HAVANA, Sept 18 (Askume) – Cuba’s booming private sector was set to suffer a blow on Wednesday as the island’s communist government imposed a series of new laws aimed at tighter regulation of the private sector amid a deepening economic crisis.
The new rules come less than three years after private business was legalized following a decades-long ban imposed by former leader Fidel Castro.
These measures remove incentives to create new businesses, restrict independent wholesalers and impose new requirements on applicants wishing to start a company. They also raise taxes, strengthen workers’ rights, tighten accounting requirements and tighten regulation of the private sector.
The new rules come into force at a time when Cuba is suffering its worst economic crisis in decades, with severe shortages of food, fuel and medicine and a record exodus of citizens.
The government says the reforms are necessary to correct distortions and boost the economy, while also ensuring that private enterprise benefits the broader population. Cities can now deny permits to businesses that do not fall under local development plans, and municipalities can set prices in some cases.
“This is not a crusade against non-state regimes… but to bring them within the legal framework,” said Economy and Planning Minister Joaquin Alonso Vazquez, adding that these measures would help the country develop.
All of these regulations “have the same effect of constraining the private sector rather than liberating it,” said William Leogrand, a professor of Latin American politics and U.S. foreign policy at the American University in Washington.
“The Cuban government needs the private sector to improve the economy, but it distrusts the private sector and wants to keep it under strict state control,” he said.
The stakes are high, said Oneil Diaz, co-founder of AUGE, a private business consulting firm that advises more than 200 Cuban small business clients.
Diaz said some regulations, like cracking down on tax evasion, make sense, while others would only slow down the struggling economy further.
“The question is whether these measures will help the country recover from the current economic crisis, and the answer is no,” Diaz said.
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The private sector is a rare bright spot in an otherwise weak economy that has failed to recover from the COVID-19 pandemic and is grappling with a decades-long US trade embargo that has devastated Cuban government finances and complicated transactions.
Cuba approved 11,355 private enterprises in three years. According to official figures, workers in this industry, including Cuba’s 600,000 self-employed, currently account for 25% of Cuba’s employment and 15% of its imports.
According to experts and business owners consulted by the regulations on imported goods, small private retailers – the last reliable and diverse source of food – may be most affected by the new accounting constraints and it will take time for wholesalers to resolve the need to move money out of the country.
Diaz said these small grocery stores and corner stores — now common in many Cuban cities — will fill the void left by the bankrupt country and generate more than $1 billion in food and beverage production by 2023, importing and distributing beverages.
“The government wants to limit this activity … and give the country the space to recover lost land,” Diaz said.
Askume spoke to several business owners who said they still did not know how the rules would be enforced and what impact they would have on their businesses. They declined to speak publicly.
For many Cubans who are increasingly concerned about food security, any opportunity to buy goods is welcome — as long as the price is right.
“I think small businesses are the best thing,” said Alexander Silega, a 36-year-old Havana resident. “But we need some regulation on price.”
