During a recent discussion on the Mesa Redonda show, Aracelys Cardoso Hernández, the Vice Minister of Internal Trade, admitted that the supply of goods in the national currency is severely lacking due to reduced production and a shortage of hard currency, which hinders the restocking of internal markets. The Cuban government has announced the launch of 50 new dollar-based stores, enhancing the foreign currency trade within the nation. This decision is part of a broader strategy to gather foreign currency amid a local currency market that remains inadequate.
However, the shift towards dollarization not only fails to address the fundamental economic issues plaguing Cuba but also exacerbates inequality, limiting access to essential goods for those surviving on Cuban peso salaries and pensions.
New Business Models in Wholesale and Retail Trade to Attract Foreign Currency
Cardoso Hernández highlighted that since the sector policy was relaxed in 2022, various business models have been introduced in wholesale and retail trade to attract foreign revenues. The ultimate goal, she noted, is to increase the supply in national currency to benefit the public.
To date, 15 wholesale and retail trade businesses have been approved, eight of which are connected to the Ministry of Internal Trade's business system. One operates under an international economic association contract. In the wholesale sector, three businesses are solely dedicated to this activity, while five joint ventures have been authorized to sell both wholesale and retail consumer goods and various products.
She stressed that wholesale trade must ensure the supply of raw materials and inputs that boost national and local production, prioritizing essential items such as hygiene products, household goods, and food.
Alma Caribe S.A.: Expanding Wholesale and Retail Commerce
Sonia Rivero Batista, the Cuban manager of the joint venture Alma Caribe S.A., explained that this company focuses on marketing both domestically produced and imported food and non-food products. Initially, the company will prioritize offering food, cleaning, and hygiene products to meet the demand in wholesale and retail trade.
Alma Caribe also aims to ensure a stable supply of raw materials and inputs necessary for the development of the national industry and non-state management forms. The company is set to open its first store in El Vedado, specifically on 23rd Street, and has studied similar market experiences, such as the 3rd and 70th in Playa, for its logistical design.
As part of its expansion strategy, Alma Caribe plans to open 15 stores in Havana during the initial phase and expand to 50 stores nationwide, with 48 being newly constructed in a second phase. Simultaneously, it is developing an online commerce platform.
Mercalhabana S.A.: A New Venture for Wholesale Trade
The Ministry of Internal Trade has established Mercalhabana S.A., a company designed to strengthen wholesale and retail trade. According to Vice President Yaimara Pérez Barrera, this entity represents a system of 22 wholesale companies and aims to participate as a shareholder in foreign investments, as well as manage imports and exports to supply the country's wholesale channel.
Mercalhabana S.A. boasts an extensive network of warehouses and the National Refrigeration Company, which provides essential refrigeration capacities. However, Pérez Barrera acknowledged the significant technological deterioration of the current infrastructure, so the company's strategy focuses on equipment modernization and facility recovery.
Despite its recent establishment, the company has already secured a mixed enterprise business for wholesale and retail trade and is exploring similar opportunities. It has also implemented alternative trading forms, such as consignment sales and the customs deposit regime, allowing for partial restocking of the wholesale trade.
In concluding her remarks, Vice Minister Cardoso Hernández assured that wholesale trade would strengthen the Cuban market and allow for the renewal of the national industry, ensuring a greater supply for the public. "The domestic trade in national currency remains and will continue to be the majority in our country. The population should trust, for despite the current market situation in Cuba, it is a priority for the State and our ministry to maintain and expand offerings in the national currency," she emphasized.
Additionally, she explained that trading in foreign currency is a necessary temporary measure to gather resources that support social programs. "The partial dollarization of the economy is a short-term strategy. The Cuban State will define priorities for the use of these currencies based on the needs of the population, the economy, and industrial development," she concluded.
Economist Pedro Monreal's Critical Take
Economist Pedro Monreal has critically analyzed this strategy, pointing out that the wholesale trade in foreign currency, presented as a mechanism to boost national production, does not effectively guarantee inputs if structural issues, such as stable electricity supply and real incentives for national producers, are not resolved.
Moreover, Monreal warns that this revenue collection system has not shown in practice that the obtained funds translate into a greater supply in the national currency for the population. Instead, there has been an observed strengthening of state commercial infrastructure that monopolizes retail trade in foreign currency.
The economist also questions the official narrative that suggests a "virtuous circle" of currency collection, input sales, and production promotion. Previous experiences, such as the case of GELMA, the state company tasked with selling inputs to agricultural producers in foreign currency, have shown that this scheme does not always fulfill its promises.
Another crucial point is that the expansion of the domestic dollar market is not so much a strategy to capture remittances but rather a maneuver to channel them from the informal market to large state "holdings." This leaves out private actors, who remain excluded from wholesale trade in foreign currency, while dollarized retail continues to be monopolized by state companies.
The Cuban government has justified this strategy as part of a series of "flexibility" measures and "attraction of foreign investment," but these statements contrast with the reality of a highly restricted market dominated by state monopoly. The expansion of foreign currency trade imposes an additional barrier to the participation of private actors in the economy and reinforces a model where only a few state sectors have access to the benefits of dollarized trade.
In this context, Monreal notes that it remains to be seen how the new foreign currency allocation mechanism announced by the government will function and whether it will bring about a "redimensioning" of the exchange market or simply continue to benefit the same privileged sectors within the state apparatus.
Frequently Asked Questions on Cuba's Dollarization Strategy
Why is Cuba opening dollar-based stores?
Cuba is opening dollar-based stores as part of a broader strategy to gather foreign currency in response to a lack of sufficient local currency supply and economic strain.
What are the implications of Cuba's dollarization strategy?
The dollarization strategy fails to address Cuba's structural economic issues, increases inequality, and limits access to essential goods for those relying on Cuban pesos.
How does economist Pedro Monreal view this strategy?
Economist Pedro Monreal criticizes the strategy, saying it does not effectively guarantee production inputs and reinforces state monopolies, excluding private actors.