What does Cuba live on? This is a look at the economy of the island

(CNN Spanish) – The economy of Cuba, one of the last communist countries in the world, continues to seem a mystery to many.

The country managed to get through the Cold War with economic growth, since then it has had two major periods of food and meal shortages, electricity cuts and social tensions as a result of the economic crisis.

The first occurred in 1994, during the so-called “special period” that followed the fall of the USSR, Cuba’s main ally, and brought an end to subsidies from Moscow that were essential to the island’s economy.

The second, currently, was caused by the covid-19 pandemic, which cut off access to foreign currency produced by tourism, in a context of economic sanctions from the United States, which also maintains an embargo on the island since 1960. .

But how exactly does Cuba’s planned and socialist economy work, and what are its main indicators?

Some economic data

According to information from the World Bank, Cuba’s Gross Domestic Product at nominal values ​​amounted to about US $ 103,000 million in 2019, which is equivalent to just over US $ 9,000 per capita.

Agricultural activities on the island make up 4% of GDP, while industry reaches 22.7% and services 73.4%, according to 2017 data from the CIA World Factbook.

The restrictions imposed in the context of the coronavirus pandemic hit the island hard. According to the Economic Commission for Latin America and the Caribbean (Cepal), GDP contracted by 8.5% in 2020 (after growing by 0.5% in 2019), and there was a deflation of 0.3%.

While the tax pressure in Cuba reaches 42.3% of GDP, above the 34.3% of the OECD, according to the Cepal, and the occupancy rate in 2018 reached 62.7%.

} 72.3% of Cuban employees work for the state, while 27.7% do so privately, according to the CIA World Factbook.

Trade, tourism and remittances

Cuba exported goods in 2019 for more than US $ 1,200 million. Among the main products are tobacco (23.8%), sugar (17.5%), alcoholic beverages (8.07%), nickel (11.1%) and zinc (6.5%), according to with data from Observatory of Economic Complexity from the Massachusetts Institute of Technology (MIT).

China was the main destination (38.2% of total exports), followed by Spain (10.5%), the Netherlands (5.44%), Germany ($ 5.37) and Cyprus (4.05%) .

And what about tourism, a service for which Cuba is known throughout the world?

In 2019, before the collapse in leisure travel caused by the covid-19 pandemic, Cuba received US $ 2.6 billion from inbound tourism, more than double the total of its exports of goods, according to data from the World Tourism Organization.

The number is less than the maximum of almost US $ 3.3 billion in tourism in 2017, in part due to sanctions imposed during the Donald Trump administration, which restricted the arrival of visitors after partial opening during the Barack Obama administration.

Another central element for the Cuban economy are remittances, the sending of money from Cubans abroad to their relatives on the island. In 2019 these amounted to about US $ 2 billion, but they have been affected by the pandemic and sanctions.

Exports related to health, from sending doctors to different countries – some 2,500 in 26 countries, currently- even the sale of medicines, are increasingly important for the country and according to the Cepal they would come to mean 48% of export earnings.

Imports from Cuba, on the other hand, reached US $ 5.2 billion in 2019, including poultry meat (5.41%), wheat (3.43%), soybeans (3.17%), corn (2.76 %) and concentrated milk (2.57%), according to the Economic Complexity Observatory.

Spain leads in the origin of Cuban imports (19.2%), followed by China (15%), Italy (6.2%), Canada (5.4%) and Russia (5.39%).

How does the Cuban economy work?

At the beginning of his Constitution of 2019, which replaced the 1976 draft drawn up in the middle of the Cold War, Cuba defines itself as a “socialist state” and ratifies that the Communist Party of Cuba is the “superior leader of society and the state.”

It further establishes “the ownership of all the people over the fundamental means of production” and highlights a “planned direction of the economy.” “The socialist state enterprise is the main subject of the national economy,” says the text.

This means that state enterprises are the most important in the economy and the largest employers, and that major economic decisions are made based on a central plan and not left to the laws of supply and demand.

In this way, self-employment and capitalism were practically prohibited from the Cuban Revolution until the beginning of 1990, when the crisis -which meant a fall around the 35% of GDP– led to a first round of reforms.

In recent years, especially after Raúl Castro replaced Fidel as president, the Cuban government has been trying to implement more reforms aimed at private initiative.

In February it was announced that Cubans will soon be able to choose to look for work or start businesses in more than 2,000 different areas. Until then, only 127 lines of work were enabled in the private sector.

Measures were also announced to try to boost the exports of private companies in the context of the covid-19 pandemic, including partial authorizations for them to participate in foreign trade and tax reductions, among others mentioned by ECLAC in a report from 2020.