Cuba opens door to more private companies, but red tape looms

Most types of private business have been banned for more than 50 years, though hundreds of thousands of Cubans in recent years have benefited from reforms that have opened cracks for small private businesses in the once strong wall of the socialist economy. dominated by the state. .

Today, after five years of waiting, a new legal system comes into force on September 20 that could significantly expand the scope of private companies and give them greater legal certainty in their efforts to help an economy in crisis.

Cautious or enthusiastic, business leaders worry about an inefficient credit system, the requirement to have US dollars that the state itself does not sell, and limitations on hiring professional services .

“Knowing that I can have a business, a business in Cuba, in my country, invest, take risks in the markets and that this is backed up by law … is peace of mind for me,” said Carlos Gómez, 35 years old. owner for a year of the audiovisual production company Wajiros Films.

The company has made at least 35 films since its opening in 2017, short, long and international co-productions, all under the label of “collective of artistic creation” but without legal status. This leads to negative consequences such as the inability to have bank accounts, the lack of distinction between business and family assets, and the inability to import equipment.

At the end of August, the Cuban authorities published in the Official Journal some twenty standards that authorize and regulate small and medium-sized enterprises (SMEs), which were eliminated in 1968 during a revolutionary offensive against the last vestiges of private property.

At that time, warehouses, bars or repair shops were closed or absorbed by the state, which found it difficult to manage these businesses effectively.

But the government legalized a narrowly limited – but legal – form of self-employment in the early 1990s to deal with the crisis caused by the collapse of Soviet aid. He taxed and compressed, but never eliminated the sector.

Cuban leaders have always been uncomfortable with private economic activity, previously describing it as a necessary evil to provide jobs and services the state could not during difficult times. The government had also complained about inequalities in self-employment, since a private worker could earn much more than a government employee.

But as early as 2010, former president Raúl Castro recognized the lack of productivity and slightly opened the economy to individual initiative. Some companies ended up having more than 50 employees despite the fact that they were officially “independents”.

In 2019, before the pandemic and the effects of US sanctions that choked the economy, there were around 600,000 “self-employed” workers, most of them tied to the tourism market.

“One was linked to a ‘self-employed’ permit which had many limitations. With the legalization (of SMEs), new possibilities and perspectives are opening up. Among these, the recognition of several partners in a company and a legal status ”, declared Lauren Fajardo, creator and co-owner of Dador, a clothing workshop created by her and two friends which employed around ten people. Like hundreds of other initiatives, the company has been crippled by the pandemic.

The new regulations establish that SMEs – a mandatory status for companies with more than three workers – will be incorporated as “limited liability” companies which must be approved by the Ministry of the Economy.

Professional services will be limited. The creation of such companies or their independent exercise is not allowed, so architects, engineers or lawyers are not allowed to set up law firms but they can be employed as staff of SMEs.

“The good thing about these rules is that they have arrived … I think it is time to think about how to take advantage of them and that they really contribute to the growth of the country,” said the economist. Omar Everleny Pérez.

Experts and businessmen have been calling for laws for more than five years. They were published in the midst of the crisis with an 11% drop in GDP in 2020, a shortage of commodities and a growing black market. Social tension reached such a point that in July, unusual and massive protest demonstrations took place on the island.

Now that they have laws, entrepreneurs have started to assess their impact. The AP spoke to more than a dozen of them and some chose not to give their names in order to fully analyze their concerns.

One of the questions among those who have started businesses, for example, is how the capital or machinery will be certified, as many have been acquired irregularly or salvaged from abandoned state workshops.

Many wonder how the Cuban peso credit system will work if raw materials are purchased in dollars, or how goods such as vehicles that the state does not offer or allow to bring from abroad will be obtained. , or whether employees can have unions. .

One aspect of concern is that the law allows Cuban citizens and permanent residents of the country to open limited liability companies, or LLCs. But it excludes the emigrants who, in many cases, are the real owners of companies already in activity, or the owners of the capital necessary to the constitution of an SME.

In addition, the authorities have indicated that what will open on September 20 is a “call” to register LLCs and cooperatives but by sectors, starting with those of food production or technology-based. Many entrepreneurs wonder how long they will have to wait for a meeting if they are outside the areas deemed key by the government, despite the fact that their initiatives will generate jobs.

“People are looking to understand, to understand the context and above all to find opportunities to promote projects,” said Oniel Díaz, co-founder of the consultancy firm Auge.

Díaz had consultative talks with businessmen to discuss the law. During the meetings, he noted a change that could show the future of SMEs in Cuba: given that tourism is paralyzed and the only thing that can supply customers is the national market, there could be a reconfiguration of the market. sector after the pandemic.

“And the businesses that come to us today are no longer restaurants, they are no longer cafeterias, they are no longer small restaurants or rental companies. These are people who want a construction business, to produce food, flower shops… with added value, ”said Díaz.

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