In Cuba, Cash Trickles In for Budding Capitalists

U.S. citizens still aren’t allowed to invest in Cuba, but American cash has been nurturing the Communist-ruled island’s nascent capitalists, a few dollars at a time.The Obama administration removed U.S. limits on money transfers to the island in September, encouraging the use of person-to-person remittances to support private businesses on the island.Cubans such as retired teacher Rafaela Suarez are the beneficiaries. With money wired by a brother-in-law in Miami, Ms. Suarez, 68 years old, has built a cafe inside her tiny first-floor apartment in Havana’s once swanky Vedado neighborhood not far from the Cuban capital’s Plaza of the Revolution.

“That’s what helped me get started,” Ms. Suarez said of the wired cash—$40 in one transfer, perhaps $100 the next—as she swept the small kitchen that serves as a dining room for customers and off-hours parlor for her. “It was crucial for me.”

She is now clearing $8 a day, Ms. Suarez said, in a country where the average paycheck at jobs controlled by the government—90% of the total—is little more than $20 a month.

“In Cuba, remittances are disguised investment,” said Ted Henken, a Cuban economy specialist at Baruch College in New York. “This makes it completely legal to pump money in. It’s like finally giving oxygen to something that has been going on a long time.”

Big U.S. money won’t roll in unless Congress lifts the 54-year economic embargo on the former Cold War enemy. Few Cuban or U.S. officials expect that to happen quickly, if at all, despite the re-establishment of diplomatic relations.

Cuba´s leaders have publicly dismissed the changes made by the Obama administration, including the lifting of remittance restrictions.

“There won´t be any normalization with the blockade in place,” Cuban Foreign Minister Bruno Rodriguez told reporters at the U.N. in September. “There won’t be substantial progress in normalization without substantial changes in the application of the blockade.”

Despite increases in tourism and remittances expected in 2016, Cuban President Raúl Castro warned countrymen to expect more economic hardship this year. In a Dec. 30 speech, Mr. Castro said the island expected to expand 2% this year, half of last year’s growth. He emphasized the economic turmoil in Venezuela, Cuba’s main ally and trading partner, on whose subsidies the island depends.

Remittances add up to an important source of capital for a number of developing countries around the world. Estimates of how much cash is being sent to Cuban families vary widely. Manuel Orozco, who studies remittances at the Inter-American Dialogue, a Washington think tank, figures that about 550,000 people send an average $1,250 a year to the island, or about $770 million annually.

The United Nations’ Economic Commission for Latin America puts the total much higher, estimating it would reach some $1.8 billion in 2015. Another study pegs the total at more than double that when noncash contributions of merchandise are included.

Calculating the growth rate of the transfers remains guesswork as well, Mr. Orozco said. Based on surveys of those sending money and receiving it—and figuring in the tens of thousands of Cubans who continue to migrate to the U.S.—he believes remittances can double or more in coming years, rising by as much as $1 billion.

Western Union, a major conduit of the remittance flow, was “tracking strong double-digit growth” in 2015 amid the easing of U.S. restrictions, said Odilon Almeida, the firm’s executive vice president for the Americas and European Union.

While much of that money will buy necessities and perhaps a few luxuries for recipients, a small percentage will be devoted to investments in businesses such as Ms. Suarez’s cafe.

Some $250 million sent to the island in the next three to five years could provide financing for as many as 35,000 new and existing small businesses, Mr. Orozco said.

About half a million Cubans, one-tenth of the island’s workforce, already either own a small business or work for one. Cuban officials intend for that to climb to 40% of the working population within a few years.

In the first 11 months of 2015, tourism increased 18%, to 3.1 million visitors, compared with 2.7 million in the same period of 2014, according to Cuban government statistics.

The flood of new money could be poured into the restaurants, bed and breakfasts, and shops in Havana and other cities that serve the U.S. and other foreign tourists rushing to the island, observers said.

Such businesses are the most lucrative of the 201 endeavors the Cuban government allows its citizens to operate for their own profit. Others run the gamut from street vendors and taxi drivers to event planners, party clowns and hairdressers.

Professionals such as doctors and dentists, lawyers and architects can’t operate a private practice. Most retail business and trade remains firmly in government hands.

Few private businesses produce more than scrape-by earnings. Many startups fail altogether because of red tape, high taxes, insufficient capital or lack of business know-how, observers said.

But optimists believe more remittance cash might change that reality.

“The new rules will get much more money into the hands of the emerging private sector,” said Richard Feinberg, a former U.S. diplomat who studies the Cuban economy at the University of California, San Diego, and the Brookings Institution in Washington. “That’s very much in line with the Obama administration’s policy.”

—William Mauldin in Washington contributed to this article.

Write to Dudley Althaus at [email protected] and José de Córdoba at [email protected]

Source: The Wall Street Journal


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