Covid-19 crushes the ‘mule’ business.

By Emilio Morales

TN - Mules carry bundles but not for themselves.

The COVID-19 pandemic has changed daily life in the entire planet: the dynamics of business, habits and customs of people, and a long et cetera. Within this phenomenon, in the particular case of Cuba, one of the most lucrative businesses and one that gives the population and the government the most support is the mule business. The topic of mules is not what it seems at first glance; there is a lot of hidden history behind this business.

The mule business in Cuba is dead right now. If there are no flights to Cuba there is no business, it is that simple. There are many losers in this chain of events: the Cuban government, the mules themselves, the mules’ suppliers, and the people in Cuba who benefit from the mule-supplied market.

The mule business is a well-oiled and well-plotted venture created and implemented by Cuban intelligence; it is not a spontaneous phenomenon of people who venture abroad to buy merchandise and then sell it back on the island in the informal market. In reality, the latter is a facade that has been built and refined very efficiently over time.

This business arose many years ago and was created by the Cuban government out of the need to receive merchandise and money to evade the embargo imposed by the US government.

In this business, the Cuban government earns hundreds of millions of dollars annually. From fees for consular services (currently validating a passport costs 450 USD, and it must be renewed every two years), to the sale of air tickets, in addition to the airport tax and custom tariffs for entering merchandise into the country. Mules cannot travel if they do not possess a valid Cuban passport, and right there is where the money-making machinery created by Cuban intelligence begins.

This business started in the 1980s when the so-called "Cuban Community flights" began. And who traveled on those flights? Cubans who had left Cuba, especially those who had left since the 1980s, during the Mariel crisis, and later those who left as a result of the Rafter Crisis and the subsequent migratory waves that have occurred over time.

With this escape valve mechanism, the Cuban government obtained two fundamental benefits: a) they released social pressure and b) they created an expeditious route for the entry of merchandise and foreign currency into the country that gave oxygen to the dying Cuban economy.

The Mariel exodus turned out to be the escape valve used by the Cuban government in the early 1980s to eliminate discontent and the social pressure that existed on the island due to the ineffective and inefficient economic and political model created by the Castro brothers.

This operation served to seed and fertilize the mule business that would be implemented years later. First, they created a commercial and service network made up by dozens of small agencies, mainly located in South Florida, originally to offer services for legal and immigration procedures, visa management and selling air tickets for travel to Cuba. Subsequently, the agencies expanded their business to other very lucrative items, such as shipping merchandise, sending remittances, and recharging cell phones in Cuba[1].

Over time this business continued to grow to become a multi-million dollar enterprise that moves around $8 billion in remittances, shipping of goods, consular services, air ticket sales, etc.

The key to this business is separating the family

The most important premise for this business is to keep the family separated for as long as possible, thus allowing the flow of money and goods for long periods of time and ensuring that the shipping cycles maintain a stable frequency. The other premise is to grow an army of migrants, thus ensuring a growth in the volume of remittances and merchandise shipments. Consequently, this has a direct growing effect on passport validation services, sales of air tickets and in fees for airport tax and custom tariffs, in addition to nurturing other lucrative businesses controlled by the Cuban government, such as car rentals and hotel accommodation, which migrants frequently patronize by inviting their relatives on the island.

Before the new Migratory Law was promulgated under Decree Law 302[2] on October 11, 2012 and it became effective on January 14, 2013, emigrating from Cuba was very difficult. It was like undertaking a prison break like that of the legendary movie "Escape from Alcatraz". As emigration by legal means was very limited, illegal exit became the most common way of emigrating from the country.

During a very long time, Cuban emigrants were people who for some reason related to their work traveled abroad and took advantage of the trip to defect and try to reach mainly the United States, where thanks to the Cuban Adjustment Act they were allowed to legalize their immigration status quickly. Thousands of professionals who traveled on work missions emigrated under this scheme: doctors, teachers, engineers, government officials who traveled to an international conference, to receive a course or training, as well as athletes, artists, etc. People also emigrated by leaving Cuba clandestinely in rustic rafts or in boats that were managed by human traffickers. All these people who left the country illegally or defected could not return to the island in 8 years - that measure is still in force -, so thousands of families were trapped in that annoying and painful separation.

From the very moment that a Cuban decided not to return to their country, somehow, automatically, they became a mule. From then on, the challenge of their life was not only to make a living in a new country and sacrifice for their family with the hope and objective of taking their loved ones out of Cuba to reunite, but it was also supporting them financially while building the long and heartbreaking reunification route. At that moment, the emigrant became a mule that sent money and merchandise to help their family, and the Cuban government managed to increase their army of emigrants who gave oxygen to the island's dying economy. We can classify this émigré as a ‘nostalgic or hostage mule’.

This explains how the migratory waves that have started in the island for over 60 years have been cyclical, with an average of 10 years between them. The migratory wave that gave rise to the mule business proper was that of the port of Mariel. During this crisis, around 125,000 Cubans left the country.

Most of the Marielitos - that's what the Cuban emigrants who left by the Mariel port were called - left their families behind. The reunification of these families took many years, even part of these migrants have still not been able to reunite.

The mid-1980s saw the beginning of the so-called "Cuban community flights" to the island. This allowed thousands of emigrants who had left via Mariel to visit Cuba. The logistics of this operation was designed by the Cuban intelligence. They first created a network of travel agencies in South Florida, primarily in Miami. That was the emergence of MARAZUL CELIMAR[3]  and HAVANATUR S.A.[4], both companies belonging to the CIMEX Corporation[5] that was managed at the time by the Ministry of the Interior, under the same group that coordinated a drug trafficking operation with the Pablo Escobar cartel in the 1980s, that ended in the famous Cause 1 and Cause 2 of 1989 and cost their lives to General Ochoa and Colonel Antonio de la Guardia, and a 20 year-sentence to Minister of the Interior Jose Abrantes.

All these agencies were registered in Panama and were in charge of selling air tickets, immigration procedures and other services that the travel agencies established in Miami provided to Cuban immigrants. Most of these agencies in Miami were operated by undercover agents of the government or figureheads sympathetic to the regime, who at some point also served as agents of influence in the Cuban exile community, especially with the mission of giving political support to the Cuban government in its fight against the embargo.

For emigrants traveling to the island, a network of stores was created in the country so that they could buy in foreign currency certain types of merchandise, clothing, footwear, food and other miscellaneous items for their relatives in Cuba. This is how the mule business began to grow really big. Back then in Cuba the circulation of dollars was punishable by law; so the Cuban emigrants who traveled to Cuba had to exchange their dollars for the so-called chavitos. (TN – vouchers) We can call these emigrants ‘community mules’.

The special period and the heyday of the mule business

Already by the late 1980s and early 1990s, when the socialist camp in Eastern Europe and the Soviet Union had disappeared, the Cuban economy suffered the so-called the ‘Special Period’ crisis. After losing 85% of its markets, the communist government had no other alternative than to open up to foreign investment, international tourism, and allow the circulation of dollars, self-employment and remittances to be sent in cash, among other measures, to be able to overcome the critical situation.

1994 saw the famous Rafter Crisis, which allowed several tens of thousands of Cubans to leave the country. 30,000 of them were taken to the Guantánamo Naval Base. As a result of this crisis, a negotiation ensued between the governments of Cuba and the United States, giving rise to the migratory agreements, which established that the United States would give Cuba a migration quota of at least 20,000 visas annually to emigrate to the United States.

From this, the Cuban government obtained two benefits: a constant relief of the social pressure caused by the crisis, by serving as an escape valve, and acquiring 20,000 new mules a year, who were charged $150 individually as payment for the ‘white card’ (definitive exit permit).

In this new scenario, the mule business increased considerably. The Cuban government began to encourage Cuban migrants to travel and to this end, in 1993, when the free circulation of dollars was allowed and the sending of remittances was authorized, the CIMEX Corporation created an extensive network of foreign currency stores to set up a fully dollarized retail market. This business was aimed at Cubans who received remittances from abroad and at migrants and tourists who traveled to the island. Back then there was a boom in the emergence of dollarized store chains that spread throughout the country, such as the "Pan American Stores", the gas station networks "SERVICUPET" and "ORO NEGRO", the fast food chain "El Rapido", the store chain "PHOTOSERVICE", HAVANAUTOS S.A[6]  and the CUBALSE and TRD CARIBE store networks, among others.

The Cuban migrants traveled on charter flights that were managed by agencies created in South Florida, which in turn were connected to agencies set up in Panama. The latter were in charge of collecting the money from the operations in South Florida. The number of these agencies in South Florida grew up as the demand for travel increased. The number of services they offered was also expanded: it was no longer just the immigration procedures, the validation of passports and the visas; now they also included services for sending cash and merchandise. In the late 1990s and early 2000s, this network of agencies grew to over 100. By that time, they added hotel and car rental reservations to their services. Meanwhile, the migratory flow was fed each year with 20,000 new Cubans who emigrated legally and many more who did so illegally, arriving by boat, raft or crossing the Mexican border. In other words, it was a whole industry that added new mules and generated new millions of dollars by the day. We can call this new generation the ‘rafter mules’

Cash remittances increased in volume year after year, as did merchandise shipments. Trips on charter flights to Cuba also augmented, as did flights on the Miami-Nassau-Havana route.

To control remittances to the island, the CIMEX Corporation had created in 1988 the Panamanian company AMERICAN INTERNATIONAL SERVICES S.A. (AIS), with number Folio Nº 209034. By the year 2000 the army of mules had already grown considerably.

To get an idea of the volume that this business was taking year after year, just compare the remittances in cash in 1993 ($242 million), to 2000 ($986 million), 2010 ($1.92 billion) and 2019[7]  ($3.716 billion). Last year, around 45% of the remittances received came through mules.

Obama and the thaw: boom and shift in the mule business dynamics

When President Obama arrived in the White House in 2009, one of the first measures he took was to free Cuban-American trips to the island, which at the time was limited to one trip every three years; and cash remittances, that were of only $300 per semester. From then on, Cubans could travel as many times in a year as they wanted and could send up to $10,000 a day.

In 2010 the Cuban government began a timid economic opening and allowed around 200 new modalities of self-employment. This combination of factors gave birth to a new scenario where the mule business grew considerably. Thousands of private businesses were financed and hundreds of millions of dollars in merchandise and products were moved by the mules. We can classify these as ‘business mules’.

This business reached such a dimension that the number of agencies offering services to Cuban migrants exceeded 400. The merchandise now traveled not only with the mules, but it was also shipped in containers through agencies that had a contract with another Cuban company called CUBAPACK, which was and continues to be managed by the CIMEX Corporation. The demand for equipment and products for the nascent private sector grew exponentially, as successful Cuban entrepreneurs expanded their businesses throughout the country. Industrial kitchens, construction tools, furniture, power plants, refrigerators, washing machines, auto parts[8], beauty salon equipment[9], freezers, restaurant furniture, household appliances, and hundreds of other products traveled along this route of merchandise shipments by agencies.  At that time, the agencies incorporated a new service: recharging cell phones[10], giving rise to the ‘electronic or digital mule’.

On January 14, 2013, a new immigration law came into force. This law eliminated the infamous white card and allowed Cubans to travel abroad and be away for up to 24 months. This measure unleashed a boom of Cubans travelling abroad, and a new segment of mules emerged: ‘national or entrepreneurial mules’.

This new mule segment created a remote wholesale market[11]. Thousands of Cubans began to travel abroad to buy merchandise to then sell it back on the island. Several routes were created for them, the main supply markets being: USA (Miami), Panama, Mexico (Cancun and DF), Spain, Ecuador, Russia, Haiti, Guyana, Trinidad and Tobago, and Suriname.

One of the most innovative aspects of this remote wholesale market created by Cuban entrepreneurs is its level of specialization. The people engaged in this business specialized in buying and selling different types of products that belong in different market niches. Among the products marketed by these networks of sellers, one can find anything from an electric motorcycle - which in the Cuban market sells for 2,000 USD and in Panama costs around 1,000 USD - to household appliances such as two-door refrigerators, washing machines, AC units and furniture, which are transported by sea. Miscellaneous items such as clothing, shoes, and sundries are generally transported by air in small packages of 1.5kg, which usually include 30 to 40 men and women underwear, sandals or flip flops grouped in five or six pairs, pullovers, blouses, t-shirts, baby clothes, etc.

Cuban entrepreneurs, even under the limitations imposed by the government, managed to set up a remote wholesale system that worked with the efficiency of a Swiss watch. The system achieved a much better inventory turnover level than the government-owned dollarized retail chains, as it works according to the needs of the market. Its logistics is based on a network that has such a strong capillarity that it can reach all regions of the country at a low cost and does not require storage of merchandise since it gets to the final consumer practically on request. Its source of financing is direct, derived from the sale itself and does not require bank loans or higher approvals to be executed. Its financing works on the basis of supply and demand and the profits from sales are large enough to be able to undertake again and again the magical cycle of the buy-send-receive-distribute-sell process.

This remote wholesale market that developed between the Miami-Cuba and Panama-Cuba routes is estimated to have an approximate value of between 1.5 and two billion dollars annually. The remote wholesale market created by Cuban entrepreneurs is another of the sectors where the Cuban private sector competed successfully with state companies.

In December 2014 there was a thaw between the two governments, which gave rise to the authorization of regular flights from the United States to Cuba, for which several airlines were allowed to fly to 10 destinations on the island, in addition to authorizing the trips of American tourists under 12 categories. This unleashed a tourist boom from the American market and at the same time the entrepreneurial fever on the island grew at a dizzying rate, which brought about the birth of a middle class that generated a new balance of power in the Cuban economy[12]. This new scenario showed that the mule business was getting out of control for the Cuban intelligence apparatus. It was at this time that the government brought to a halt the economic reforms undertaken on the island[13] and began to dictate new rules to stop and limit the expansion of the private sector. In the same manner, strong hurdles were erected against these new business mules, since many entrepreneurs began to export capital given that the new limitations did not allow the private sector to grow[14]. This resulted in the government starting to implement new measures to restrict the mule business, which were offering strong competition to the government-owned dollarized retail chains.

Parallel to the emergence of this new segment of national mules born in the heat of the entry into force of the new migratory law, the emigration of Cubans to the United States continued to expand, this time along new travel routes through Central America and Mexico to cross the US border. Tens of thousands of Cubans took advantage of the new migratory law to emigrate this way, which made the mule army grow even more. Even despite President Barack Obama’s repealing the wet feet policy a few weeks before the end of his second term in the White House, thousands of Cubans continued and still continue to use that route to emigrate to the United States.

COVID-19 freezes the mule business

Given this reality, with Trump already in the White House, Cuban-American travel continued to increase, reaching the figure of 552,895 travelers[15] to the island in 2019. Only in passport validation, this figure represents income to the Cuban government worth $248.8 million; with more than 50% of these travelers staying in hotels with their relatives on the island and renting cars from Cuban government agencies, which left revenues of approximately 500 million dollars to the Cuban economy. In air tickets alone, Cuban-Americans spent about $221 million traveling to the island in 2019. That year, only for telephone recharges, digital mules left in the coffers of the Cuban state more than $300 million. This must be added to airport taxes, which for Cuban-American travelers alone totaled $13.9 million. In import duties on merchandise, Cuban-American travelers paid an estimate of between $66.3 and $82.9 million. All of these items totaled an estimate of between 1.3 and 1.3666 billion dollars. This must be added to the value in remittances and merchandise shipped. Together they totaled around $8 billion in 2019.

By 2020 things were going to change, since early this year measures came into force limiting regular[16] and charter[17] flights to the island from the United States, which already had been limited only to Havana and in a restricted number. For this reason, a decline was expected in these revenues compared to 2019[18]. However, what no one could expect was the appearance of an invisible enemy that would turn the world economy upside down and impact heavily the Cuban economy: COVID-19.

When the COVID-19 pandemic broke leashes early this year in China, it quickly had a ripple effect in Europe and the United States, strongly impacting various sectors of the world economy, including the tourism industry. Cuba was no exception.

This brought to a halt flights to and from the island, so the mule business got completely frozen. Without flights, the business of the entrepreneurial mules drops to zero, it is that simple. Except for the hostage mules and the digital mules, the activity under the rest of the classifications has been annulled by COVID-19.

However, the activity of the hostage and the digital mules, who are in charge of sending remittances and making telephone recharges through the Internet, has also been impacted. It should be noted that many families in the Cuban diaspora in the United States have been hit by unemployment, so their financial capacity to send remittances and pay for telephone recharges has been considerably reduced.

A recent study  showed[19] that two cities in South Florida were among ten in the United States with the greatest impact in terms of unemployment as a result of COVID-19: second on the list was the city of Hialeah and fourth was Miami, which are two of the territories where most of the Cuban emigration in the United States is concentrated. It should also be noted that the unemployment rate in the United States has reached 20%, which represents a little over 36 million people without work[20], not counting the undocumented who have lost their jobs.

On the other hand, according to statistics of flights from the United States to Cuba, in the first five months of this year, their number has declined by 51%, compared to the same period the previous year. Between April and May 2020, there were no commercial flights between the United States and Cuba, in sharp contrast to the 2,089 flights in the same period of 2019. The seven flights in April and May have been only to repatriate US and Cuban-American citizens stranded in Cuba by COVID-19. See Table 1.

Table 1. Comparison in the number of flights from the United States to Cuba, January-May, 2019/2020.

Source: Havana Consulting Group

The statistics are clear: the impact has been devastating. In the first five months of the year Cuba has received about 470 million less in cash remittances than in the same period of the previous year, a drop of 30.4%.

The value in merchandise sent in the months of April and May has been nil as there were practically no flights to the island. This is compounded by all agencies selling tickets, and shipping packs and remittances in South Florida being in quarantine. The only available way to send money is Western Union. On the other hand, as there are no flights to the island, the payment of airport taxes on the island is nil, as is the income from consular procedures due to the closure of the agencies engaged in processing this service with the Cuban embassy in Washington.

Two US airlines have announced the resumption of their ticket sales for June: American Airlines and South West. However, it is still very premature to estimate whether there will be flights to the island or not, given that Cuba will keep its borders closed until June 30[21]. Furthermore, South Florida has seen an increase in cases of COVID-19 although a gradual opening is planned for the next few days.

CONCLUSIONS

COVID-19 is having a strong impact on the mule business; it has practically reduced it to zero. The losses are counted in millions for both the Cuban government and the mules.

At a time when the mule business had become one of the main livelihoods for both the Cuban government and the population, as we have seen throughout this study, COVID-19 has suddenly frozen the dynamics of this business.

The mules’ future is uncertain at the moment and this uncertainty has inflicted a deep thrust to the Cuban economy. Over the years, the Cuban government has created an army of mules at the expense of family separation and the poverty caused by their backward, medieval economy. Currently around 70% of the families on the island depend on the economic support sent by their relatives living abroad. If this business remains paralyzed any longer, the consequences could be unpredictable.

COVID-19 has put the Cuban government against the wall. Surviving at the cost of what the juicy mule business represents seems to be an option that will not be available for a rather long period of time. Therefore, the circle is closing around the ruling clique on the island, leaving as a single option on the table the total liberation of the productive forces through profound structural changes; otherwise, the total collapse of the economy is around the corner. The truth is that, if Cuba had an open and free market economy, the mules would not be mules but entrepreneurs, and the situation of the Cuban economy would be quite different.

REFERENCES

[1] HCG Business Intelligence Unit. “Cellular telephony continues to grow despite the economic crisis.”. THCG BUSINESS REPORT JUNE 2018 No.3. Havana Consulting Group.

[2] https://www.acnur.org/fileadmin/Documentos/BDL/2012/8950.pdf

[3] The company MARAZUL CELIMAR, S.A. was created in Panama in 1990 (05/18/1990). Folio No. 234439 (S)

[4] The company HAVANATUR S.A was created in Panama in 1978 (12/27/1978). Folio Nº 34085 (S)

[5] The company CORPORACION CIMEX S.A. was created in Panama in 1988 (05/17/1979). Folio No. 39447 (S)

[6] The company HAVANAUTOS S.A. was created in Panama in 1989 (07/27/1989). Folio No. 224870 (S)

[7] Morales, Emilio. “COVID-19 puede hacer declinar las remesas a Cuba entre un 30 y 40% en el 2020”. THCG BUSINESS REPORT ABRIL 2020 No.2. Havana Consulting Group.

[8] HCG Business Intelligence Unit. “Cuban automotive sector:  parts sales more attractive than cars sales”. THCG BUSINESS REPORT AUGUST 2017 No.4. Havana Consulting Group.

[9] HCG Business Intelligence Unit. “Cuentapropistas revolutionize beauty salons on the island”. THCG BUSINESS REPORT APRIL 2017 No.2. Havana Consulting Group.

[10] HCG Business Intelligence Unit. “Cellular telephony continues to grow despite the economic crisis.”. THCG BUSINESS REPORT JUNE 2018 No.3. Havana Consulting Group.

[11] HCG Business Intelligence Unit. “Cuban entrepreneurs create long-distance wholesale market”. THCG BUSINESS REPORT FEBRUARY 2017 No.1. Havana Consulting Group.

[12] HCG Business Intelligence Unit. “Thaw and reforms create a middle class and new balance of power in Cuban economy”. THCG BUSINESS REPORT JUNE 2017 No.3. Havana Consulting Group.

[13] HCG Business Intelligence Unit. “New legal norms for self-employment will affect the economy”. THCG BUSINESS REPORT JUNE 2018 No.2. Havana Consulting Group.

[14] HCG Business Intelligence Unit. “Entrepreneurs exported 9 times more capital than that was invested by foreigners in the ZEDM in 2017”. THCG BUSINESS REPORT AUGUST 2018 No.4. Havana Consulting Group.

[15] HCG Business Intelligence Unit. “Industria turística cubana en el peor declive de su historia”. THCG BUSINESS REPORT APRIL 2020 No.2. Havana Consulting Group.

[16] Gámez, Nora. “Estados Unidos suspende vuelos regulares a nueve destinos en Cuba”. Octubre 2019. https://www.elnuevoherald.com/noticias/mundo/america-latina/cuba-es/article236613678.html

[17] 14yMedio, EFE. “Estados Unidos prohíbe los vuelos chárteres a toda Cuba menos a La Habana”. Enero 2020. https://www.14ymedio.com/nacional/Estados_Unidos-vuelos-charters-Cuba-Habana_0_2799919990.html

[18] HCG Business Intelligence Unit. “Restricción de vuelos a Cuba agobian aún más a la economía cubana”. THCG BUSINESS REPORT FEBRUARY 2020 No.1. Havana Consulting Group.

[19] Wallethub. “Las 10 ciudades más afectadas por el desempleo durante la pandemia, según estudio”. Telemundo. Abril 2020. https://www.telemundohouston.com/noticias/eeuu/las-10-ciudades-mas-afectadas-por-el-desempleo-durante-la-pandemia-segun-estudio/2103395/

[20] AP. “EEUU: 36 millones de desempleados durante la pandemia”. Mayo 2020. https://www.elnuevoherald.com/noticias/estados-unidos/article242728456.html

[21] DDC. “El Gobierno cubano extiende el cierre de aeropuertos hasta el 30 de junio, pero lo informa EEUU”. Mayo 2020. https://diariodecuba.com/cuba/1589452149_19686.html