuba has invested in the development of the fishery, partly through large investments in the fishing fleet. The industry accounts for 7 percent of export earnings. About 2/3 of the catch is taken through deep-sea fishing, including in the Pacific. Seafood is also economically important. The main fishing ports are Havana, Manzanillo (northwest of Santiago de Cuba) and Cienfuegos on the south coast.
Cuba’s mineral resources are mainly concentrated in the eastern parts of the country. Here is a significant part of the world’s known nickel reserves. The most important extractive sites are Nicaro and Moa in the province of Holguín. Nickel is Cuba’s second most important export product. Chromium, copper, cobalt and iron are also mined to a lesser extent.
Oil resources can be found along the northern coast east of Havana.
Cuba’s energy supply is largely based on oil imports from Venezuela. Thermal power plants in Havana, Matanzas (east of Havana) and Nuevitas (coastal city in central Cuba, for example) account for the majority of the increase in electricity generation. The country’s only nuclear power plant is located in Cienfuegos, but has not yet been put into operation. Large oil refineries are found in Havana, Santiago de Cuba and Cienfuegos.
After the 1959 revolution, Cuba built up industrial production with the help of the Soviet Union and other eastern states. The manufacturing industry was concentrated mainly in the Havana area and in Santiago de Cuba. The provincial capitals, such as Santa Clara (250 km southeast of Havana), Camagüey in central Cuba and Matanzas (75 km east of Havana), also became important industrial species, especially in the food sector.
Large fertilizer factories were built and the production of agricultural machinery, such as sugar cane harvesters, was important. Attempts were also made to expand the heavy industry with, for example, steel mills, metal smelters (nickel) and chemical industry. However, after the collapse of the Soviet Union in 1991, large parts of the industry fell into disrepair and the processing of agricultural products, mainly sugar, became dominant industries. Cigar production has also maintained its importance.
As part of the party’s decision to modernize the economy, Cuba has sought to attract foreign capital by creating special economic free zones with favorable tax rules. The largest of these projects is built around the port city of Mariel, 40 km west of Havana. There, the existing port has been expanded to fit large vessels that are more easily reached after widening the Panama Canal. Adjacent to the new port is a free zone where foreign investors will be attracted by hundreds of industrial projects ranging from car manufacturing, glass and plastic bottles production to advanced microbiology.
The US blockade policy after 1960 meant that Cuba’s trade was directed almost exclusively at the Soviet Union and Eastern Europe. Until 1990, 3/4 of Cuba’s exports were sold on the Soviet market, and at the same time, the Soviet Union accounted for 2/3 of Cuba’s imports, mainly consisting of vital oil supplies and machinery for industry. Trade was regulated through bilateral agreements, with fixed prices, over a five-year period. This order ceased when the Soviet Union disbanded in 1991 and foreign trade turnover more than halved in the 1990s. Cuba was looking for new trading partners, especially with the EU, Canada and other Latin America.
Since the beginning of the 2000s, Venezuela has become Cuba’s most important trading partner. Cuba has signed an agreement with Venezuela that, in exchange for doctors and teachers, sells oil at a heavily subsidized price.
Thanks to the support of Venezuela and a successful investment in tourism, the economy recovered in the early 2000s. But the economic crisis in Venezuela after the oil price collapse has again created a situation where Cuba must look for new trading partners.
It was hoped that the agreement concluded with the United States at the end of 2014 on an opening in trade relations would lead to increased investment and could partly compensate for the withdrawal of support from Venezuela. But so far, there have been no major deals besides the increased tourist influx.
- According to AllCityPopulation, the capital city of Cuba is Havana with a population of 2,130,000 (2017). Other major cities include Santiago de Cuba (510 100), Holguín (354 300), Camagüey (329 200), Santa Clara (254 500) Bayamo (238 200) (2017).
One of the obstacles to Cuba’s trade was for a long time the large unregulated debts that remained since the time of the Soviet Union. After several years of talks, Cuba managed to renegotiate or write off most of its old debts to several countries. The most important success came in 2013, when the Russian Federation disbursed 90 percent of the debt of about US $ 32 billion from the Soviet era. The following year, Cuba managed to settle with a number of countries in the Paris Club, including Sweden, and of the total Cuban debt of US $ 11 billion, Cuba undertook to pay 2.6 billion over the next 18 years. For Sweden, the settlement means that Cuba will again pay SEK 600 million of an accumulated debt of SEK 2.3 billion.