By Alex Sun
On a recent Wednesday, every seat was taken at El Atelier, a fashionable restaurant in a converted Havana mansion. Niuris Higueras, the owner, opened the restaurant six years ago and business has increased 75 percent since then, she said.
In the new Cuba, those industries the socialist government has allowed to privatize—chief among them agriculture, house rentals and restaurants—are booming.
“Demand drives supply,” said Higueras of her business growth. Her remark reflects both a fundamental principle of economics as well as the increase in tourism driving up the demand for high-end restaurants.
Gross domestic product in Cuba grew an average of 3.6 percent in 2015 and 2016, according to tradingeconomics.com, and much of the growth is pushed by the private sector.
This was not always the case. Cuba got a wake-up call in the early 1990s during the so-called Special Period, following the collapse of the Soviet Union, which had been Cuba’s principal trading partner. Overnight Cuba lost 30 percent of its GDP and Cubans lost, on average, 20 pounds, as a direct result of the Special Period.
In response, around 1994, Fidel Castro allowed a limited amount of privatization—beginning with cooperative farms—in order to stimulate production, especially in agriculture. As a consequence, Cuba’s total food production from 1994-2007, a period that encompassed a drastic drop in food output during the Special Period, has not only recovered but increased by nearly 300 percent, according to Miguel A. Altieri, professor of agroecology at the University of California, Berkeley.
However, Cuba still produces only about a third of the food it consumes, importing the rest. Armando Nova, a Cuban agriculture engineer, predicted this would soon change. As efficiency of food production increases, he said, Cuba can reduce its dependency on food imports to 35 percent. This increase in production, he said, can be achieved with the help of cooperatives and private farmers, which are trying innovative farming methods and will be able to afford more expensive farming technology.
Guanabacoa Organic Farm, a cooperative on the outskirts of Havana that specializes in dairy products, demonstrates some of the changes in Cuban agriculture. Kent Ruiz, a veterinarian who works on the 415-acre farm, reported that efficiencies in the nutritional content of feed, cross-breeding high-production dairy cows and building cheese fermentation facilities has brought the farm a substantial growth in production and revenue. Today Guanabacoa produces 1,733 gallons of milk and makes approximately $7,290 in revenue a year—a 35 percent increase in both production and revenue over the last five years. However, by Cuban law, 60 percent of the cooperative production must be sold to the state at a lower rate than that in private markets.
Another major change at Guanabacoa is a partnership with Mediterranean Havana, a private restaurant that buys both basic and high-end dairy and meat products from the farm. For example, Guanabacoa sells milk to the restaurant for 20 percent more than it gets from the state. In addition, a few months ago, Ruiz and the farmers constructed a cheese fermentation facility that produces 65 to 80 pounds of gourmet cheese a week, including ricotta and mozzarella. The cheese can be sold at $5.50 a pound and is expected to bring in more than $20,000 a year. This new revenue stream is almost triple the farm’s earnings from selling milk.
Paladares, which cater primarily to tourists, are part of a boom in tourism, which was further fueled by the détente between President Obama and Raul Castro. In the first five months of 2016, tourism in Cuba generated $1.2 billion, up 15 percent from a year ago, according to Cuba’s national office of statistics and information. Riding the wave of tourism and the easing of trade restrictions, AirBnB registered more than 4,000 casas in its first year, the company said last year.
So-called casas particulares have become an important source of income for many Cubans. The owner of a house in Zapata, Evelop Diaz, who recently signed up with AirBnB, spoke about working as a civil engineer and earning $30-35 a month. Now Diaz makes about $40-45 per room, per night. Viñales has 1,600 total rooms for rent and 100 new rooms under construction.
No place has felt the boom in tourism as much as Havana. One indicator is the large increase in the cost of living, which recently jumped to more than $90 a month, according to a local tour guide who spoke on condition of anonymity. A main driver of this inflation is restaurants, one of the fastest-growing sectors, which primarily cater to tourists.
Private restaurants like El Atelier serve a three-course meal for $30-40. According to Higueras, the owner, of her restaurants’ 75 percent growth in the last six years, two-thirds came after the détente in December 2014. The growth in the restaurant industry has affected the cost of food, especially fish and vegetables, which are in high demand at paladares but are not necessarily the staples of ordinary Cubans who prefer rice, beans and meat.
Mark Frank, a journalist reporting on Cuba since 1993 said he used to be able to buy fish on the streets at $1.20-2.50 a pound. Now no one is selling fish on the streets because of rising demand from restaurants, and the cost is $11-17 a pound. In 2015-16 the overall inflation rate in Cuba averaged around 4.5 percent.
The Cuban government takes a hefty cut of private industry profits. A restaurant like El Atelier, for example, pays 20 percent of total net sales to the government. In addition, it pays additional taxes for employing more than five employees and for miscellaneous permits. At the end of the fiscal year, Higueras said, “we keep about 25 to 30 percent of our total sales.” Even with a 70-75 percent tax rate on certain businesses, many Cubans still find it more profitable in the private sector than working for the government.
The high cost of living is also driving entrepreneurism. In Havana an average person is estimated to need $95-110 a month for a comfortable life style. That’s why one university professor decided to work as a travel guide. In addition to her government salary, she makes a substantial part of her income from tips.
Another relatively new arena for Cuban entrepreneurs are low-cost, web-based business such Airbnb and Revolico, the Cuban eBay.
So far, entrepreneurs have been the greatest beneficiaries of the changes in Cuba, with many earning more in a single day than the average monthly income of $28. Despite broad pockets of entrepreneurism, many Cubans still live on a base government salary along with government ration cards. Its unclear how long it will take for the benefits of the country’s newfound entrepreneurism to trickle down to the majority of Cubans.