Business Environment in Cuba

Cuba is a beautiful country that lies to the north of the Caribbean Sea, the Mexican gulf and the Atlantic Ocean. It is made up of several islands and among the island of Cuba is the largest. Its total area is 109,884 km2 making 104^th in the world. Its population according to 2015 census was 11239,004 making it 78^th most populous country. Its GDP, according to the 2014 estimate was 82.775 billion, making it to be in top ten in countries with high GDP. Its major trading partners include Canada, China, Venezuela, Netherlands, and Spain. Its major exports are sugar, fish, fruits, agricultural produce, and livestock. It also has nickel mines and its contribution to the international market amounts to 4 percent. It is also a major producer of sugar and was accounting for 36 percent of the total amount of sugar produced, but a recent survey reveals that it only supplies a 10 percent as of 2014. Cuba is one the countries that practice socialism in their administration and had close ties with USSR before its collapse[1]. After the collapse of the Soviet Union the country experienced hard economical times characterized by food shortages, lack of proper medical services caused by emigration of doctors and general decline in all the sectors of the economy[2].

The Cuban government came up with a new guideline for foreign investment that states that the profits tax be reduced into half and ensure foreign companies are not taxed for a period of 8 years in order to attract foreign investment. It has done away with duty free zones and industrial parks in a quest to increase investment opportunities. Investment is encouraged in all the sectors of the economy except in public health and education sectors. Due to their strict laws on the conservation of the environment, any company that its business interferes with the environment is prohibited. Foreign investment proposal goes through the ministry of trade and foreign investment, which is later approved, by the Council of State, and Council Minister. The corporate tax incentive is at 30 percent. Several companies operate in Cuba mostly from Canada, China, Russia and Brazil. No company from the united sates operates in Cuba but its products can be found in Cuban markets. Such companies include Sherritt International, Macdonald’s Mining Corporations, Air France, Lufthansa, Mitsubishi, Toyota, and Mercedes Benz among Others.

The country has experienced all forms of violence in the past and has had bitter relations with the United States after the overthrowing of the then government by Fidel Castro in 1959. Since then, the communist party led by Fidel Castro as the president until 2008 when he retired and was succeeded by his brother Raul Castro has governed it. Due to its past relations with the US, there have been very many conflicts with the tiny island nation. Due to its alignment with the USSR during the cold war, it worsened its relations with the west and in 1961; a nuclear war almost broke out with Cuba and the US. With the introduction of the communist party, which is the only political party there, has been so much abuse of human rights in the country. There is no freedom of expression and journalists are arrested and jailed for speaking against the government. Many organizations and governments have voiced their worries that the situation in Cuba is bad for its citizens as the government was exercising all forms political dissent such as arbitrary imprisonment, extrajudicial killings torture, and unfair trials. The statistics of 2008 show that Cuba had the second number of imprisoned journalists. The country has an extensive maximum-security system totaling to 40 and various work camps. The people are confined in the prisons where they face torture and sexual harassment coupled with poor living conditions. The Cuban human rights watch reported that in 2010 there were 167 political prisoners. The country also restricts emigration, obtaining a passport is very expensive, and only few people can afford. There is limited internet access to the government only operating 118 cybercafés and the sale of computers is highly restricted. With these conditions, investing in Cuba may be very challenging[3].

Cuba’s scenery is beautiful and attracts many tourists to come and watch its vast beauty and natural resources. There is range of plant and animal species only found in Cuba. In fact, 22 percent of its total area is restricted for conservation of the natural environment. It enjoys large plantations of sugarcane, mines, and advanced medicine production plants. However, the government controls 90 percent of the factors of production. The state runs and operates most of the firms and employs 78 percent of the labor force with the private sector dismally at 22 percent as per 2006 statistics[4]. Penetrating into Cuba for a private company the firm has to pay the government, which in turn pays the employees. This may not be favorable for any business because there will be no motivation of the labor force. A firm may face labor challenges venturing into Cuba because the workers are poorly paid, and are not represented by the trade union. The average monthly salary is 19 US dollars, which is relatively low to expect a large output from them.

The transparency international survey of 2008, ranked Cuba as the 67^th most corrupt in the world. The corruption perception index (CPI) showed that Cuba scored 4.3 which rates from zero (highly corrupt) to 10 (highly clean). Corruption is rampant because the state owns all the resources and getting services from the government officials one has to pay a bribe.Â The government lacks accountability as there are no pressure groups in the country and corruption is highly practiced by top government official such as the military officials who enjoy favors that ordinary Cubans cannot have. A ministry to investigate corruption was set in 2001 to eliminate corruption and bring accountability in the government, which is a good gesture towards the step towards the right direction.

Cuba has one of the lowest unemployment rates, and as of 2015, the rates were 2.40 percent. This is a very low percentage and this can be attributed by the firm grip of the government owning all the factors of production. The government has established work camps, which employ most of the people[5]. If you are to venture into Cuba and the form of business you wish to conduct is labor intensive then looking for labor may be a challenge because the population is engaged. On the other side, high employment ensures that there is money in the economy, which increases demand for goods and services. This would ensure that the firm might grow the economy with high standards of living, proper medical services, and high levels of literacy levels, gain some big sales. Before the collapse of the USSR, the Cubans enjoyed a good life with a vast. After it abandoned them, the country was plunged into crisis and general decline of the economy[6]. Since the collapse of the COMECON, Cuba has not joined any trading block and has since concentrated on building its communist policies. However, it trades with the MERCUSOR members such as Brazil.

Business Environment in Cuba

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