By Emilio Morales
For decades it has become very difficult to measure the real performance of the Cuban economy. Several factors distort and make it difficult to make a reasonable estimate of the rate of economic growth of the country. Among the most important factors we can highlight the monetary duality, which prevents a true calculation of the performance of Cuban companies and the measurement of their profitability. Also important is the lack of transparency in key areas of the economy, such as the export of services, which are not disaggregated and rather behave like a black box, whose content is not known; nor is there detailed information on the economic activities that compose it, raising doubts among experts and local and international economists, as well as among international organizations that study the economy of the island. Another factor is the lack of officially published information on the value of important items such as remittances received through official channels and of the value of international reserves in foreign currency, the "peculiar" method followed by Cuban authorities to calculate GDP, inconsistent with international standards of how this indicator is calculated, the general doubtful reliability of official data, the delay in their publication, the concealment of data, etc.
Despite the barriers mentioned, there is no alternative but to analyze the data that the Cuban government issues and adjust them in some way by triangulating information issued by third parties, such
as exports and imports of products and services from countries that trade with the island. Obviously, this makes it more difficult to make these calculations and corrections, since it implies having a commercial intelligence team to monitor the performance of dozens of variables from a number of countries that trade with Cuba, which would make very expensive the investigation and constant monitoring of these activities.
Therefore, in order to have a realistic idea of the performance of the country's economy it is necessary to resort to other methods and techniques that allow us to compare and estimate the value of those macroeconomic and microeconomic variables that have the greatest impact or weight on the economy. A comparative analysis of the performance of these variables allows us to put into context the current reality of the economy, and its strengths and weaknesses, and evaluate a number of factors that influence how the economy of the country is managed.
This type of analysis also helps to identify the sectors of importance in the Cuban economy, which constitutes a great help to companies, businessmen and entities that are interested in knowing the performance of the Cuban economy, whether for commercial reasons, to explore investment opportunities on the island or to learn about competing interests in the Caribbean region.
Following this logic, one of the ways to obtain a quick and accurate analysis of the Cuban economy is to compare the main items that generate income in the economy of the country. This allows us to know at first glance how the balance of power in the economy is distributed, which are the most strategic items and who is responsible for each.
Our analysis is based on comparing the revenue from the main exportable items of the Cuban economy with the income from remittances from abroad. This comparison allows us, on the one hand, to put in context the real scope of the domestic economy, to evaluate its export capacity and the weight that these exports have on the performance of the economy. On the other hand, it allows us to know the level of dependence that the economy has on remittances that come from abroad and the weight they have on the performance of the Cuban economy.
Remittances vs. exportable items
In 2016, cash remittances sent to the island amounted to 3,444.68 million dollars1, while remittances in goods totaled an estimated 3,000 million dollars. Combining the two forms of remittances, in 2016 the Cuban population received a total of 6,444.68 million dollars, a figure higher than the sum of several of the most important items exported by the Cuban economy, such as the export of nickel (464 million dollars), sugar and its derivatives (360 million dollars), tobacco (211 million dollars), frozen seafood and fish (74 million dollars), medicines (900 million dollars), agricultural products (24 million dollars) and even tourism income (2,907 million dollars), which in total amounted to 4,959.1 million dollars in that year. See Figure 1.
Figure 1. Comparison of remittances with main sectors of the Cuban economy (in millions of dollars), 2016
Source: Havana Consulting Group
However, the mentioned value of 7 of the main exportable items of the Cuban economy refers to the value of gross exports, from which production costs, operating costs and marketing costs, etc. must be netted out, which means that the estimated net profit of these sectors is reduced to around 1,137.2 million dollars, which is 5.6 times less than the value of the financial assistance provided by the Cuban diaspora to relatives and other persons on the island.
It is worth noting that this same community of exiles supports all the costs of sending money and merchandise, so the 6,634 million that the diaspora offers in assistance represent a net value. Remittances are the main source of income for families in Cuba and the main source of income for dollarized retail trade in the country.
The dependence of the Cuban economy on remittances from abroad grows If we compare the value of the seven exportable items with the remittances that arrived in Cuba in the last 9 years, the results show a very strong dependence of the Cuban economy on remittances from abroad and at the same time that the economy has a stagnant level of exports.
If we compare the combined growth of Cuban exports in seven of the most important items (tourism, nickel, sugar and its derivatives, medicines, frozen seafood, tobacco and agricultural products) in the last 9 years we can see that it amounted to 258.8 million dollars, while cash remittances grew 7.18 times more, by about 1,997.62 million dollars. If we compare it with total remittances (cash and merchandise), the difference is 15.99 times higher, about 4,397.62 million dollars. See Figure 2.
Figure 2. Comparison of cash remittances and total remittances with the 7 main sectors of the Cuban economy (in millions of dollars), 2008-2016
Source: Havana Consulting Group
Growth of remittances in cash
Cash remittances to Cuba have had a steady and exponential growth in the last 9 years, from 1,447.06 million dollars recorded in 2008 to 3,444.68 million dollars in 2016, with an average annual growth of 221.96 million dollars. See Figure 3.
Figure 3. Remittances to Cuba in cash (in millions of dollars), 2008-2016
Source: Havana Consulting Group
No item of the Cuban economy experienced such spectacular growth in the period of time analyzed. Remittances to the island had as main motor the massive Cuban emigration of the last 15 years, motivated by the lack of opportunities in the island and the restrictions the system imposed on its citizens. The policy changes implemented by former President Barack Obama to eliminate restrictions on remittances and travel for Cubans living in the United States, coupled with the modest opening to the private sector implemented by the Cuban government as of 2010, opened a window that allowed the creation and financing of thousands of businesses in the private sector.
Nickel exports
The nickel industry, which in the 2000s had become one of the main engines of the Cuban economy, has left behind its best years3. In 2016 its exports barely reached 464 million dollars, underpinning the sharp decline that the industry has had since 2011, when it reached an export level of 1,466 million dollars, its highest value in the previous 9 years. See Figure 4.
Figure 4. Nickel export (in millions of dollars), 2008-2016.
Source: Havana Consulting Group based on the data published by the National Office of Statistics and Information ONEI.
The wider use of other substitute raw materials has led to weak nickel demand worldwide and falling prices in international markets. The high production cost of Cuban plants has also affected the competitiveness of Cuban nickel. In recent years one of the production plants was closed and production fell by around 30%.
Sugar exports
The sugar industry, once the locomotive of the Cuban economy, in the 1960-2000 had some of the lowest production levels in its history. In the last 9 years, the highest value of its exports was 485 million dollars in 2014. See Figure 5.
Figure 5. Export of sugar and its derivatives (in millions of dollars), 2008-2016.
Source: Havana Consulting Group based on the data published by the National Office of Statistics and Information ONEI.
The annual average value of exports of the sweet in that period was 367.90 million dollars, 3.5 times lower than the average during the decade of the 90 -- in the midst of the special period, when the annual average was of 1,298 million dollars -- and markedly lower (11.2 times) than the annual average reached in the 1980s, when exports of sugar and derivatives averaged 4,132.1 million dollars per annum.
The high level of deterioration that this industry has suffered has left hundreds of thousands of people unemployed and cost the country's economy hundreds of millions of dollars in potential revenue. The decline of recent years is a clear sign of the collapse of this industry and the dismal performance of the Cuban economy.
Income from tourism
The Cuban tourism industry is one of the few sectors that has had a stable growth in the last nine years. In 2016 it generated 2,907 million dollars, some 560 million more than in 2008. See Figure 6.
Figure 6. Income of the Cuban tourist industry (in millions of dollars), 2008-2016.
Source: Havana Consulting Group based on the data published by the National Office of Statistics and Information ONEI
However, despite the growth in revenues, the average expenditure per tourist has decreased, falling $999.38 per tourist in 2008 to $725.11 in 2016, a drop of 27.44%, which is not a good sign for the tourism industry of the island, which is under the management of foreign companies, controlling most of the four and five-star hotels in the country.
Export of frozen seafood
The export of seafood has not advanced in 9 years. Export revenues reached 74 million dollars in 2016, a weak growth rate of 0.54% per annum compared to the revenues reached in 2008, which were 73.6 million dollars. See Figure 7.
Figure 7. Export of the frozen fish and seafood (in millions of dollars), 2008-2016.
Source: Havana Consulting Group based on the data published by the National Office of Statistics and Information ONEI
The results achieved in the period analyzed show the need for investments in this industry, in order to raise production levels in order to increase exports.
Exports of tobacco
Tobacco export revenues had their ups and downs throughout the period 2008-2016. The year of greatest export was 2013, with exports valued at 244.68 million, while the lowest year was 2010 with 202.1 million. See Figure 8.
Figure 8. Export of tobacco (in millions of dollars), 2008-2016.
Source: Havana Consulting Group based on data from the National Office of Statistics and Information, ONEI.
In 2016, the value of exports of tobacco increased by 9.21% with respect to 2015. However, it was still lower than in 2008, which was 234.50 million dollars. This industry is managed by joint ventures with companies from Spain and Brazil, which have made millions in investments in productive infrastructure and marketing.
Exports of agricultural products
The agricultural industry is one of the most backward in the country, with very low export volumes. In 2016, the exports of this industry were valued at 24 million dollars, 14.29% lower than in 2015. However, they were 57.89% higher than the value reached in 2008. See Figure 9.
Figure 9. Exports of Agricultural products (in millions of dollars), 2008-2016
Source: Havana Consulting Group based on data from the National Office of Statistics and Information, ONEI
Exports of medicines
After tourism, medicines have been the exportable item with the best growth dynamics in the period analyzed, with a growth of 60 million dollars per year. Although exports dropped by 10.44% in 2016 compared to 2015, their value exceeded 2.5 times the value reached in 2008.
Figure 10. Exports of medicines (in millions of dollars), 2008-2016
Source: Havana Consulting Group, based on information published by BIOCUBAFARMA.
The foundation of Cuba's exports of medicines is in its biotechnology industry, which has managed to develop several successful vaccines and other products that are marketed in more than 50 countries. Cuba has several joint ventures in this industry with companies from China, France, Spain, Singapore and more recently with the USA.
Conclusions
Remittances are at the moment the main support of the Cuban economy. In the last nine years, the combined growth of tourism and exports of nickel, sugar and its derivatives, seafood, medicines, agricultural products and tobacco amounted to 258 million dollars, with a low annual average growth of 28.66 million dollars. During the same period, cash remittances grew at an average rate of 221.95 million dollars per year, or by 1,997.62 million dollars.
While 7 of the principal exportable items of the Cuban economy combined took 9 years to grow by 258 million dollars, the remittances sent by the Cubans achieved this growth in just 1 year.
This comparison shows that the Cuban workforce settled abroad, responsible for sending remittances to the island, is much more productive than the entire labor force linked to these seven areas of the Cuban economy.
An approximate mass of 1 million Cubans who in one way or another send remittances from abroad and who work under the conditions of a free market is capable of sustaining themselves and their respective families in the diaspora, and at the same time helping their relatives on the island with 3,444.68 million dollars a year. Family aid in the form of remittances currently reaches more than 70% of Cubans living on the island.
These data show how disastrous the practice of a centralized economy has been for Cuba. Statistics speak for themselves and show how unproductive and deteriorated is the Cuban industry in sectors such as sugar and agriculture, which need deep structural changes to allow modernization and development. They also show the need to attract capital to be able to renew these industries.
The importance of remittances in the Cuban economy shows how dependent the economy of the island is on diaspora, which is not allowed to freely invest in the country.
It is evident that the centralized economic system does not work. To cling to it is to regress in time. Changing the centralized system to a free market system is a great opportunity and the great challenge that the new president of the country will have from the month of April on to take the Cuban economy forward. Going against the current is a sure failure. This is the opportunity; now or never.
