Business Environment in Cuba after Fidel Castro
Introduction
Governments struggle to ensure that the economy of the country is in a better state. Most governments are putting down measures that enhance the country’s economic status through the allowance of business activities to thrive. Policies that support individual corporations to conduct businesses are also being enacted to attract local and foreign investors. Further, governments are also moving away from the older administration systems and fitting into the current system to enhance trading activities and open up opportunities for economic activities to succeed in such nations. This research paper explores the economic situation in Cuba. More particularly, the paper describes the business environment and economic situation of the country in the current regime after Fidel Castro’s resignation and death. The paper briefly explains the administration of Fidel Castro and the economic situation of the time, including the business environment during Fidel’s reign as the leader of the Latin American nation. This research argues that recent developments in the business environment of Cuba have paved the way for improvement in significant business activities and the setting up of businesses in Cuba the post-Fidel Castro’s era.
Background of Study/ Business Environment In Cuba in Fidel’s Era
After the resignation of Fidel Castro, various scholars and researchers had pointed out that the country needed to undergo a series of economic reforms to create a suitable economic environment in the different sectors of the Cuban economy ( LaFranchi, 2016). The economy was not more developed, and it a lower economic index at the end of Fidel Castro’s regime, making it one of the underdeveloped countries in Latin America. Before Fidel’s ascension to power, the country was marred by various unfavorable political factors that scared away most foreign and resident investors from investing in the country since people feared to lose their property to the few wealthy persons who controlled the corporate sector (Hamish, 2016). before the socialist revolution of 1959, the economy of Cuba was seen to be a very active or lively, even though it was uncertain (Cuba’s Government Structure & Economy, 2019). The then government of Baptiste vastly favored the sugarcane industry. However, most of the proceeds realized from the trade were seen to be ending up in the hands of the few rich individuals who controlled the country’s economy. Most of the money would land in the hands of foreigners since the President had become a dictator. Fidel Castro ascended to power after an intense revolution and waging of war against the then regime.
Fidel Castro led the country under a one-party state, and almost all the economic activities were put under the watch of the government who controlled trade (CGNN Americas Now, 2013). The excessive control created an unfavorable business-like situation in Cuba, scaring away most private investors. Fidel focused more on building schools and improving the health sectors of the country as it was crippled (Werber, 2016). However, his attempt to try and make the economy better was less fruitful. The focus on social projects might be seen to have been the detriment of the country’s economy. The health sector was also developed immensely, and so was the housing sector, which saw a high rate of houses being established frequently to settle the homeless population of the country (Worstall, 2016).
Being a communist nation, all the businesses and major industries were controlled by the government, including the labor force, which was mandated to work for the government of the time, leaving less to the private sectors (Editors of Encyclopedia Britannica, 2020). Most of the industries that the government had instituted had monopoly powers. Such powers allowed the corporates to control most of the resources of the country. Such controls free entry into the market, frustrating the efforts of business activities that were being formed. Most attempts that were made to encourage the private sector development were seen to be ignored, leading to mass frustrations from various individuals that aspired to establish and control business activities. Castro’s regime focused on being identified most with sorting out the issues of students, workers, and peasants who were seen to be the major population of the country. The middle class and the most educated professionals saw that their demands were not being met, as most didn’t identify with working for the government but setting up their businesses. Such would lead to the mass brain drain, with the majority migrating to the United States. The mass migration of various professionals would cause grave economic devastations, causing a surge to the country’s economy greatly ( LaFranchi, 2016).
History of Business Environment in Cuba
Business Environment includes all the factors that surround the business activities of an entity or an organization and what stimulates or demotivates the participation in business activities. The business environment is composed of the socio-economic factors that influence activities, both internally and externally. The government determines the conduciveness of the business environment in the country and how businesses within and outside the country relate. The government of Cuba is seen to increasingly improving the business environment in the country, to widen the revenue base for the government, and also to solve other social issues in the country such as unemployment rates. The business environment of Cuba has not been a developed and favorable one in the previous administration due to various reasons, including the rise of socialist movements that might have interfered with economic activities (Jacobs, 2017).
In considering the global business environment, countries are encouraged to maintain healthy diplomatic relationships that would enhance alliances that may benefit trading activities. The political system or administration of Cuba has been documented to have had several strained relations with other business communities and industry players. The government of Cuba has had decades of disagreements with countries such as the United States, which have barred trade between the two countries. The government of the United States had been forced to implement an embargo against Cuba, blocking the Latin American country from trading with the United States for several years (Cuba’s government structure & economy, 2019). However, the current regime has negotiated some peaceful deals with the United States to encourage businesses between the two countries to thrive and to mend the strained relationships. Most countries, such as China, have embraced a capitalist system of administration, and such a system has encouraged the growth of several businesses within the country and developing industries. Such may not happen easily in a socialist country like the previous regime of Fidel Castro. A capitalist system ensures that every resource in the country is capitalized, and businesses are decentralized to various sectors of a country’s economy. The business environment is also enhanced to ensure that every business activity is at its best state to survive the
Other business environments that affect trading and setting up businesses in a country may include the nature of competition, the social environment, and the global demands of a country. The nature of competition of a country’s product would enhance trading in a country and also beyond borders, and this would stimulate the country to move forward economically and also improve its trading activities. Further, a country also needs to encourage its members to come up with various businesses by allowing room for privatizations of some government parastatals to promote the development of the private sector. Developing the private sector and also providing for a conducive environment for a business to survive is essential for any nation that wants to see growth in its gross domestic product. Such may be encouraged by coming up with favorable reforms as well as providing various incentives to businesses such as lower tax rates, which encourages the establishment of businesses (Gonzalez, 2019).
Special Period in Cuba
Since the country’s revolution, the country’s government structure majorly relied on the Soviet Union. However, after the fall of the Soviet Union after the cold war, Cuba’s economy plummeted greatly, going into a deep economic crisis, and the GDP decreased by about 37% between 1987 and 1993 (Hamish, 2016). The financial support from Russia was also cut, and this made Castro try and build strained relations, including the relationship with the church, which Castro saw as a threat and an opportunistic institution (Death of a Dictator, 2016). Such a crisis would lead to the country to develop key economic reforms that allowed some levels of private entities being in existence in the economy. The number of private licenses issued was 181; however, the private sector was restricted, and major control would still be seen to be done by the government of the country (Frank, 2019).
The special period can be seen to have led to the transition of the country to a more self-reliant economy, away from the overreliance of the defeated Soviet Union. The government encouraged individuals to engage in self-employment, form labor unions, and even to workers cooperative societies to enhance people’s development, away from relying on mostly public entities (CGNN Americas Now, 2013). The private sector grew substantially, and the country saw a rise in the private sector ration compared to that of the public sector (CGNN Americas Now, 2013). However, Fidel was still a populist, and his ideologies of the popular good saw the private businesses to enjoy fewer privileges as compared to the government businesses. To support the economy, the administration supported the agricultural sector immensely, with sugar being among the leading economic activities that saw considerable returns to the country. However, the global business environment was more aligned with the Arab world as compared to its neighbors who were more influenced by the United States, something that Castro never allowed under his regime.
Business Environment after Fidel’s Administration
The retirement and perhaps the death of Fidel Castro sparked several reactions from World economies that saw that Cuba would develop greatly economically. In the reign of Raul Castro, the business environment of the country has seen a successive development of favorable opportunities in the country (Frank, 2018). The country’s upcoming economy has gained the major interest of various investors and trading partners that have seen more opportunities within the country (Frank, 2019). To ensure the business environment is favorable, the current administration has made the economy a free one with most monopoly powers of various state corporations recalled. Many laws and amendments, such as the legalization of private business licenses and the creation of non-agricultural cooperatives, have also been put into place to ensure that it protects private businesses from any form of negative influence (Frank, 2018).
The constitution in 2016 was amended to ensure that private sector businesses take shapes and thrive in the economy (Frank, 2019). The current President Raul Castro has signaled attempts to make the country into a capitalist state, just like China, which supports production and business activities immensely with little reliance on agricultural activities hence the economic power the country boasts (Frank, 2018). Things have significantly changed, with also some power being decentralized, and not wholly owned by the head of state or the communists. The government has also shifted its ownership of the labor market and created various opportunities for the state employees, offering them to start their businesses and have self-employment. The changes in the government and the administration, which has influenced business activities, are discussed in the subsequent subtopics of the internal business environment and the global business environment.
The Internal Business Environment in Cuba- Post Fidel Castro
Political Environment
The political environment of a system is a factor worth considering while setting up a business in a given country by either foreigners or even the insiders. In the current regime, the country’s political system has been more stable, encouraging various business activities. Further, the country has developed policies that allow for private-owned entities to operate within the country and conduct businesses. This can be evidenced by the government’s idea of encouraging self-employment within the country to enhance trading activities. In the country. The internal business environment in Cuba has seen a tremendous change in the way business operations are taking place. The country’s GDP is also increasing with the resultant reforms that have been put in place. For instance, in 2015, the GDP per capita was $55,800, as shown by the World Bank data (Werber, 2016). The regulatory measures that have been set in the country have seen breakthroughs among private individuals in the country, enhancing the country’s economic growth (Comments & Cuba, 2019).
The political environments have become more favorable to the citizens in the current regime than the previous regime, attracting international attention. Various scholars and researchers have suggested that whatever is happening in the country today are reforms that should have been seen in the previous regime (McWhinney, 2020). Further, it has also been realized that the human development index has also increased. In 2018, the HDI was rated at 0.778, rising from 0.676 in the previous regime, and has even surpassed the GDP growth rate which is at 3%, a significant achievement in the development of people and their daily life activities, hence lowering the poverty index (Gonzalez, 2019). The internal environment improvement has been marked with various transformations such as mass shifting from public to self-employment, more people engaging in activities previously assumed by the government have also made it a major reform for the country. Most of the reforms seen in the post-Fidel era occurred in 2011 when the congress approved for the need to open up the economy and allow more economic and business activities to take shape in the Cuban economy (Frank, 2018).
Economic Environment
The economic environment of Cuba has also seen various structural changes, such as the availability of a free labor force, in the current regime. The country’s economic system is, however, still controlled with various economic activities still being state-owned. The government is still controlling the better part of the economy, just like the previous regime. Stae-owned corporations are still major employers, offering competition to the upcoming private business. A consistently increasing labor force is also encouraging various industries to develop without much influence from the state bodies.
One of the major steps that the Cuban government has made is to transform the employment and embraced diversity in economic activities. The country has made it possible for Small and Medium-Sized Enterprises (SMEs) to thrive in the current economy. The government has encouraged businesses such as hairdressing and also establishment of restaurants. The opportunities have allowed various individuals to come up with various ideas to transform the economy to achieve greater economic power. The transferring of people from the various state-owned corporations in the past decade can be seen as a major factor that has seen Cuba develop its business environment. With the fall of communism and socialism, the country is encouraging self-reliance facilitating more innovation and participation of citizens in the economy. The growing population has also encouraged the allowance of small and medium-sized enterprises to take shape in the country since it is exerting too much pressure on the existing state corporations. The country bearing in mind that its previous allies and financiers, Russia and Venezuela, had stopped supporting its economy, better systems have to be developed for the purpose of taking care of its Citizens, a major goal of Fidel’s administration (McWhinney, 2020). With the changing dynamics and much-needed employment by its people with a goal of reaching greater economic heights, the economic reforms that has been made has become a major factor in the country. In addition, the currency of the country has also strengthened compared to major currencies in recent years giving the currency the much-needed value that encourages traders and investors. The inflation rate has also considerably reduced since the administration of the younger Castro, Raul, took over. The lower inflation rates offer opportunities for business activities to thrive.
Social Environment
The social environment of Cuba can be assumed to be one of the major motivating factors for the growth of businesses in the country. The diverse culture has ensured that people continue to live in a peaceful environment. Credits to the previous administration that encouraged communism, the people became more united. However, the current administration, which has enhanced people’s freedom, has made the country more open to business activities. In the post-Fidel regime, people’s lifestyle has also changed positively with an attitude that is embracing and leaning more towards self-employment. The country is also endowed with a higher literacy level as the country still focuses on educating its people. The highly educated class and professionals such as professors and doctors are becoming happier as their needs are being attended to appropriately, and this has reduced the rate of economic brain drain. Such a factor has ensured that the economic activities continue, providing skilled labor to the state corporations and the private businesses that are being set at a commendable rate.
The business environment is also enjoying the privileges of free movements, which has seen the country to be undergoing a transformation. Traven restrictions have been lifted, a good recipe for enhancing trade activities not only within the country but also beyond the country’s borders, which has been opened. More infrastructures supporting the businesses have also been developed, and the country has taken consideration in taking care of its economy apart from concentrating on the social factors that the previous regime focused on improving.
Technological Environment
The technological environment is a major environment that businesses consider to enhance their operation. The previous regime offered a controlled technological environment, limiting the digitization of the country. However, things are changing as technology is now being left in the hands of the citizens to enhance more innovations that better business activities. Such has allowed more businesses to embrace and adopt technology at a faster rate compared to that of the previous regime. Cuba is still new to other technologies such as the internet and mobile technology as compared to other countries, for instance, the U.S., which stands at 75% of individuals online at any given point (Werber, 2016). The major breakthrough in encouraging technology has been achieved by letting communication activities to be in the hands of businesses and individuals. Mobile phone companies have been left in the hands of private institutions (CGNN Americas Now, 2013). As per 2014, the number of cellphone users increased to 30% in the country while internet users are about 40% (Werber, 2016). The owning of communication provisions has also led to the development of communications technology. The technology is currently being evidenced by various industries that are setting bases and adopting corporate technologies that are more efficient in the country.
Ecological factors
Cuba, as a country, is more committed to ensuring a safer and cleaner environment, free from any form of complications. The country is experiencing major developments. The country has also enhanced more corporate social responsibility to ensure that the environment is cleaner for business activities to thrive and for a healthier co-existence of people. The regime has always supported environmental protection, with less waste being released, hence encouraging sustainability. Generally, the country’s climatic conditions as an environmental factor threaten the business. The country experiences heavy rainy seasons and hurricanes that limit business activities, and most businesses are not encouraged to be set up during such seasons.
Legal factors
The legal environment of the country in the current regime is more favorable to business activities. The previous regime had few activities being legalized; however, the current regime has legalized major economic activities such as selling land and cars, which has attracted development in such industries. The country has also made it possible for the trade-in motor vehicles to take shape in the country just like the regime before the 1959 revolution. The revolution had brought businesses such as the sale of cars and lands to be a state function and not a private business activity (CGNN Americas Now, 2013). However, with reforms, real estate developers have emerged in great numbers in recent years. The legalization of the sale of land has also led to the private ownership of homes in the country. Various vehicles assembling industries have also seen to be setting bases as various automotive hubs are being established. Currently, the motor industry of Cuba is seen to be consisting mostly of classic cars, an evident proof on how such an industry was restricted and highly controlled, barring recent car models from entering the country from other world carmakers. However, the car industry is seen to be developing tremendously, with higher sales turnover being recorded by most carmakers and dealers, as seen in their financial returns of the country (Jacobs, 2017). Some scholars and travelers have highlighted that the country has transformed positively and cannot be compared to that of Fidel Castro’s regime (Jacobs, 2017).
The Global Business Environment
The global business community has also welcomed the various moves that the country has made to enhance business operations to take place without unnecessary restrictions. The opening up of Cuba has seen the freeing up business activities and economic activities to help in the overall achievement of Sustainable Development Goal. This has, in turn, encouraged international cooperation among states to facilitate the development of various sensitive global issues. The country has also earned more global traders, and imports have increased, unlike in the late 1980s, when the country lost about 80% of its trading allies (Hamish, 2016). The opening of Cuba has ensured that trading with the neighbors has become easier regardless of whether the United States influences them or not. The country, with various economic resources to be exploited, has attracted foreign investors, who are continuing to establish major industries that the government may be unable to venture in and provide services efficiently
The European Business Environment.
Various European countries are seen to be cooperating more with Cuba than ever before (Gonzalez, 2019). Most Cuban products have found their way in the European market, and this can be seen by the fact that European countries have become the major importers and distributors of Cuban products on the international stage. Separating the state from business has yielded more economic benefits to the country. Easier travels for Cubans have also become more effective in enhancing global movements to benchmark and even source for financing from other countries to start and operate businesses within Cuba. Cuba has also reviewed its taxation system on exports and imports of the country. The various tariffs that existed in Fidel’s regime have also been abolished with the congress allowing for tax expansions and thereby reducing the incidence of tax on a few economic activities of the country. Such reforms are seen to have attracted various businesses in the country and allowing for the free flow of goods and services and interchange of ideas at the global level. The country has made recognizable reforms to encourage international business activities in the current regime that are commendable encouraging business activities (Frank, 2019).
Cuba-USA Business Environment
In the history of the country aimed at changing the economic activities of the country, the government of Cuba has even made surprising moves that have enhanced trading activities to some considerable level. With both Obama and Raul’s administrations that tried to settle the longstanding standoff between the two countries, both governments had tried to initiate business deals and how to ease trade between the two countries (Hamish, 2016). Such deals would be made in both Havana and Washington, with each President visiting each country, a rare happening in the history of both countries. Such was an event that various economists and business leaders gave out their opinions with others claiming the move would be a major boost to both countries, especially Cuba. The Cuba-American deal bore little efforts with travel restriction between the two countries being lifted by the United States (Bergman, 2018). However, such progress is seen to have lost momentum with a new American administration under President Trump, which has made several threats to close the borders entirely and even repeal most of the deals made by the previous American administration under President Obama (Haar, 2016). Some threats have been implemented, as seen by travel destinations being restricted to other major cities of Cuba, with only Havana being unaffected. However, the embargo is still on decades later, and various stringent measures are being made, frustrating efforts to allow bilateral trade between the two countries.
Factors limiting the business environment in the Current Administration
The U.S. factor and its foreign policy trades and investments limit trading with Cuba. Despite the efforts being made by the government to encourage trade in the international stage, various challenges are still witnessed that are seen as bottlenecks that hinder free trade. The current American regime is frustrating, almost all attempts made by Cuba to enhance international trade. This particularly is straining relationships between countries allied to the United States from trading with Cuba, making it an unfavorable environment. The embargo has also seen little goods entering the United States as stern, and more severe measures have been tightened than ever before (Bergman, 2018). Various legislations have been established that are even allowing for suing of traders who import or traffic goods from the Island country, Cuba.
The country is still insisting on businesses to partner with the government when establishing bases within the country. Most investors often fear doing business with the government, which has contributed to a lag in business activities. Investors love their freedom to ensure that their corporate affairs are sealed without any form of interference, especially from the government, which has not freed the market completely (Haar, 2016).
The state government is still controlling the formal labor market with heavy regulations on labor. Despite allowing room for self-employment, the labor market is still under state control. Such control by the government is making most investors more worried on how they can trade in the economy where manpower is still not fully free.
The technology of Cuba is outdated, with the current technology not compatible with that of the system. The Cuban government being a totalitarian government controlled technology and such control, limited further advancements and keeping up with trends. Most corporate technological systems, especially in communication, are not compatible with that of the country, making it difficult to engage in any meaningful business activity.
Conclusion
In conclusion, it can be observed that the business environment of Cuba has changed immensely within recent years as opposed to the previous years under Fidel Castro’s regime. The regime of Castro majorly focused on social activities, ignoring the economic activities. However, when funding from major allies was cut, the country would transform its private sector during the special period. The incoming regime after Fidel’s resignation and possibly his death saw a major change in the environment of Cuba. Most business activities took a completely new trajectory as the government opened up the country to embrace economic development and see a transition in the economic sector other than the social sector of the economy. The country was majorly under the control of state parastatals in Fidel’s regime. However, such has changed in the current regime where the private sector is competing equally with the parastatals, allowing for business to thrive. Further, the global business community has also seen tremendous improvement in the country, which has made business activities to be more favorable and suitable. Therefore the current Cuban system improved greatly in creating a favorable environment as opposed to the regime of Fidel Castro.
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